McCain’s health tax would cost CWA members

As pointed out in the recent presidential candidate debates, John McCain proposes to give a $5,000 tax credit to families who buy health insurance or get it from their employers. On the other hand, he wants to tax the benefits we receive now as income.

So, a new tax credit sounds good, but a new tax on benefits sounds bad.  Would we come out ahead or behind?

The answer, for most of us is clear: Behind. And we’d get further and further behind as time goes on.

For example, an AT&T employee in Michigan making $65,000, with a working spouse and two children, would lose a total of $12,601 over ten years, according to a study by Tony Daley, a CWA research economist.  A Verizon employee in Maryland, making $64,000 with a working spouse and two children, would pay a total of $48,146 in extra taxes over ten years.  If the spouse wasn’t working, the impact would be less (because taxable income would be less), but would still be considerable – a ten-year total loss of $28,441.

The McCain plan “is pretty revolutionary – in a bad sense,” Daley said. “The design really is to destroy employer-based health care.”

“It is designed to penalize people who have generous employer-based benefits,” Daley added, “and it does it effectively.”

And the impact gets worse as time goes on, because the tax credit is linked to inflation, but health benefits (which would now be taxed) grow at a much faster rate.  That Verizon employee in Maryland would break even in the first year of the McCain plan – a net loss of a buck – but would pay an extra $6,352 in taxes by 2018, year ten of the plan.

Not all CWA employees would be worse off.  The impact varies with the value of the benefits (the better benefits you have, the more the McCain plan hurts you), family income level (the higher the income, the worst the impact) and with state income tax rates. For example, take an AT&T Mobility worker in the state of Washington, where there is no state income tax.  Making $27,000, with a working spouse and two children, that worker would actually save $14,312 in taxes over ten years.

But whether the McCain plan helps you or hurts you, it gets worse over time.  That AT&T Mobility worker would save $1,929 in the first year, but only $674 – about a third as much – by year ten.

McCain’s plan would also hit hard at retirees who are below the Medicare age of 65.  For example, a pre-65 Verizon retiree in Maryland, with a working spouse and no kids at home, would be out $16,758 over ten years.  Add in two kids at home, and the negative impact is $30,729.

Daley said his research is generally consistent with studies of the McCain proposal done by academics and think tanks.  The difference is that the other studies are based on hypothetical examples, while Daley could measure the impact on real CWA members by plugging in wage rates and benefit costs from CWA contracts.

Daley’s study assumes that employers keep the same benefits, and that wages and health costs grow at approximately current rates.  Other experts who have studied the McCain plan have projected that many employers, losing their current tax deductions for providing health benefits, would cut back coverage or cut it off altogether.  A recent study in the journal Health Affairs predicted the McCain plan would cause 20 million people to lose employer-provided health insurance, pushing them into the individual insurance market – where policies generally cost more and cover less, and where insurers don’t have to sell you coverage if they think you’ll get sick.  Health benefits for CWA members are generally guaranteed by contract, so employers couldn’t drop coverage unilaterally.