February 24, 2006
Bloomberg: Bush's Proposed Health Accounts Offer Tax Benefit for Wealthy
Interesting article this morning in Bloomberg, Bush's Proposed Health Accounts Offer Tax Benefit for Wealthy, by Ryan Donmoyer:
President George W. Bush's proposal to expand health savings accounts, intended to help contain spiraling medical costs, may prove a tax-free boon for the nation's rich.
Both supporters and opponents of the proposal said the enhanced HSAs offer unprecedented tax advantages and may become more attractive than 401(k)s or Individual Retirement Accounts as a way for the richest and healthiest Americans to build savings.
The proposal would create "the mother of all tax shelters," said Paul Caron, a professor at the University of Cincinnati College of Law.
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Perhaps if the contribution limit were less, say $3500 per year, it would look more like a health care financing proposal and less like a shelter.
Also, what happens if the funds are not needed for medacal puposes? That is, if the contributions, and the investment returns have grown to a very large sum, and the taxpayer remains healthy, I assume, without knowing, that non-medical withdrawals are taxed as ordinary income. There could, and sould be a penalty as well unless the taxayer is 59 and 1/2 years of age, or takes the money out as a life annuity.
Posted by: The NJ Annuitant | Feb 24, 2006 11:00:34 AM
"the mother of all tax shelters,"
Oh, come on. If you have to put one dollar in cash in to get one dollar of deduction, it is not even a good tax shelter.
Posted by: Robert Schwartz | Feb 24, 2006 11:10:58 AM
Another idea: suppose medical expenses for the taxpayer and dependents were deductible for
Federal income tax puposes without regard to a floor, and , at the same time ,employer provided medical insurance were taxed to the employee unless there was a very subtantial annual [insurance] deductible. The employee would have every incentive to act like a rational consumer for " normal " medical expenses, but would be covered for major medical expenses.
Posted by: The NJ Annuitant | Feb 24, 2006 11:11:51 AM