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Financial Literacy - Taxes
The tax system needs an overhaul
The political environment is poisoned because most legislators have signed a no-new-taxes pledge.
Taxes made easy

Interview: Leonard Burman, Ph.D.

There have been attempts at making health care more affordable through tax deductions. How do you see taxes and health care converging?

Talking points
Reform needed
Funding policy
Tax increases
Simplifying the code
Income gap
Consequences of inaction
Capital gains
Health care

A lot of the proposals are based on tax deductions or credits. A better approach might be to give people a voucher.

There seems to be bipartisan support for the notion of refundable tax credits for health insurance, which could conceivably help more low-income families afford it. President Bush proposed a deduction last year, but the proposal was criticized because most low-income people don't owe income taxes and thus get no benefit from a tax deduction. There are signs that this year's proposal will include a refundable tax credit, which can be designed to help even those with very low incomes.

Health savings accounts, which accompany high-deductible health plans, are another approach. They were enacted in hopes that by placing more power in the hands of the consumer, they would make better decisions about health care and ultimately spend less. However, most health care costs are incurred by very sick individuals whose spending far exceeds the deductibles. Since most of their costs are covered by insurance, they have very little incentive to restrain their spending.

Another concern is that the healthiest people would find catastrophic health plans with very high deductibles more attractive. The concern there is that once you drive traditional insurers out of business, there won't be any place for those at high risk to turn.

A high deductible can effectively put a lower income family in the same situation as if they were without insurance, because if they have a $5,000 deductible, they don't have the money available to cover the deductible.

What kind of tax moves do you think Washington should make to address this issue?

It's not clear that this should be a tax issue. Now the IRS is expected to act as the Department of Health and Human Services (HHS). A lot of low-income people don't have to file a tax return; having people file tax returns purely for the purpose of getting a credit may not be a great idea. It might be better to administer a voucher through HHS.

What are the priorities of your organization right now?

We're trying to put out more information on tax and budget policy. We're putting together a "Tax Policy Briefing Book," which will have answers to questions that may come up during the presidential debate, or should. We'll obviously be writing more about the AMT and we're building a health insurance simulation model that will allow us to estimate the effects of various tax proposals on coverage and premiums.

-- Updated: Dec. 26, 2007
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