ABSTRACT
In this chapter, the authors combine two ideas that each separately create two important benefits for the US economy. First, eliminating the subsidy removes an important distortion in the US health care system—the subsidy to employer-paid health insurance—which in turn distorts the size and growth rates of the US health care system. Second, taking the newly found tax revenue and converting it to lower marginal income and payroll tax rates provides a strong and permanent stimulus to the US economy—by approximately 0.3 to 1.7%, according to our best estimates. Health care providers with a long-run view regarding their income flows may also find the authors' proposal disturbing. With a high degree of certainty, the large bulk of those individuals who have benefitted from the subsidy to employer-paid health insurance will eventually opt for different types of coverage. The authors discuss who might oppose the proposed change in the tax treatment of employer-paid health insurance.
