McCain would provide refundable tax credits of $2,500 for individuals, and $5,000 for families, for all those who buy health insurance. Employer contributions toward health insurance would be treated as income, meaning workers would have to pay income taxes on it, but not payroll taxes.
What would happen to your income taxes if your employer's contributions towards health insurance were treated as income? Consider this example. If you are only paying 25% or 1/4 of the cost of the insurance, and you pay $480 for your family per month, that means your employer pays $1440 per month. Under McCain's health care plan, that $1440 per month would be taxable income. So your "pay" would increase by $17,280 per year as far as the IRS is concerned, yet you would never see that money. But you sure would pay taxes on it. Consider how much that extra $17,280 would cost you if you are in the 25% effective tax bracket, can we say $4320 - that is if you are lucky not to be pushed up into the next tax bracket thanks to McCain. McCain proposes a tax credit of $5000 per family. So you pay $4320 more in taxes and McCain (the economy is not my strong suit) will give you $4320 of that back (somehow I doubt they will give you the full $5000).
Now consider this, when was the last time you did not see your insurance premiums rise? You have a $680 cushion per year in taxes before you start to eat the cost of McCain's health insurance plan (that is when your taxes due to the "increase" in income exceed the tax credit). So if your monthly premiums increase more than $226(1) you will now be taxed on the increase in premiums above and beyond the credit you take. I have witnessed jumps in health insurance premiums for families of at least $60 per month, and usually $75 per month over the past few years. In 4 years your premiums increases would exceed the $226 cushion you had. So after 4 years, you would be paying MORE for health insurance because McCain - "Economics is not my strong suit" - thinks this is better.
Here's another wrinkle. If you are in a section 529 - cafeteria plan, you can currently exempt from taxes for the amount of the premiums you pay - it's call pre-tax. So that $480 per month in premiums, is never included in your taxable income. I bet under McCain's plan that exemption will no be longer allowed. So your "income" will rise by $1,920 per month (the full premium, 1440 - employer + 480 your contribution). Your taxable income would rise by $23,040, more than likely pushing you into a higher tax bracket, say 28%. So now your taxes on the "increase in your income" would be $6,451 HIGHER. Hey guess what McCain will give you back $5,000 so really you're only paying $1,451 per year MORE for exactly what you have today. How's that for McCain/Bush-onomics? If you are still in the 25% bracket after you huge increase in salary (thanks McCain), your taxes would rise to $5,760 per year, so you only pay $760 more per year for the exact same insurance.
Really McCain needs to take a refresher course on basic math.
Right now employers can deduct the cost of the premiums they pay for you. Will they still be able to do it? I bet they will. So while you are being taxed for those premiums, they will be getting $4320 back. So who really benefits from this? Do you really want 4 more years of Bushonomics?
Also another question, is this tax credit permanent? Will it expire. Do you really think it will last past the first real budget shortfall.
Here's another wrinkle. Do you have kids? Are you planning on sending them to college? You do realize that your income determines the aid package they receive. So how do you think the "increase" in income will affect that aid package? The more you "make", the less help you get.
Finally, McCain's 'solution' does nothing to address the increases in premiums. What incentive do you think there will be to get those premiums under control? I bet it's like the incentives he proposes for getting us off oil - drill more.
Notes:
(1) The tax credit is $5000. Subtract the current amount to get your cushion where you don't pay more in taxes. $5,000 - $4,320 = $680. Take your 680 cushion in taxes and figure out how much income that equals at 25% rate (multiply by 4). So $680 * 4 = $2,720. This is the max amount per year your premiums could increase where you would start to pay more in taxes since the taxes would exceed the $5000 credit. Now to figure out what the max increase in premiums per month could be before you hit that, divide that 2,720 by 12 months in a year = $226.
