Here's Joe Biden last night on the McCain health care plan:
... do you know how John McCain pays for his $5,000 tax credit you're going to get, a family will get? He taxes as income every one of you out there, every one of you listening who has a health care plan through your employer. That's how he raises $3.6 trillion, on your -- taxing your health care benefit to give you a $5,000 plan, which his Web site points out will go straight to the insurance company. And then you're going to have to replace a $12,000 -- that's the average cost of the plan you get through your employer -- it costs $12,000. You're going to have to pay -- replace a $12,000 plan, because 20 million of you are going to be dropped. Twenty million of you will be dropped. So you're going to have to place -- replace a $12,000 plan with a $5,000 check you just give to the insurance company. I call that the "Ultimate Bridge to Nowhere."
This is an argument you hear frequently from liberals: That McCain's plan will tax employer provided health insurance, which is worth roughly $12,000 for a typical family, which in turn will lead many employers to stop offering said health insurance; meanwhile, the plan will give the same family a tax credit worth only $5,000 to pay for the same plan they used to have through their employer. This makes the whole thing sound like a pretty rotten deal, but it also begs a pretty big question: What happened to that extra $7,000 that employers were spending on health care under the old dispensation? To hear Biden tell it, it'll just vanish into thin air. But that's just absurd. Right now, that $12,000 plan is part of your compensation; it's just that the current tax code incentivizes employers to pay you in health insurance rather than in cash, because the health insurance is tax free. But that doesn't mean that if health insurance stops being tax free and employers stop including it in your package of salary and benefits, they'll suddenly cut everyone's compensation by $12,000; they'll cut it by the cost of the tax deduction, presumably, and wages will rise to roughly where they would have been if employers had never been incentivized to pay their workers in health care. So the typical family will get their $5,000 credit from the government, and something like the remaining $7,000 they need to buy health insurance will show up in their paycheck. Except that a lot of Americans will actually come out ahead, rather than just breaking even, since McCain's plan offers a flat credit regardless of income, whereas under the current system the dollar value of your tax deduction - and thus the compensation your employer is incentivized to give you - goes up as your income rises.
An assessment of McCain's plan from the Tax Policy Center (no right-wing ideologues, they) put it this way: "Workers offered insurance through their employers lose the value of the income tax exclusion but gain the credit; the combination leads to higher effective costs of insurance for some (those in the higher tax brackets or who have relatively high-cost employer-sponsored insurance) and lower costs for others (those in lower tax brackets or who have less expensive insurance)." In other words, the middle and working classes actually tend to gain at the expense of the wealthy.
This is not to say that there aren't more reasonable liberal critiques of McCain's plan: That it focuses on affordability rather than universality; that the tax credit is indexed to the consumer price index, and might not keep up with rising health care costs; and especially that it doesn't have a strong plan for how to deal with people - especially people with pre-existing conditions - who would have trouble getting coverage during the transition from employer-based to individually-purchased insurance. But the critique Biden offered last night is possibly the most common, probably the most damning, and certainly the most flatly untrue.
Update: See also Yuval.
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