Monday, November 29, 2010

Pros/Cons Of Taxing Health Insurance

Most employed Americans have some type of health insurance benefit where they work. The premiums for those health insurance benefits are usually paid by employers and are not considered as taxable income to the employee. President Obama's task force on finding ways to reduce the massive federal government deficit have recently suggested that health insurance premiums paid by an employer, be taxable income to employees in the future. What are the pros and cons of the federal government taxing the group health insurance benefits of all Americans?

The pros are simple, harsh and probably needed. The US federal government is drowning in red ink because the Congress and President are spending more money than they take in through taxation. For the US government to regain control of a massive and expanding national debt, new ways of raising revenue must be a part of that overall goal. The other big thing on the pros side of taxing employer based health insurance benefits is that it will force employees to shop around for better prices for their health care insurance. Right now, employees who receive free health care where they work - do not have any incentive to buy health insurance on their own, which has caused the US health care system to become more of a monopoly type of system than one where competition and free enterprise rule the day.

The cons of taxing health insurance benefits are that changing a system, which has been in place for decades will cause short term pain as more money is taken out in taxes from an employees paycheck. Most Republicans will highlight the pros of taxing health insurance benefits, while their democratic counterparts will stress the cons. While I usually lean right on political issues, when it comes to taxing employer based health insurance premiums - I come down on the side of the Democrats. I believe that until the US federal government begins to cut spending in a meaningful way, no new taxes should be imposed on the American people. Simply put, cut spending first and then more Americans will be open to increasing taxes to help balance the federal budget.

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