Change or repeal employer-sponsored health benefits tax exclusion, analysts say

Eliminating the federal income tax exclusion for employer-sponsored health benefits does not seem to be a hot policy topic in Washington right now, but the idea is still in the air.

Veronique de Rugy and Jack Salmon, two analysts at the Mercatus Center, a libertarian think tank affiliated with George Mason University, showed that the possibility of employer health tax exclusion repeal still lives in their recent analysis of federal “tax expenditures.”

Tax expenditures are federal tax provisions that cost the U.S. Treasury tax revenue by cutting the amount of taxes owed by various taxpayers or leading the government to pay cash to some taxpayers.

See also: How rising healthcare costs are reshaping employee behavior

The analysts divided tax expenditure provisions into four categories:

1. Provisions that definitely should be kept roughly as is
2. Provisions that should be kept but reformed
3. Provisions that definitely should be repealed
4. Provisions that should either be repealed or reformed

The analysts put the exclusion for employer contributions for medical insurance premiums in the repeal-or-reform category.

“As the largest tax expenditure, this costs $6.1 trillion over 10 years,” the analysts wrote in their new commentary. “Full repeal would require replacing this provision with an alternative policy option.”

Congress could soften the elimination of full repeal by raising the contribution limits for health savings accounts, the analysts said.

Congress could also cap the exclusion at the 50th percentile of premiums, and that option could raise about $1.2 trillion in extra tax revenue over 10 years, the analysts predicted.
The analysts also put repealing the deduction for charitable contributions in the reform-or-repeal category. They put the deduction for medical expenses in the repeal category.

This article was originally published on BenefitsPRO, a sister site of HR Executive. For more content like this delivered to your inbox, sign up for BenefitsPRO newsletters here.

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