Commentary

Joe Biden’s Health Care Whopper

In Thursday’s vice presidential debate, Joe Biden changed his tune on John McCain’s health care plan - but he’s still singing off-key.

The centerpiece of McCain’s plan is to alter the tax breaks the federal government grants those who purchase health insurance. Currently, every dollar your employer spends on health benefits avoids federal payroll and income taxes. If you don’t have job-based coverage, you generally get nothing.

McCain proposes to eliminate that inequitable tax break and replace it with a universal tax credit. Every individual would get a flat $2,500 tax break, while families would get $5,000, no matter where you purchase health insurance.

Since part of the idea is to eliminate the existing tax break, Biden for weeks has called the McCain plan a tax increase: “For the first time in American history, they want to tax your health care benefits.”

The Washington Post awarded Biden four “Pinocchios” for omitting the fact that McCain would replace that tax break with another, which would be much larger for most workers. The left-leaning Tax Policy Center estimates the average taxpayer would see their tax bill go down by $1,241 in 2009, though the average tax cut would get smaller over time.

The Obama-Biden campaign seems determined to deny the reality of McCain’s tax-credit proposal.”

In the debate, Biden finally acknowledged the existence of a tax cut in McCain’s plan. But he still tried to make McCain’s plan seem scary.

He suggested the $5,000 family tax credit is paltry compared to the $12,000 average premium for a family plan, as if the two numbers were comparable, and complained that the $5,000 “will go straight to the insurance company,” calling that “the ultimate Bridge to Nowhere.”

Yes, the tax credit would go to the insurance company of your choice, where it would reduce the cost of your coverage by $5,000 - which, we apparently must repeat, is larger than the tax break most people get today. The Post awarded Biden another two “Pinocchios” for Thursday night’s misrepresentations.

But the most important part of McCain’s tax credit is something that Biden still doesn’t get: McCain would replace the current tax break with not one tax cut, but two.

The average “employer contribution” to that $12,000 family plan is about $9,000. In a recent survey, 91% of health economists agreed employers take their “contribution” out of your wages. If employers weren’t providing health benefits, the labor market would force them to add that money to your cash compensation. In other words, the current tax break for job-based coverage lets employers control several thousand dollars of your earnings.

Michael F. Cannon is the Cato Institute’s director of health policy studies. From 1999-2003, he advised the leadership of the U.S. Senate on Second Amendment issues.