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KEY POINTS

TAX EXEMPTION FOR EMPLOYER-PROVIDED HEALTH CARE

• Under current law, health care benefits provided by employers to their employees are not counted as taxable income. Similarly, employee contributions toward their health care premiums are made on a pre-tax basis. Congress is considering ending the tax exemption for employer-provided health benefits as a way to reduce the deficit.

• Removing the exemption will raise taxes on those least able to afford it. For years, fire fighters have accepted lower wages in exchange for better health coverage. Now during these difficult economic times, many fire fighters have had their wages frozen or cut. Taxing health benefits will only make things worse for fire fighters by adding thousands of dollars in extra taxes.

• Removing the exemption would unfairly penalize fire fighters simply for the work that they do. Fire fighters face high insurance premiums due to the risks posed by their profession. That’s why it’s common to see health plans for fire fighters exceed $20,000 a year. Removing the exemption would unfairly tax fire fighters because of the dangers they face in protecting the public safety.

• Fire fighters aren’t the only ones who will be hurt. Over 150 million Americans receive health insurance through an employer, and the value of these benefits average in excess of $15,000 per worker. Imposing both income and payroll taxes on this amount would increase the tax burden on millions of middle-income Americans by thousands of dollars each year.

• Unlike most other tax expenditures, the health care tax deduction is not skewed in favor of the wealthiest taxpayers. 70% of the benefit goes to families earning less than $200,000 per year.

• Congress already 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. Congress shouldn’t try to take a second bite at the apple now in order to reduce the federal deficit.

• Ending the exemption would undermine health care for over 150 million Americans. Enacted over 50 years ago, the tax exemption is a major reason why most Americans receive health care coverage through their employer. Removing the exemption will dismantle this system and increase health care costs for millions of Americans.

• Employer-sponsored health insurance is an effective, affordable way to provide health insurance to millions of Americans. Because of the large size of employer-sponsored plans, they can provide affordable insurance by pooling the risk to minimize catastrophic costs. Employer-sponsored plans can also use economies-of-scale to lower administrative costs and gain better bargaining power when negotiating with insurance companies.

• The argument that taxing health benefits will drive down the cost of health care is false. Health care is not like other commodities. There is no evidence that taxing people on the value of their insurance plan discourages over-utilization of health services.

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International Association of Fire Fighters
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Copyright 2014 International Association of Fire Fighters.  Last Modified:  4/17/2014