# What are the consequences of eliminating the business tax deduction on healthcare **URL:** \ **Category:** Great Debates\ **Created:** [November 22, 2004, 1:56pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103 "2004-11-22T13:56:14Z")\ **Posts on this page:** 10\ **Page:** 2
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [November 22, 2004, 9:03pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/21 "2004-11-22T21:03:37Z")
> [@Gaudere](#): > > Yeah, but you’re saying that stuff costs in excess of what it should because of the tax subsidies, NOT because healthcare is a scarce, valuable good. Even if deducting the costs of healthcare saves you $10 on the hundred, $220 still cost more than $200–would an employer choose the $220 plan instead? No, I’m not. Maybe it was my fault for using the word “cost” instead of “price” in my first post. The PRICE of health insurance goes up due to a tax subsidy, even if the COST to those who can deduct that price on their taxes doesn’t. But, the TOTAL COST to all of us goes up, because someone has to make up the loss in tax revenues. The insurance companies make more money because they can charge a higher PRICE. The tax deduction is essentially a transfer of money from people who don’t get to deduct the insurance cost to the insurance companies. Let’s simplify this and say we want to make widget-A tax deductible, but don’t want to reduce tax revenues. Widget-A has a PRICE of $100 before the tax deductibility. But afterwards, lets say it has an an average COST of $85 to people due to the tax break (avg tax savings of $15). The widget manufacturer isn’t stupid, so he can raise the PRICE to some level above $100 and not lose sales volume. Of course, the government has to raise taxes somehwere else to make up for the tax break, so whoever ends up paying those taxes is subsidizing the widet manufacturer’s inflated PRICE. > [@](#): > > Do you think, for example, school vouchers will result in the costs of private schools going up? Of course it would. Why wouldn’t it? You’ve increased demand. All other things being equal, what do you think happens to the price of something when demand increases? > [@](#): > > Do you have any real-life examples of the prices of a common service going down once it is no longer tax deductible? Is there a common service that was once tax deductible and that no longer is? ---
**Author:** ![Gaudere](https://avatars.discourse-cdn.com/v4/letter/g/e495f1/32.png) [@Gaudere](https://boards.straightdope.com/u/Gaudere)\ **Post date:** [November 22, 2004, 9:12pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/22 "2004-11-22T21:12:25Z")
> [@](#): > > The widget manufacturer isn’t stupid, so he can raise the PRICE to some level above $100 and not lose sales volume. Of course, the government has to raise taxes somehwere else to make up for the tax break, so whoever ends up paying those taxes is subsidizing the widet manufacturer’s inflated PRICE. But then Widgets, Inc. can get the companies business by selling them for $100 still. I think the price pressures from competition would still be in effect. I mean, I’m not a “the market will provide all” sort of person, which is why I’m trying to figure out why it doesn’t work sometimes. > [@](#): > > Is there a common service that was once tax deductible and that no longer is? I was hoping you knew of one! I guess we will see what happens if the resolution goes through. ---
**Author:** ![Martin\_Hyde](https://avatars.discourse-cdn.com/v4/letter/m/47e85d/32.png) [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)\ **Post date:** [November 22, 2004, 9:17pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/23 "2004-11-22T21:17:40Z")
It’s long been an understood accounting principle that you can deduct costs of doing business from gross income to get to taxable income/net income. And I think that only makes sense and don’t really see the justification for eroding that long standing principle. ---
**Author:** ![manhattan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/manhattan/32/7_2.png) [@manhattan](https://boards.straightdope.com/u/manhattan)\ **Post date:** [November 22, 2004, 9:30pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/24 "2004-11-22T21:30:11Z")
> [@Martin Hyde](#): > > It’s long been an understood accounting principle that you can deduct costs of doing business from gross income to get to taxable income/net income. And I think that only makes sense and don’t really see the justification for eroding that long standing principle. Well, except that as I mentioned, it’s common for Congress to identify certain expenses which companies take on on behalf of employees which Congress identifies as something which the employees “should” be paying for with after-tax dollars instead of the company’s pre-tax dollars. If my employer pays my dues at [Shinnecock](http://www.golfclubatlas.com/shinnecock1.html) (I’ll take “Yeah, right!” for $500, Alex.), that expense is not deductible to the company any more than it would be to me. Same with health care. If Congress decides that it’s best for individuals make better decisions for themselves than their employers make on their behalf, the first step in moving the decisionmaking away from companies and toward consumers would be to equalize their costs as regards the tax code. ---
