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John McCain has a radical plan to change the way Americans pay for their health insurance: tax the health benefits received through work as income, and replace the current exemption with a $2,500 tax credit for individuals and a $5,000 tax credit for families to buy health insurance in the private market.

For millions of American families, this is a tax increase in disguise.

The current exemption grows with the cost of health care since the full value of benefits is always exempt from income. But the credit won’t keep up with the rising cost of health care, which grows at around 7 percent per year.

The current exemption keeps up with these rising costs, so this “swap” is actually a tax hike. And the heaviest burden falls on the middle class, which pays the highest marginal tax rates (payroll and income taxes).

By 2013, an average American couple making $60,000 will see their taxes go up approximately $1,100.

The magnitude of this tax hike varies from state to state, depending on average premium costs and state tax levels. The more expensive the premium, and the higher the taxes, the more valuable the current exemption, and the more a family’s taxes would go up when McCain takes away the exemption.

More details on how the tax hike works here.

Back to McCain’s Bad Medicine: A 50 State Analysis of John McCain’s Health Care Plan

 

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