Saturday, February 03, 2007

Bush tax increase coming?

We always read about President Bush and his tax cuts and how unwilling he is to consider reducing those tax cuts to cut the federal budget deficit, but now I read that he is proposing to increase my income taxes. I am not rich, hardly better off than your average mid-range professional, so raising my income taxes seems like an odd thing for President Bush to be proposing. Nonetheless, here is what I read in a Washington Post article by Michael A. Fletcher entitled "Bush reaches out to Democrats":

Under Bush's health-care-coverage plan, the federal government would create a tax deduction to offset the cost of health insurance. The value of employer-provided health insurance that exceeds the deduction would be taxed as income.

I happen to work for a fairly large company that does provide a reasonable level of health insurance that is well above average and "free" to me. I would have to pay tax on the excess value of that coverage over the federal deduction. Ouch.

Adding insult to injury, I personally don't even need all of that health care coverage, being single and rather healthy (I don't even get colds or flu anymore). Sure, someday I may need that coverage. When it's "free", it is not a big deal, but the thought that I would have to pay for something I don't need does not seem fair at all.

In truth, my employer does provide a number of health care coverage options and I could even get cash back for less coverage, but it is unclear whether I would still be able to get below the federal threshold so that I wouldn't have to pay extra tax.

I opt to get the full coverage because the reduced coverage gives me only a small amount of cash back. But, with the federal excess being taxed, it is very likely that the tax savings by reducing my coverage would significantly exceed the modest cash back which happens to be taxable as well. The details remain to be seen.

As my former account liked to say, what goes into the "tax goose" in Congress rarely resembles what comes out the other end of that goose. Promises vs. reality. You get the picture.

Whether the new Bush plan will become law is a very open question.

But it is worth considering how it might affect your own personal budget and financial situation.

-- Jack Krupansky

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