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IAFF LEGISLATIVE FACT SHEET
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Points
TAX EXEMPTION FOR EMPLOYER-PROVIDED HEALTH CARE
The IAFF opposes the taxation of
employer-provided health benefits.
BACKGROUND
Health care benefits provided by employers to
their employees are not currently counted as taxable income. Similarly, employee
contributions toward their health care premiums are made on a pre-tax basis. As
the federal budget deficit continues to grow, policy makers are considering all
options for increasing revenue, including ending the current tax exemption for
employer-provided health benefits.
The amount generated by ending the tax exclusion
for employer-provided health benefits is significant. In 2009, the bipartisan
Joint Committee on Taxation estimated that capping the exclusion to half of the
total premium amount would net $1.173 trillion over ten years. As a result, the
National Commission on Fiscal Responsibility and Reform, a bipartisan commission
charged with finding ways to reduce the deficit, recently proposed the gradual
elimination of the tax exclusion for employer-provided health care. Another debt
commission, created by the Bipartisan Policy Center, also recommended phasing
out the tax exclusion in its report, “Restoring America’s Future.” Finally, the
Chairman of the House Budget Committee, Representative Paul Ryan (R-WI),
proposed in his “Roadmap for America’s Future” replacing the tax exemption with
a tax credit that would put affordable health care out of reach for many
Americans.
Taxing health benefits would particularly hurt
fire fighters. For years, fire fighters have accepted lower wages in exchange
for better health coverage. Fire fighters also face higher insurance premiums
due to the risks posed by their profession. That’s why fire fighter health plans
often exceed $20,000 a year. Removing the exemption would add thousands of
dollars in additional taxes even though fire fighters earn middle-class
salaries.
Congress previously rejected taxing health
benefits during the health care debate. Because of the excessive tax burden on
fire fighters and other workers, Congress opted for an alternative tax on
insurance companies to discourage the sale of high cost plans. No tax on health
benefits was included in the final health care law.
Eliminating the tax exemption is now back under
consideration as a way to reduce the federal deficit even though it still
remains unwise economic policy. Removing the exemption will raise taxes on those
least able to afford it. Many fire fighters have had their wages frozen or cut
during these bad economic times. And it could undermine a fragile economic
recovery. Many economists have already noted that raising taxes now could
increase the chances of a double-dip recession.
Taxing health benefits will also undermine an
integral component of our health care system. Enacted into law over 50 years
ago, the tax exemption is a major reason why most Americans receive health care
coverage through their employer. Ending the exemption would undermine a system
that provides affordable health care to over 157 million Americans.
CONGRESSIONAL ACTION
Senators Mark Warner (D-VA) and Saxby Chambliss
(R-GA) are preparing to introduce legislation that will implement the
recommendations of the Deficit Commission. Specific details of the
Warner-Chambliss legislation are still being developed at this time. In
addition, the leaders of both the House and Senate, as well as the Obama
Administration, have expressed support for examining various tax exemptions as a
way to generate additional revenue. The House Committee on Ways and Means and
the Senate Committee on Finance are expected to hold hearings on various
proposals in 2011.
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