McCain's Health Care Tax

Barack Obama has been running a series of ads stating that John McCain plans to tax health coverage for the first time in history. He has reiterated this claim repeatedly in speeches on the campaign trail and during the presidential debates. But according to Politifact.com, Obama's ads and statments are completely false.

Politifact.com, which is sponsored by the St. Petersburg Times and Congressional Quarterly, says the claim is "a major distortion on McCain's policy."

"In the final presidential debate," Politifact says, "Barack Obama attacked John McCain's health care policy as a net loss for workers. He was referring to a McCain proposal to repeal the traditional exemption on employer-provided insurance in exchange for a tax credit that will encourage workers to seek their own insurance. The credit would be $2,500 per person, or $5,000 for couples."

But Obama's characterization of the McCain health care proposal is an oversimplification, Politifact says, pointing to Obama's claim that "...the average policy costs about $12,000. So if you've got $5,000 and it's going to cost you $12,000, that's a loss for you."

One problem with Obama's assertions, Politifact says, is that more than 70 percent of Americans get health insurance through their employers, and that the premiums are usually split so that the employer pays at least half the cost of the policy.

"Strictly speaking," Politifact says, "the part that the employer pays is considered compensation and workers would owe taxes on it if there wasn't a tax exemption in federal law."

The fact check continues: "McCain wants to encourage greater competition for health insurance as a way to reduce premiums. His idea is that people should be able to go out on the open market and buy their own health insurance, and not be pushed into an employer-provided insurance plan by tax incentives."

And there's where the tax comes in. McCain would repeal the current exemption, and in exchange give individuals a tax credit that could be used for any policy. Individuals might stick with their current plan, or they might buy another plan.

"It's a complex switcheroo," Politifact says, "but there's ample evidence to show that the plan would be a wash for most workers. Keep in mind the current benefit is not worth $12,000, which is the cost of the average family plan; the benefit is the taxes on the part of that $12,000 that the employer pays. So if the employer picks up $8,000 of a $12,000 policy, the current benefit is the taxes a worker would pay on $8,000."

Further, Politifact says, "An independent analysis from the nonpartisan Urban Institute confirms that: 'In general, lower-income people with health insurance would receive benefits from the credit that would be well in excess of the value that they receive from today's tax exemption. The gains are much smaller for higher-income people."

In closing, Politifact says, "Obama's numbers are wrong. McCain's health plan does not replace a $12,000 policy with a $5,000 credit. It replaces the taxes on part of that amount with a tax credit. We rate Obama's statement False."