,'4 -U m I: -U ',0 r'- 0 ,,0 -,T ,--I ¢'_ 0"1 0 t_ ........ t. X -,_ eq c,_,-4 Q)_ c0 _I _ O_ _ TABLES CONTENTS 8 627 28 29 II 13 I0 15 I_TRODUCTION 2414 916 24 20 21 23 26 19 25 3 22 518 17 7 EBRI Number Title J PaKe During a time when there are no appaAppendix rent TABLE limits 5 I on direct federal SectionNOTES Page I0 Deborah Pensions J. Chollet, redistribute Employer-Provided wealth toTABLE TABLE TABLE favor Health 317thoseBenefits: at the lower Coverage, end of the income Ipreferences, SSUES Mr. IN Ch IMPLEMENTATION airm andan,67.5I am percent pleased AND TRANSITION of to allappe insur arance-related before this Cpreferences ommittee today to all change employees the distribution with employer-provided of tax liability healthamong coverage, individu83.7 als million by eliminating (or 74.3many Consumption or both. Family Tax status could be used to predict health insurance claims under publicly-provided proportion undertakes the adequate of such and the the Administration's President's Medicare, protection Pension characteristics revof toenues provide single-adult costs account with budget employee to in proposal after-tax eliminate the for of proposal a defined-benefit the studies 85 benefits. households percent to indi dollars. this would cap vand idu threat. of the awith lThis have theemployer Aamount for plan stchildren seems tax been atistics whom may cap of almost payments consistent protection therefore health combined increased that 60 will percent for insurance with with beis by benefits. allow 14 being provisions the one-third. higher. times premiums nation's informed as of CappinK participants Employee under Benefits each asoption. a Share Ifofemployees Total Compensation. were being taxed on the value expenditures, or on "tax incentives," analysis may not need to focus on the Provisions and Policy 0 Issues, p. I00. For a discussion of taxing employer Fdiversity or legisl I aof tive employee policy Percent benefits. assessment of Full--Time During purposes Emplo a time benefits yees of apparent can be classified limitations,into at contributions to heHow althMucinsurance, h of Pension-Related see also "Revising Tax Deferrals the Federal is Tax I::: _ o e,j discuss tax preferences major taxinreform current BENEFIT options law. COST Another and cFACTORS onsequences set of FORproposals EMPLOYEES for employee would benefits. raise T-33 percent) 1sc (calcul ale "Ourwho ations Complex earned do not based less Tatend xPercent Savings, Lon athan ws: totable save $20,000, Ca ofPension n Full-Time 6). mu The chy This Be out and Coverage, Reformed?" 23.2 of Employees group current percent pays and U.S. Participating Income, in 51cearned ome. percent News 1983 Abetween and ccording ofWorld total $20,000 to Report federal the,and plans that offer maternity or dependents' benefits. provided. Over priority that high allowing commitment Could half an for This The The the Retirement employee decisions an individu basic of consumption economy These to coemployee mmittee married economic tax apricing can l plans. sustain topurchases reform women receive expressed at be tax security. age made structures Employer would such are mo60 vtax-free, ement based of now an as antax insurance Two at contributions interest increase? in upon are ais ll age provisions--those the motivated those reasonable income a30 ssessment labor with in(calculations with implement that force. before-tax for in the from of part retirement isati lowest spent, documented oSingle-adult employer's governing nbybased dollars the aincomes nd excluding plans erosion on transition the costs could vie table would and total wtax point and of saving 7). pay the 9.0 of employer Anothercontributions, alternative th however, at has received such subsidies some attention would probably in tax have policyto 0 o _ _ ,_ INTRODUCTION 2 however, least ninewhen categories: priorities Participating must be indecided Selectedupon, Employee careful analysis is required of Treatment of Employer Contributions to Health Insurance: A Continuing Debate," July 30, 1984. .,4 I: _ u-) ,Lost -4 co o AT to r-- VARIOUS ethe 4 G0 oTreasury? _ AGES in Selected Employee Benefit Programs, 5 each employee benefit: BenefitwhyProgr eachamsemployee benefit exists. 6 EBRI Issue Brief no. 21, August, 1983. Employee additionalbenefits revenue are through a key aelement broad based of thevalue nation's addedeconomic or sales security tax. $50,000. EBRI benefits. taxes. /U.S. Tax By About Dep incentives comparison, artment 35 percent of Medium for Employees Health this health ofand income all and Linsurance arge spending Human group Establishments, Servi raise Employees recei onces health ved similar (HHS) 64.2 care 1983 Mpercent issues. aythat a 1983 Average does of CTax urrent tax not Annual pass two-earner Effects of households Taxing Benefits have different benefit needs from those of the more mitigate treatment given issues percent from incometaxable than current in tax ofthe bof six abase compensation. siemployer-sponsored detrimental income ctimes taxtax duetreatment, until as reform. to much theeffects Federal, the proliferation tax These since funds retirement asonproblems the astate were expansion percent total used of andplans both could of cost local for ofincome business coverage and be of consumption. andhealth formidable, insuring private as that those andinsurance the individual could The with and employer's result even incomes tax debates- Attributing stop, since though they an ano vwould erage t necessarily mean pension thatcontribution in low-risk the context employees to of each majwould employee or taxbe reform--is paying would create the tax Summary of Statement of Dallas L. Salisbury THE GOALS OF EMPLOYEE BENEFITS 3 I. legally required benefits (including employer contributions Taxes to 2 This total includes MeSo dical cial C Seocst urity Defined-Benefit contributions; unemployment Life Insurance Savings Covered b Not Covered Income President, Employee Benefit Research Institute 3 I0 2 Distribution of Employees with Pensions Method *IiTaken For Used from Social a discussion a Security, statement of employer on Medicare, EMPLOYEE efforts St unemployment atBENEFITS ement to On reduce Taxes ANDinsurance ECONOMIC Lost health and care SECURITY Deferred workers' costs,by see Dallas _ _ _, o_" ,.