Health Insurance Tax Breaks are Expensive and Inefficient Senator Roth's amendment included two specific tax breaks. The smaller of the two provision would accelerate a provision already in the law by allowing self-employed persons to deduct from their taxable income the full cost of purchasing health insurance. Self-employed persons currently may deduct 45 percent of the cost of insurance, with the deductible portion scheduled under current law to rise to 100 percent by 2007. The amendment also would have created an expensive new provision allowing employees whose employers do not provide health insurance to deduct the full cost of purchasing an individual health insurance policy. Much of this revenue loss would subsidize higher-income individuals and families who already are covered by health insurance.
Most uninsured people live in low-income families.
Similarly, the Congressional Budget Office estimates that nearly three-fourths of all uninsured children live in families with incomes below 200 percent of the poverty line. Many of these families have no federal income tax liability that could be offset by a new tax deduction. For these and many other types of families, a tax deduction would provide no subsidy at all and would do nothing to make health insurance more affordable. A deduction would subsidize a maximum of 15 percent of the health insurance costs of these families, leaving 85 percent of the costs uncovered. The largest subsidies would go to higher-income families.