The case for taxing healthcare benefits

As Congress continues its political and tax policy struggle to find a way to pay for healthcare reform, New York Times economics writer David Leonhardt lays out the case for taxing healthcare benefits themselves.

Most of the financing options being discussed, says Leonhardt in today's Health Care Reform and the Unpopular T-Word, have a basic flaw: They do not raise revenue as quickly as health costs rise.

Revenue from most taxes, he notes, increases only as fast as the economy grows.

Health costs, however, grow much more quickly than the economy. That's something everyone with coverage can attest to and that all the data produced during the healthcare reform debate support.

"Over the last decade, the economy has expanded by about 20 percent, and health spending has ballooned 50 percent," writes Leonhardt. "The gap isn’t about to start closing, either."

So the only logical step is to tax healthcare to pay for healthcare.

Leonhardt argues that it's the only sure way to fix the financing problem. Plus, he says, "If Congress taxes health care, the revenue has a chance of rising with health spending. A health tax will also create an incentive for workers and businesses to slow the growth of health spending — thus reducing the amount of taxes needed to pay the nation’s health bill."

It's not a popular argument, despite the good reasons Leonhardt details in his article. Workers have come to see their employer-provided medical benefits as an integral and inviolable part of their compensation. Increasing the cost of that benefit will no doubt upset a large, and voting, percentage of Americans.

But then, no healthcare financing option is going to be universally popular. So perhaps Congress should pick the best, not the most politically expedient taxing solution.

Related posts:

• Healthcare, Cadillacs and taxation options
• Cosmetic surgery tax talk
• The wages of sin is health care
• Still shifting healthcare surtax sands
• Tax those tacky ads to pay for health care