From the Tax Foundation:
The Obama campaign and many in the leftist blogosphere are in the process of pulling a John McCain on tax policy: don't tell the whole truth about your opponent's tax plan.
Today in a speech in Kansas City, Joe Biden said, "They want to tax your health-care benefits; I am not making this up."
While it's true that McCain's plan would tax the value of employer-provided health insurance (as it should be under a true income tax), Biden ignores the fact that McCain's plan also provides a refundable tax credit that for most would exceed the tax increase induced by the taxation of employer-provided health insurance (over time, this value of this credit could erode, see below). In summary, for most, it's a tax cut. It is true that for some (mostly very large families and high-income families), taxes could go up. But for the vast majority of tax returns, tax liabilities would actually decrease over the next five-to-ten years.
A common misinterpretation among voters who Biden misleads will likely come from a misunderstanding of the difference between a credit and exclusion. The value of an exclusion equals the amount excluded multiplied by your marginal tax rate, which is why exclusions and deductions tend to disproportionately benefit higher income taxpayers who are in higher tax brackets. A refundable credit's value to the taxpayer is exactly the value of that credit. So a tax return in the 25 percent bracket would have to receive an exorbitant amount ($20,001) in health insurance income to actually have its tax bill go up in 2009.
Even a family earning $50,000 who had an expensive $15,000 health care plan would actually pay less tax under McCain's health tax credit plan. Their income tax before credits would rise by $2,250. But they would get a $5,000 credit that would more than offset that higher tax before credits.
A family earning $100,000 who has a huge $20,000 health care plan (which is much more than the national average) would actually break even. If that family had a more reasonable $10,000 health care plan, it would receive a tax cut.
