Tax your employee benefits?

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By Donald Lambro

President Obama's original plan to pay for his health care reforms was to limit charitable contributions and mortgage interest payments that people can deduct from their taxable income.

But both proposals were nonstarters from the moment they reached Capitol Hill. They would raise taxes on the two sectors that we need to be encouraging, not stifling. The former would reduce charitable giving. The latter would hurt the beleaguered housing industry at time when it needs all the incentives it can get.

So now Democratic leaders are considering yet another sacrosanct tax-free benefit they can tap into: employer/employee health insurance premiums.

About 150 million Americans and the businesses they work for do not pay taxes on that part of their income that goes to pay for health care. But North Dakota Sen. Kent Conrad, the Senate Budget Committee chairman, thinks this may be the only way to finance a plan that will cost taxpayers between $1.5 trillion and $2 trillion over the next decade, and much more after that.

Lawmakers spend a lot of their time searching for the last remaining sources of untaxed income that the can get their greedy hands on to spend as they see fit. They are now salivating over untaxed income that goes to pay the premiums for most of the country's insured Americans.

"Tax subsidies for health care. They're huge. Hundreds of billions of dollars a year," Mr. Conrad enthusiastically told reporters last week at the end of a Finance Committee meeting where lawmakers hashed out options to bankroll Mr. Obama's vast spending plan.

"It is hard for me to see how you have a package that is paid for that doesn't include reducing the tax subsidy for health care," he said.

Organized labor would no doubt have big problems with this. In recent decades, unions have often emphasized better benefit packages, including more generous health insurance plans, over higher wages. But it would strike at the benefits for non-union workers, too.

Letting employers and employees deduct the cost of their health care is probably the most successful market-driven medical care reform we've made in this country. We shouldn't be cutting back on this benefit. On the contrary, we should be giving these same tax breaks to workers whose employers do not provide health care plans.

Republicans have been proposing health care tax credits for years for the bulk of the uninsured. But this of course would also expand the private health care industry, which would create multiple health insurance plans to fit every pocketbook - and that goes against everything Democrats believe in.

They want a fully government-run, government-financed, government-regulated system to create yet another entitlement constituency that they can depend on at re-election time.

While Senate Democrats are searching for ways to pay for their health care system, House Democrats were unveiling a plan that would require all individuals to obtain a health insurance plan or force employers to provide such benefits for their workers.

At the heart of their proposal would be a subsidized government health care plan that the private health insurance industry believes would unfairly compete with them and put many of them out of business. This issue came up last week in the president's news conference where he was asked by ABC News reporter Jake Tapper about his promise that Americans won't have to change plans when employers drop their own plans in favor of cheaper government plans.

In often tortured, defensive rhetoric, Mr. Obama replied, "What I'm saying is the government is not going to make you change plans under health reform."

But as Mr. Tapper later pointed out in his ABC blog, it seems the president "wasn't saying 'no one' will take away any American's health insurance - he was saying the government wouldn't.

Which is not to say that the government wouldn't create a situation where such a thing would happen," he added. Exactly.

However, the Congressional Budget Office's preliminary estimates of a draft of the Senate Health, Education, Labor and Pensions Committee's bill suggests millions would drop out of their private plans. "About 10 million people would choose to obtain coverage through [government created health insurance] exchanges rather than their employer because the subsidy they receive under the legislation makes insurance from an exchange cheaper," says a report on CBO's findings from the Senate Budget Committee's Republican staff.

"Another 10 million people would have no option but to obtain coverage through exchanges because their employers would not offer it," the staff report said.

The White House and the Democrats will deny it, of course, but critics say this is their one of their devious goals: to replace for-profit private health insurance with a taxpayer-financed government-run system. If you listen carefully to what the Democrats are putting together on Capitol Hill, that is exactly what they hope to eventually accomplish.

Donald Lambro is chief political correspondent of The Washington Times.