The Knee-Jerk Opposition

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The fact that employers can deduct the full cost of health insurance premiums means that the richer you are, the bigger tax benefit you reap. That built-in advantage is exacerbated by the fact that the better-paid tend to have pricier insurance.

This unlimited subsidy increases wasteful spending, encouraging employers to purchase gold-plated plans and employees to use them. This drives up the cost of health care and, ultimately, insurance in a vicious cycle that ends up increasing the ranks of the uninsured.

Meanwhile, those who don't have employer-sponsored coverage get no tax break; the Bush plan would not only help those who already buy insurance on the private market, it would also encourage those currently uninsured to purchase coverage.

As Jason Furman, a leading Democratic economist, wrote last summer in Democracy: A Journal of Ideas, "[R]educing subsidies for pricey plans would likely lead to a health insurance system that includes more cost sharing, promotes more consumer consciousness, and plays a modest, but potentially meaningful, role in restraining health spending."

And so what do Democrats say when a Republican president suggests doing something along these lines? "It's a bad policy," House Ways and Means Committee Chairman Charles Rangel (N.Y.) told the New York Times. "We are trying to bring tax relief to the middle class. The president is trying to increase their tax liability." Likewise, the Senate Democrats complained: "President Bush's Health Insurance Proposal Amounts to a Tax Hike for the Middle Class."

This is flat wrong: According to the administration's analysis, on average, the top fifth of taxpayers would face a tax increase; the rest would save money.

If you doubt that some variation on Bush's plan is at least worth considering, try this thought experiment: What if the current system had the standard deduction that Bush wants and he was proposing, instead, to remove the cap and allow unlimited tax breaks, a benefit for the better-off and those with the priciest insurance?

Wouldn't Democrats be denouncing that, and demanding my imaginary status quo?

marcusr@washpost.com