**Author:** ![jshore](https://avatars.discourse-cdn.com/v4/letter/j/b5e925/32.png) [@jshore](https://boards.straightdope.com/u/jshore)\ **Post date:** [November 22, 2004, 9:41pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/25 "2004-11-22T21:41:06Z")
> [@John Mace](#): > > I don’t know how I can explain it any better than saying you would change insurance carriers less frequently. Maybe you misunderstood me. I wasn’t talking about anything somatic changing in people, but that the instances where it would arise as a factor for insurance purposes would be reduced. > > … > > See above if that explains it. Otherwise, I don’t see how your anecdote is particularly relavent. You actually DID have a pre-existing condition. Many people don’t, but most people will if they change insurance providers often enough. I think you miss an important point which is that usually employers are able to negotiate group policies where pre-existing conditions are covered. (Well, I think this is generally true…It certainly is for large employers.) So, while I am not against de-coupling insurance from employment necessarily (as I agree the coupling is somewhat perverse), I do worry that it will mean that if something else is not done to regulate the insurance then some of us will be unable to get insurance or it will cost an arm-and-a-leg or it will exclude pre-existing conditions. ---
**Author:** ![Martin\_Hyde](https://avatars.discourse-cdn.com/v4/letter/m/47e85d/32.png) [@Martin\_Hyde](https://boards.straightdope.com/u/Martin_Hyde)\ **Post date:** [November 22, 2004, 9:45pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/26 "2004-11-22T21:45:51Z")
> [@manhattan](#): > > Well, except that as I mentioned, it’s common for Congress to identify certain expenses which companies take on on behalf of employees which Congress identifies as something which the employees “should” be paying for with after-tax dollars instead of the company’s pre-tax dollars. If my employer pays my dues at [Shinnecock](http://www.golfclubatlas.com/shinnecock1.html) (I’ll take “Yeah, right!” for $500, Alex.), that expense is not deductible to the company any more than it would be to me. > > Same with health care. If Congress decides that it’s best for individuals make better decisions for themselves than their employers make on their behalf, the first step in moving the decisionmaking away from companies and toward consumers would be to equalize their costs as regards the tax code. Yes but I think employee benefits like health care are very close to basic salary expense. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [November 22, 2004, 10:00pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/27 "2004-11-22T22:00:16Z")
> [@Martin Hyde](#): > > Yes but I think employee benefits like health care are very close to basic salary expense. Only because we’re used to thinking of it that way. What if my company decided to pay for my food purchases. Would you be OK with letting the employer deduct that for tax purposes, and thereby have the state subsidize my food consumption? Can you give us a reason why healthcare is clost to salary? I can think of dozens of goods or services that nearly everyone buys or that are considered more or less necessities in our society (electricity, cars, clothes, ect.). Where and how do you draw the line? ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [November 22, 2004, 10:06pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/28 "2004-11-22T22:06:16Z")
> [@jshore](#): > > I think you miss an important point which is that usually employers are able to negotiate group policies where pre-existing conditions are covered. Why are they able to do this? Probably because they are “buying in bulk” and get a volume discount? I can’t think of any other reason, can you? I don’t see why cooperatives, formed specifically to give consumers bargaining power, couldn’t do the same thing. ---
**Author:** ![manhattan](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/manhattan/32/7_2.png) [@manhattan](https://boards.straightdope.com/u/manhattan)\ **Post date:** [November 22, 2004, 10:12pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/29 "2004-11-22T22:12:50Z")
> [@Martin Hyde](#): > > Yes but I think employee benefits like health care are very close to basic salary expense. So did I. So do a lot of people. But the data contradict us. As of '95, [here’s how health care insurance got paid for among non-elderly people:](http://www.bls.gov/opub/mlr/1995/06/art5full.pdf) 61% had employer-sponsored health care (with vastly varying degrees of employer subsidy, of course), 16% had coverage from the government in one form or another, 9% had private insurance and 18% had no coverage. The percentage among the elderly is more tipped toward the government because of Medicare, of course (but it’s not 100%). So for over 40% of Americans health care is ont part of a basic salary expense. As this develops it will become increasingly clear that reforming the system is something which progressives should be jumping all over. The current system creates a bias toward large companies over small ones, for corporate employees over the self-employed, for full-time labor force members over those who chose part-time or no-time participation in the labor force, etc. People concerned about increasing consolidation of businesses in the country will want to participate in this process constructively – it could help some of their aims. ---
**Author:** ![HealThySelf](https://avatars.discourse-cdn.com/v4/letter/h/f1d935/32.png) [@HealThySelf](https://boards.straightdope.com/u/HealThySelf)\ **Post date:** [November 22, 2004, 11:03pm UTC](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103/30 "2004-11-22T23:03:48Z")
I’m following this thread the best I can. Doesn’t the market follow the two largest health insurers of federal employees? I don’t see what a tax deduction affects. I think the two largest exclusive fee-for-service insurers for federal employees are apwu and geha, i’m not sure. These are their “universal” premiums for 2005 [http://apps.opm.gov/rates/non\_postal.cfm?state=ffs](http://apps.opm.gov/rates/non_postal.cfm?state=ffs) [Previous page](https://boards.straightdope.com/t/what-are-the-consequences-of-eliminating-the-business-tax-deduction-on-healthcare/276103.md?page=1)