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Life Health > Health Insurance

Health Tax Expenditures Continue To Rise

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The Bush administration says the deduction for employer-sponsored health coverage could cost the federal government about $168 billion in fiscal year 2009, up 11% from the 2008 total.

The Office of Management Budget, an arm of the White House, has included those figures in an analysis that accompanies the release of the administration’s 2009 budget proposal.

Fiscal year 2009 will start Oct. 1.

Congressional committees are preparing to start a round of hearings on the budget proposal, and the final budgets are usually substantially different from the proposed budgets.

The administration has brought back proposals from earlier years to create a new set of savings accounts – the lifetime savings account, the retirement savings account and the employee retirement savings account – that would replace the current collection of tax-advantaged accounts.

Insurance industry groups have argued that none of the proposed accounts would offer the kinds of incentives and penalties that the existing accounts, and products such as life insurance policies and annuities, now use to encourage consumers to leave money in their nest eggs until they retire.

The administration also has brought back a proposal to cap the deduction for health coverage at $7,500 for individuals and at $15,000 for families, and to offer the same deduction whether taxpayers get health coverage on their own or through employers.

The administration has proposed a new provision that would require employers to report expenditures on health coverage on employees’ W-2 forms.

The administration also has updated the tax expenditure tables, which show how much revenue tax breaks cost the federal government.

The tax expenditure charts, which do not show whether tax breaks create savings for the federal government that offset some or all of the loss of revenue, indicate that the deduction for employer-sponsored health coverage continues to be the most expensive tax break.

The deduction for 401(k) plans comes in third, and the Bush administration proposal projects 401(k) plan tax expenditures would increase 4.1%, to $51 billion.

Tax expenditures on defined benefit pension plans and other employer pension plans could fall 0.7%, to $46 billion.


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