Health scare.(CAMPAIGN 2008 II)

IN a 2005 survey of health economists, 91 percent agreed that company health benefits come out of wages. No other issue generated as much consensus. The idea is that an employer hires, and sets his compensation policies, based on what employees are worth to him and the total cost of employing them. How much of that cost goes to wages and how much to benefits is a matter of relative indifference. Government-mandated benefits should therefore be expected to come out of cash wages, not profits. The point sheds light on a neglected flaw in Obama's health-care plan and a neglected virtue in McCain's.

The Obama campaign has been doing saturation advertising against McCain on health care. It notes that McCain will tax company health benefits for the first time, and argues that this tax will cause employer-based health insurance to "unravel." When the Democrats note that McCain would replace the tax break for employer-provided insurance with a tax credit that applies to all health-insurance purchases--something they acknowledge only under duress--they say that it would be a bad deal for workers. The credit would be worth $5,000 for families, but the employer-provided coverage they would lose would typically cost more. What Obama and his aides ignore is that health benefits come out of wages. The long-term effect of McCain's tax reform should be to increase take-home pay. Increased wages and the tax credit should be enough to cover a health policy and the disappearance of the old tax break while leaving money to spare. Every independent assessment of the plan indicates that at least 95 percent of taxpayers would come ...