This is a good example of the perniciousness of tax expenditures. That is, the government nowadays spends lots of money just by lowering people’s tax bills; this is called a ‘tax expenditure’. The government tries to encourage homeownership, for instance, by lowering your monthly mortgage expense; it does this by allowing you to lower your tax bill every month by however much you pay for interest on your mortgage, to the tune of $106 billion per year. That’s an expense, just as it would be if the government had instead spent $100-plus-billion directly paying money for homes.
It’s even worse for health insurance: when your employer pays for your health insurance, it’s giving you income on which you don’t pay income taxes *or* Social Security. As Edward Kleinbard helpfully shared, the health-insurance tax expenditure costs Social Security $100 billion every year. That’s $100 billion that doesn’t show up in the usual accounting.
> Catherine Frazier, a spokeswoman for the senator, confirmed the coverage, which Goldman said was worth at least $20,000 a year. The senator is on his wifes plan, which comes at no cost to the taxpayer and reflects a personal decision about what works best for their family, she said.
That $20,000-a-year plan is a benefit that the senator’s wife gets in lieu of salary, essentially. But it’s not taxed as salary. If she had been paid an extra $20,000, she would have had to pay taxes on it, and those taxes would likely have come to 30% or so of the $20,000, or around $6,000.
That a senator — or at least a member of a senator’s staff — is not aware that the government spends money when it fails to tax people for a benefit they receive is surprising. Though perhaps this gets down to a matter of ideology: the Republican Party has built a brand identity around opposing all taxes, so it probably doesn’t believe that foregone taxes are the same thing as money spent directly on services. This is unfortunate, because the effect is the same: people spend too much on health care.
And there’s an uglier side to paying for health care in this way: wealthier people get more help. That is, Senator Cruz’s wife is, in a very real sense, suckling at the public teat more than a poor person is. Suppose you’re in the lowest tax bracket, and that you’re lucky enough to have health insurance (unlike one in four people in your income bracket). Suppose, somehow, that you’re lucky enough to have a $20,000-a-year plan like Mrs. Cruz does. Well then U.S. taxpayers are subsidizing you to the tune of about $2,000. So Mrs. Cruz and her family draw about three times as much from the public trough as you do, even though she and Ted can likely afford it far more than you can.
Republicans have in the past objected to tax withholding, on the grounds that Americans don’t experience Federal sticker shock when they pay little by little throughout the year. If the goal is to make Americans know what they’re paying, and what they’re getting for it, then we should drop tax expenditures entirely and pay directly for what we get.