Gross Unfairness

That's the current US system for taxation of income. The capricious and vindictive nature of the technical details of the system are grossly unfair to the people. How ? This post concentrates on one type of pure unfairness: inequality before the law. The example: payments for health insurance.

Persons working for big companies or governments who provide that benefit don't notice it. That's because the company or government pays. The employee pays nothing and it never shows up on his taxes. The company deducts the premium expense as an ordinary business expense. Even IF the employee pays part of the expense in a share of the premium OR the co-pays under the policy, often that is structured to use pre-tax money: A portion of pay is diverted pre-tax into an account to be used for that purpose. So these people get health care from pre-tax money.

That's a good deal IF you can get it, since including Social Security and Medicare taxes, marginal rates are really very high even at low incomes. Adding the 15.3% Social Security and Medicare tax to the 25% bracket [which kicks in at $67,900 for joint filers, $34,000 for the single] and adding 5% state income taxes, too, one gets a very, very high marginal tax rate of just over 45% for the bulk of the middle class. Using pre-tax dollars means buying at a 45% discounts - quite a "sale".

What about persons working for small companies or even larger companies who do NOT provide to all employees ? They have to buy their own insurance. That is very expensive. I pay for our health insurance now. The plan is that of Mrs. B's former employer, as she was able to retain it as a retiree, having worked there over 30 years and being over 55. BUT we must pay the FULL costs for coverage of ourselves. That is about $14,000 per year. Not chicken feed. [By the way, I priced other plans and for a married couple in MA, the cost is about the same for the same "Preferred Provider" plan.]

A person in the 45% marginal tax regime must earn $25,450 to be able to pay that cost. You can easily see why many, many persons don't buy health insurance if their employer does not provide it. It is very, very unfair that those with GOOD JOBS from stronger employers get health insurance cheaper than those working for weaker, less financially able companies, often for less pay.

[NOTE: one might be able to deduct part of that cost in the itemized deductions, BUT that is limited to the amount over 7.5% of one's income. If one is a middle class family of two earners making $200,000 per year, that limit is $15,000 - hence NO deduction. see how capricious the system is ?]

What about the self-employed ? Can they use pre-tax dollars ? Yes, they can, IF the plan is "established under your business". For a sole proprietor, that means in the name of the sole proprietor. IF that condition is met, then the self-employed can take take an adjustment to income (that's good - it's before the adjusted gross income line and before all the limits on itemized deductions).

BUT if the policy is in the name of the sole proprietor's spouse, then NOPE, no adjustment. that person gets screwed and must use very costly after tax money to pay for the premium.

AND you might now guess that we are in that situation. The coverage we could retain from Mrs. B's former employer is in her name. I pay the same cost, but we get no income adjustment.

Treating the same expenditures differently for technical reason is simply unfair - no, it's grossly unfair. All payments for health insurance should at least be given an adjustment to income. That's still not a good as those working for big companies and governments get, as those get the coverage before those big Social Security and Medicare taxes. But it would be a start.

With all the focus on health insurance reform by Obama, you would have thought his supposedly "historic" "reform" would at least be roughly fair. BUT noooooooooooooooo, his "reform" did nothing to repair this gross unfairness.

Reality is the very, very few persons under the Obama mandate to buy health insurance will be able to afford it even with the subsidies, due to its cost and the unfair tax treatment.

What would be fair ? Payment for health insurance should be, at a minimum, an adjustment to income for everyone making the payments.

To be truly fair and equal and not destructive of jobs, the Federal government should provide this as a Shared Benefit to all, funded from a national value added tax.

Does ObamaCare move towards a truly fair program ? Nope. He retains the superstructure of the old, corrupt, unfair system. It's going to be a cruel joke on all when (IF) it goes into full effect in a few years.

Word of the Day

"Plangent" - adjective [$10]
Plangent means loud, reverberating.
Sentence: The sound of the season should a plangent roar for tax reform, but it's not. The public is numbed or unaware of how grossly unfair the income tax system is. IF they knew many of them faced a 45% marginal tax rate on extra earnings from work, they would revolt.