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Congressional Wonks: Health Tax Breaks Not So Costly

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Depending on one’s perspective, letting employers exclude group health premiums from taxable income either costs the U.S. Treasury a fortune in lost taxes or helps the employers protect a large amount of revenue from confiscation by the revenooers.

Either way, staff analysts at the Joint Committee on Taxation (JCT) have have come up with a “tax expenditure” estimate for the group health tax exclusion that is significantly lower than the estimate published by analysts at the U.S. Treasury Department and the federal Office of Management and Budget (OMB).

The JCT analysts are estimating the group health exclusions will reduce federal income tax revenue by about $725 billion over 5 years.

That compares with an estimate of about $1.1 trillion that OMB analysts published about a year ago in the Analytical Perspectives report that came out along with the fiscal year 2012 budget proposal.

The JCT is an arm of the U.S. House and the U.S. Senate. The JCT analysts have prepared their report on tax expenditures for the House Ways and Means Committee and the Senate Finance Committee.

The JCT and Obama administration have come up with different tax expenditure numbers partly because their projections cover different periods.

The JCT analysts looked at the period from 2011 to 2015, and the Obama administration analysts looked at the period from 2012 to 2016.

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The latest year both groups of analysts covered is 2015.

In 2015, the JCT analysts are expecting the group health exclusion to reduce tax revenue by $176 billion; the administration analysts are saying the exclusion will cost $231 billion.

The JCT analysts say the main reason their cost estimates are so much lower is that they are assuming that, even if Congress eliminated the group health premium exclusion, they would still let taxpayers itemize medical expenses and keep medical expenses out of taxable income.

Under current tax law, if the workers had to include health insurance in their taxable compensation, they could itemize the premiums paid, and that would sharply reduce the revenue the government could gain by eliminating the group health exclusion, the analysts say.

The JCT analysts also looked at the effects of other health-related tax provisions.

The analysts found, for example, that health savings account (HSA)and medical savings account (MSA) tax provisions would reduce federal revenue by $8.8 billion over 5 years. Administration analysts say the HSA and MSA tax breaks would cost $11 billion.

But the administration has estimated itemizing of medical and long-term care (LTC) costs would reduce tax revenue by just $60 billion; the JCT analysts itemizing will cost about $70 billion.