Credit Offer

Here's a way for Democrats to improve on President Bush's health insurance plan.

ONE OF THE tweaks that would make President Bush's new health-care proposal much more attractive would be changing the proposed tax deduction for those who purchase insurance to a tax credit. Yesterday, the day after the president unveiled the proposal in his State of the Union address, Health and Human Services Secretary Mike Leavitt signaled the administration's openness to doing just that.

At a luncheon sponsored by the Christian Science Monitor, Mr. Leavitt said there were "redeeming tax policy features to using a credit" but that the administration had decided to "propose as a starting place" to use the mechanism of a standard deduction instead. That sounds like a door opening to us -- and a door skeptical Democrats ought to be willing to poke their heads through. Transforming the deduction into a credit would create a proposal that is fairer and that would do more to reduce the ranks of the uninsured.

Why? The Bush proposal would create a separate standard tax deduction -- $7,500 for individuals, $15,000 for families -- for those who purchase health insurance. While this would make the system more progressive than it is now, the deduction would still be worth far more to those in higher tax brackets. Conversely, a tax credit would treat all taxpayers equally: the $22,000-a-year factory worker would get the same break as a $220,000-a-year lawyer.

An even better approach, suggested in a thoughtful analysis by the Tax Policy Center of the Brookings Institution and the Urban Institute, would make the credit progressive (lower-income taxpayers would get a larger credit), refundable (taxpayers who don't pay enough taxes to reach the amount of the credit would get money back) or both.

Not only would a credit be more equitable, it would be more effective. Because it would be worth more to lower-income recipients, it would give them a greater incentive to purchase insurance, either by participating in employer-sponsored plans or by buying it on their own. There is the separate, and important, problem of making certain that insurance is available on the private market at an affordable price, but that does not diminish the fact that a credit is the preferable approach.

And consider this: In every previous budget, Mr. Bush has proposed a refundable tax credit for health coverage. Given Mr. Leavitt's apparent openness to change, why don't Democrats suggest modifying the president's plan to do just that?