More math from my email inbox. (Commenter Jay Ackroyd loves this stuff.) This installment comes from James Kvall, of the Center for American Progress:
Holtz-Eakin’s basic math is correct but it begs a basic question: if a typical worker gets an $800 tax cut, how can the whole policy be revenue-neutral?
I think the answer is that the proposal is a big tax cut in its first year, but it morphs into a tax increase over time — so it’s really revenue neutral over 10 years and a tax increase beyond that. This would work by holding down the growth in the credit to the inflation rate (about 2% a year), unlike the current benefit which rises with health care premiums (about 6%). Surprisingly quickly, the tax cut turns into a tax increase, even for typical workers with ordinary health care plans.
The key question is how the tax credit grows over time — with inflation, with health care premiums, or some other way. As the NY Times said this morning, it remains unanswered by the McCain campaign.
You can read more from Kvall here. And then there’s this from the New York Times.
UPDATE TO THE UPDATE:
Our blogging cousin Justin Fox has been following the traffic here in the Swamp, and has come to this conclusion:
I don’t think this McCain plan is some kind of scam. It just shows clear signs of having been designed by free-market-oriented economists who don’t know all that much about the health-care system. As a mostly free-market-oriented non-economist who doesn’t know all that much about the health-care system, I’m naturally sympathetic to it. But I’m also extremely dubious of how well it would work in practice.