Should tax incentives be used to promote health care law?
Using the federal income聽tax聽system to promote social policy goals is a time-honored strategy for policymakers of both political parties.
The nation's main anti-poverty program, the Earned Income聽Tax聽Credit, uses the聽tax聽system to supplement the earnings of low-income families. Employer-provided聽health聽insurance is tax-free for workers and tax-deductible for companies, a huge boost for workplace coverage.
But some economists say that the chief purpose of any聽tax聽system should be revenue collection, and using income聽taxes聽to advance social policy makes the code needlessly complicated, while also distorting incentives to work, save, and invest.
Some pros and cons of using the聽tax聽system to help people pay premiums for private聽health聽insurance, as the Affordable Care Act does:
PRO: Could build support for the聽health聽overhaul because聽tax聽credits have greater political popularity than traditional government spending programs.
CON: Complicates聽tax聽filing for many lower-to-middle income people, who may not be able to afford tax-preparation services.
PRO: Avoids the social stigma of Medicaid, the safety-net聽health聽care program for low-income people. (Separately, the聽health聽law聽also expands Medicaid.)
CON: Requires people who get the聽tax聽credits to accurately project their incomes for the coming year, a real challenge for those who may not have stable employment.
PRO: The Internal Revenue Service has a lot of experience administering聽tax聽provisions that serve a social policy agenda, from mortgage deductions for home ownership to child care聽tax聽credits that help families.
CON: It constitutes mission creep for the IRS, straining the agency when an estimated $385 billion a year in taxes聽owed, or more, goes uncollected.
