October 31st, 2008
06:20 PM ET
5 years ago

Fact Check: Would McCain tax health benefits for the first time ever?

 The Obama-Biden campaign released an ad called Rear View on Thursday.
The Obama-Biden campaign released an ad called Rear View on Thursday.

The Statement: In a television ad titled "Rear View," that began airing Thursday, October 30, the campaign for Democratic presidential candidate Sen. Barack Obama attacks Republican opponent Sen. John McCain's economic policies, saying, in part, that McCain "would tax your health care benefits for the first time ever."

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The Facts: The ad refers to one of the key elements of McCain's health care plan. McCain says his plan would eliminate the existing tax exemption for insurance premiums that are paid through employers. But in a major shift in how most Americans are covered, he would replace it with a health-insurance tax credit of $2,500 for individuals or $5,000 for families. The idea is that this money would allow workers to seek out and buy their own insurance.

Independent analysts have predicted that many employers would drop health coverage because of this change. But they predict roughly the same number would enroll in "nongroup" coverage –although they say the quality and price of those independent plans would vary.

Analysts note that McCain's plan could shift the amount of money an employer currently pays for a worker's health care from a tax-free benefit to part of the employee's salary. As such, it would increase the amount that would be taxed and, in some cases, bump the employee into a higher tax bracket. The nonpartisan Tax Policy Center cites this example: A single worker making $75,000 and receiving $7,000 in healthcare premiums currently is in the 25 percent tax bracket. McCain's plan, the center says, would push that worker's taxable salary to $82,000, which is in the 28 percent tax bracket.

Employer contributions for accident and health insurance plans were nontaxable in the original income tax ratified in 1913, although there was some confusion about that in the years that followed. The Revenue Act of 1954, passed by Congress, excluded employers' contributions to accident and health plans for their employees and clarified that such contributions had always been deductible as business expenses.

The Verdict: True, but incomplete. The ad accurately describes McCain's plan, but doesn't mention his tax credit meant to help pay for nongroup coverage.


Filed under: Candidate Barack Obama • Fact Check • Health care • John McCain
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