Former Treasury Secretary James Baker III has urged tax policymakers to think about a paper that includes a recommendation for a change in the way the U.S. tax system treats employer-sponsored health insurance.
Baker added the paper – by John Diamond and George Zodrow, tax policy experts at the James A. Baker III Institute for Public Policy at Rice University – to the official proceedings for a roundtable discussion on tax reform organized by the Joint Committee Taxation.
Baker, who served as Treasury secretary under President Reagan and as secretary of State under the first President Bush, participated in a panel that also included current members of Congress, such as Rep. Dave Camp, R-Mich., and Sen. Max Baucus, D-Mont., and past members of Congress, such as former House Majority Leader Richard Gephardt, D-Mich.
Diamond and Zodrow note in their paper that the idea of ending the deduction for employer-provided health insurance has been widely discussed.
In 1986, the last time Congress made a major, successful effort to change the Internal Revenue Code, “this idea was rejected at least in part because it would reduce reliance on employer- provided health benefits and thus increase the pressure to implement government-funded health insurance,” Diamond and Zodrow write. “Although the health care reform bill was recently passed, this issue will likely continue to be a point of contention in the debate about the tax treatment of employer-provided health insurance.”
Diamond and Zodrow recommend capping the group health deduction and indexing the cap to reflect the general inflation rate, rather than to reflect the rate of inflation in health care costs.
“This would gradually shrink the deduction and would raise revenues over time, allowing for a longer and