Melding Health Overhaul and Taxes Gets Complicated

Source: Associate Press

President Barack Obama’s health care law uses the tax system to subsidize coverage for the uninsured.

Promoting social policy goals through the tax code is a time-honored strategy for both political parties.

For example, the nation’s main anti-poverty program, the Earned Income Tax Credit, uses the tax system to supplement the earnings of low-income families.

But melding insurance and taxes — two of the most complicated topics for consumers — won’t be easy.

Some pros and cons:

PRO: Could build support for the health overhaul because tax credits have greater political popularity than traditional government spending programs.

CON: Complicates tax filing for many lower-to-middle income people, who may not be able to afford tax-preparation services.

PRO: Avoids the social stigma associated with safety-net programs.

CON: Requires people who get the health insurance tax credits to accurately project their incomes for the coming year, a real challenge for those who may not have stable employment.

PRO: The Internal Revenue Service has a lot of experience administering tax provisions that serve a social policy agenda, from mortgage deductions to child care tax credits.

CON: It strains the agency when an estimated $385 billion a year in taxes owed, or more, goes uncollected.