Republicans in Congress are getting into some dangerous territory when discussing tax reform. They are desperately looking for ideas to pay for an extension of the personal income tax cuts from the 2017 Trump legislation. The problem is Republicans have targeted employer-based health plans for increased taxes because it will raise a significant amount of revenue. Instead of cutting spending, like Republicans promised on the campaign trail, they are looking for some targeted tax hikes to use as pay-fors. However, hiking taxes on employer-based health insurance plans is going to be a political disaster for Republicans.
The idea of taxing these health insurance plans is destructive to our American system of employers paying the health care costs of employees. Tax reform is supposed to be good for American citizens, yet destroying employer-based health insurance will make many Americans view tax reform as a tax hike. Furthermore, when American workers find out that some want to hike taxes on them to pay for other tax cuts, the political ramifications for Republicans could be devastating in the midterm elections.
Our American tradition of providing stable health care benefits is the essence of our employer-provided health system. Keeping it tax-free is consistent with the long-standing tradition which allows employers to provide great plans for employees. A proposal which eliminates the exemption for employer-based health care will disproportionately hurt those in high-cost areas. The bottom line is that this idea is a tax hike hidden in a Republican sponsored tax reform bill.
Taxing the most dominant source of health coverage for American citizens seems like political suicide when one digs into the numbers. According to The Commonwealth Fund, “employer-sponsored health insurance (ESI) is the primary source of health coverage in the United States, covering 178 million people, including 63 percent of working-age adults (ages 19 to 64).” Those numbers are far more than those covered by Medicaid, Medicare, and Obamacare. American workers like the idea of having flexible plans which provide good coverage, and they will be angry if Republicans in Congress devise a plan to hike taxes in a way that deters employers from continuing the best plans or raises the costs on employees for employer sponsored coverage.
The irony is that if this idea becomes part of the tax reform bill, Congress will end up having an unpopular piece of legislation – the opposite of the 2017 Trump plan. Health insurance offered by employers is something that has widespread support. The U.S. Chamber of Commerce in a poll conducted in 2022 found that 96% of Americans believed it is important that a job offer health insurance. The survey found that 54% were highly satisfied with their plan and 70% agreed that their health insurance was worth the cost. Attacking a popular element of access for working Americans to health care will be a political disaster waiting to happen if Congress does not back away.
The politics and policy just don’t add up. Republicans are already going to have a hard enough time holding on to control of the House of Representatives without passing a tax plan that enrages a large swath of MAGA oriented voters and independents. The balance of power right now is 220 Republicans to 213 Democrats in the House with two vacancies that likely will go to Democrats. A five-seat majority is slim and the caucus is difficult to control, and despite this - Republicans seem to want to give an easy issue to Democrats for the 2026 midterm elections. If the 178 million people using employer-based health coverage go to the polls and this issue becomes the one which decides control of the House, many incumbent Republicans may end up dumped into Obamacare coverage or Medicaid by virtue of their own short-sighted tax plan.
Aside from the bad politics, the policy implications of this possible change in tax law could be catastrophic. Ryan Ellis writes at National Review, this plan “would be the biggest booster possible for enrollment in government-controlled Obamacare and Medicaid programs. Conservatives should not achieve tax reform by making socialized medicine a reality.” Republicans are unwittingly pushing American workers into socialized medicine with this idea.
There is nothing conservative about hiking taxes on working Americans. The proposed tax hike using employer-based health care is a terrible idea and Congress should run far away from this idea as soon as possible.
