In recent statements, President Obama said that the tax break employees receive on health insurance is a post WWII phenomenon that should fade away. He can use his executive powers to demonstrate his leadership by eliminating this tax break for the largest single employer in the USA – the federal government.
By executive order the President can make the health insurance premiums for all federal civilian and military employees and himself fully taxable. So why does he not take this step right now, and gain $20+ billion in taxes for no added cost? All he has to do is put the government’s share of the premiums on the employees W-2’s.
Whatever reasons he might offer for not doing this weaken the credibility of his statements.
Here are the consequences this action would produce:
Eight point two million federal employees would pay state and federal income tax at 15-40%, as well as 7.65% Social Security and Medicare taxes, on the government’s share of the health insurance premiums.
That means employees will see their paychecks reduced by 23-50% of the company’s premiums to pay the extra taxes, with no other compensation. (The federal government could also contribute another 7.65% matching as the employer.)
I cannot find anywhere the total amount the government pays to the Federal Employee Health Benefits plan, but we can guesstimate an average of $10,000 average, per year, per employee.
The government pays 72% or $7,200. So, $7,200 added to 8,200,000 W-2’s, = ?
Voila! $59 Billion of newly taxable dollars, without giving anyone a raise! Social Security tax at 7.25% would add $4.5 billion per year. I do not know if the federal government matches contributions, if they do, that would be another $4.5 billion to total $9 billion a year, just for Social Security and Medicare.
Next apply state and federal income tax to the increased income, let’s use 25% combined rate for our example. $59 billion, times 25%, equals $14.8 billion, per year, in new income taxes.
So, that means it is good to take $20+ billion out of your employee paychecks by changing the rules?, (even if you might have to make some Social Security deposits?) Sounds like a Slam-dunk.