We have been searching for a silver bullet to solve the problems in the health sector for decades, and John F. Cogan, et al, claim to have discovered it with their idea to provide full tax deductibility of all expenditures for health care and health insurance ("Brilliant Deduction," Dec. 8 commentary).
But their silver bullet misses the mark. While reforming the tax treatment of health insurance is much needed, full tax deductibility would not produce fairness, as they claim, since the progressive income tax system automatically builds in unfairness. For example, someone in the 15% tax bracket who spends $1,000 on health care would get a tax deduction worth $150. Yet a more affluent person in the 35% bracket who spends the same $1,000 would a tax break worth $350 — more than twice as much.
That means tax deductibility is based on a philosophy that these more affluent Americans — who also can afford to spend more on health care — will get a better deal from the tax man.
A better idea is to provide refundable tax credits to the uninsured. A tax credit of $1,000 is worth $1,000 to that person in that 15% tax bracket, giving him more resources and a bigger boost to purchase health insurance.
Galen Institute (A non-profit organization specialzing in health and tax reform)