IAFF LEGISLATIVE FACT SHEET
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TAX EXEMPTION FOR EMPLOYER-PROVIDED HEALTH CARE
The IAFF opposes the taxation of
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 policy makers grapple with
the enormous federal budget deficit, all options for increasing revenue are on
the table, including ending the current tax exemption for employer-provided
amount generated by ending the tax exclusion for employer-provided health
benefits is significant. The bipartisan Joint Committee on Taxation identifies
it as the single largest tax expenditure in the tax code, costing $725 billion
over five 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. Building off this proposal, a bipartisan group
of Senators, called the “Gang of Six,” called for reforming the tax exclusion in
their deficit plan. President Obama has also proposed limiting the tax
exclusion for employer-provided health care by capping itemized deductions above
the 28% tax bracket.
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.
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 150 million Americans.
Senate Finance Committee and the House Ways and Means Committee are both
planning to craft comprehensive tax reform proposals in 2013. These proposals
are likely to include limitations on tax deductions and exclusions.