THE BLOG
06/14/2009 05:12 am ET | Updated May 25, 2011

Proposed Health Premium Tax Exempts Most

Conventional wisdom suggests that taxing employer-paid health programs to finance health reforms is a non-starter because an overwhelming majority -- 85% according to the New York Times -- would confront a tax increase to subsidize coverage for those who now lack it.

Conventional wisdom may once again be wrong. In any event, it is based on bad numbers. In fact, some helpful data from the Employee Benefit Research Institute suggests that such a tax would only have an impact on a minority of Americans -- albeit a substantial minority that has significant political clout.

Any such move would be consistent with our progressive income tax system where a small number of affluent people pay for services provided to a large number of poorer people.

Here's how the numbers look. About 62% of non-elderly people have employment-linked insurance. But America has a large and growing senior population. When you factor them in, the percentage of the entire population with employer coverage drops to 55%.

But not everyone who's employed pays income taxes. Many simply don't make enough to be taxed. A few years ago, the Tax Foundation estimated that nearly 60 million Americans were earning some money, but had no responsibility to pay income taxes.

Finally, the number shrinks a bit further if you try to tease out the number of Americans who can afford insurance but don't currently have it and thus wouldn't need a subsidy under a reform plan.

When you consider that pattern, it becomes clear that less than half of the population enjoys employment-linked health insurance and pays income taxes. Making premium payments taxable would reduce this number slightly because the extra income reported would push some of these non-taxpayers over the line into taxpaying status.

That doesn't suggest taxing premiums is a done deal. In fact, raising taxes is always difficult. But the task isn't quite as daunting as it now seems and that realization may grease the process in the months ahead.

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