Why McCain's $5,000 Tax Credit for Health Insurance Is Better

Good explanation from the WSJ:

He would offer a refundable tax credit of $5,000 for families, $2,500 for individuals, and the benefit isn't dependent on where people work or what they earn. Some would stick with their current job-based coverage. Given the option, others -- especially the uninsured, armed with new health dollars -- would decide to buy coverage on their own. That in turn would stimulate a market for more affordable insurance.

Mr. Obama doesn't want to let people make this choice. He even claims it would amount to "taxing your health-care benefits for the first time in history," which is a wild distortion. His point seems to be that because companies wouldn't have to pay for health care, they could raise wages and thus taxes would also increase for workers on those higher incomes. But doesn't Mr. Obama want higher wages?

All in all, workers would come out ahead with the McCain plan. According to the left-leaning Tax Policy Center, the average taxpayer would see his tax bill drop by $1,241 in 2009. On average, lower-wage workers have more limited coverage as part of their compensation, mostly from small- or medium-size businesses. But the more generous the employer health plan, the more the tax subsidies increase. According to the Joint Committee on Taxation, the current employer benefit is only worth between $600 and $3,000 for people making under $100,000. The upper-income brackets save between $4,000 and $5,000.

The most affluent -- i.e., the top quintile of earners -- would be slightly worse off after 2013 under the McCain plan, though they'd still have plenty of options. Even as he routinely promises to raise taxes on "the rich," Mr. Obama is leaping to their unlikely defense here only to frighten everyone else. The McCain plan is fairer than the status quo, which subsidizes the most expensive employer (and union) insurance plans.

But don't take our word for it. Mr. Obama's chief economic adviser agrees with the McCain critique of the current system, or at least he once did. "This massive program of tax breaks is ineffective and regressive, wasting money on those who have health insurance while doing little for those who can barely afford it and nothing at all for those without it," wrote Jason Furman in 2006 in the journal Democracy. Before he joined the Obama campaign, Mr. Furman championed a health reform that relied on many of the same tax tools as Mr. McCain's.