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.
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.