Limiting the Tax Exclusion of Employer-Sponsored Health Insurance Premiums

Revenue Potential and Distributional Consequences

In 2011, federal tax revenues were reduced by $268 billion because of subsidized employer-sponsored health coverage — the largest federal expenditure, by far. This brief examines the impacts on the federal budget and affected individuals by switching to a premium coverage tax.

Key Findings

  • Capping the dollar amount at which coverage is tax exempt would raise hundreds of billions of dollars over the next decade by including the most expensive employer-sponsored health insurance premiums and other benefits.

  • Capping the dollar amount would also result in a tax increase for those above a 75 percentile cap on employer-sponsored health coverage.

This brief is part of the Quick Strike Series, and was authored by the Urban Institute with support from RWJF.

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$264 Billion: amount in federal revenue over the next decade that could be raised by a 75th percentile ESI tax cap

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