Comment by rayiner | Hacker News Reader

Comment by rayiner | Hacker News Reader

> My understanding is that health insurance originated in this country as a means to plump up employee compensation in a situation where paying more wages was not desirable. You could not entice good employees by offering them a pay raise because it bumped them up into another tax bracket and it just wasn't worth it to them.

Really hard to take the article seriously when it crams so much misinformation into one paragraph. There is no such thing as "bumping you up into the next tax bracket." The marginal extra dollar might be taxed at a higher rate, but the dollars below that will be taxed the same as before.

Moreover, the fact that health insurance isn't taxed now can't explain the origin of the industry. Initially, health insurance was taxed just like any other non-cash benefit. A tax break on health insurance was implemented as a way to offer some relief from the wage controls of WWII: http://www.npr.org/sections/health-shots/2012/12/04/16643424.... But such a tax break wouldn't have come about if the industry didn't already exist.

Employee health benefits been tax free since at least 1954, and the top marginal rates were much higher then. So WWII controls were an early factor, but marginal tax impacts were significant too.

Sorry, could you explain what you mean by marginal tax impacts?

I assume this is something along the lines of:

Employer: "We can offer you an additional $3k/year in income but it will be taxed at 40%. Or we can offer you 3k in health benefits tax free. Which do you prefer?"

More like: "We can offer you $3k/year in health insurance, but your take-home income will decrease by $1.5k/year as well."

Sure. Employer observes that they can spend $10,000 on wages to increase the employee's take-home pay by $1,000; or they can spend spend $5,000 on insurance premiums and buy the employee an excellent health plan. The employee and employer both have incentive to take the tax break.

I'm taking about the 1950 here, when the top marginal rate was around 90%.

Edit: grammar.

The top marginal rate was 91%, yes, but that rate was for income over $200,000 in 1950 dollars, which is (adjusted for inflation) nearly $2m in today's dollars:

http://taxfoundation.org/article/us-federal-individual-incom...

Meanwhile, the median household income in 1950 was under $5,000 (in 1950 dollars):

http://web.stanford.edu/class/polisci120a/immigration/Median...

So although there were very high marginal rates at the top, they applied only to people making over 40 times the median income. And just to pay a higher marginal rate than 2015's maximum of 39.6%, one needed to be making around three times the median income in 1950.

So you'll need another explanation, because it's unlikely that the risk of being bumped to an ultra-high marginal rate was an issue widespread enough to spur the offer of untaxed health care. And as others have pointed out, it's well-documented that the actual reason was a reaction to wartime wage controls -- given the choice, companies would have simply offered more cash.

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