- o-I stru insurcature, nce; a workmen's nd have been compensation; Factor at the as %center private Cost of Factor tax pensions reform and discussions. Coprofit-sharing st Factor In as aplans; recent through Population Status benefits aThegovernment related arguments Survey to (Millions) (Cprograms PS) homeownership. for Pension broadening is (Percent) now Supplement, made the It(Millions)(Percent) tax would through baacse seem cumulated employer-sponsored have thatattracted employee pension (Dollars) abenefits benefits wide plans. range (Percent) areof above consumption employer-sponsored $50,000. The effects tax would ofretirement £axing therefore benefits plans tax all account wouldemployer vafor ry among 5.3 contributions percent benefitsof and for totalbenefits would plans--account predi bwork from expenditures tradition preferences. ill cting fforce toThe arxing ahlg lpress is them hsingle-earner, er-risk employer attributed As not for release involves the anearly ffected pers contributions Congress oto on ns. some two-thirds two-parent by this the un proceeds the If tchearing aert xallocation all afor eint xemption of ypfamily. ersons with benefits. st total aabout ted: these of of cbenefit-rel hose Many the these employer discussions, pl re employers aacosts ns ctions ated contributions priamong cednow tax ofitaemployers, tprovide will expenditures thethemembers be to es serious tablishing inequities. a limit on Older theemployees share of to would tal cbeompensation undercredited, that cwhile an beyounger provided Retirement Plans 4 L. Salisbury compensation beforeandthe insurance); Health UnitedCoverage States by Senate Earnings Finance Conunittee Subcommittee 6 on "Controlling the Cost of Health Care: Recent Trends in Employee Health Plan of Cost at as % of Cost % of Cost at federal,Emplo state yee Benefit and localProgram government employee Percent retirement of Employees plans; group health o Employee benefits are a key element of the nation's economic security 13 Health Plans 4 Taxation and Debt Management hearing on Employee Fringe Benefits, July 26, 27, Design," EBRI Issue Brief No. 23, October, 1983. less of a luxuryo _than owning your own home. ,m interview insurance, ongroup ta_x x reform, life Refg_insur cm__ John Em__l_oy ance;Chapoton, and eeBensupplemental efits, Assistand ant Ecunemployment Se onom cretary ic Secof urity_ the benefits. Treasury Age constit Fewer An political Excise Group uthan te Tax support. the 3 percent on major Benefits Conservatives of form Agepension of 45-49 savings andsupport hefor at alth Age more broadening insurance 45-49 thana half participants the Age oftax all 45-49 base persons b earn as a with more way of projected health that employees, of child-care depend confronted compensation. thedoThe "Our covered on insurance notwhether flatter in benefits, with and interest result thepopulation. insurers Contributions representatives President's were rate orin asnot assaving. estimated astructure well and Cindi ommittee They other vas 1985 iduals forThis of flexible atof are Social budget. providers a is $17.6 lmost some includes irrelevant chose in Security benefit building major billion every toofthe continue benefits. tax to special plans vretirement inarious areform the tax 1984. employee that their system interest employee This proposals allow and coverage. This un that dis who cthat ert benefits may ability awill would cares intbenefits be y Ifbe aonly expe in employees the cted form vawould lue of of tabe x-f their overcredited. avoredclaims, employee theTorisk benefits. the -sharing extentBenefits th inherent at older provided inemployees groupininsur exearn cess ancemore of structure, and 0 _have been at the center of tax_ reform discussions. The and 30,Other 1984.Risks 4 3 Savings, Pension Coverage, and Income 8 2. discretionary benefits that are fully taxable (primarily, payment Treasury Method 83% 0% Private pension plan 82 No savings 18.2 19.0 20.6 21.5 $ 9,661 40.5 Treasury haso identified o o_ benefits as the means of broadening the tax base. Fringe for time Benefits not worked); 4 12 THEInTAX 1981, Health REFORM theinsurance MOVEMENT latest year for which complete data are available, Social Under 3 Unpublished 30 •-EBRI _ C-_ estimate. _0 80.0 Before _ the United23States 0 Senate 17.0 than for Ta$50,000. x Policy was asked to define broadening the tax base. He responded: pension Some eliminating savings coveracthe ge. income-earning More 36.9than 40 38.4 disincenti percent vofes20.3 theand labor market 21.1 forceinterference reported 19,209 noof59.5 sahigh vings about benefits that provide the account total insurance amount for theprotection, ofremaining insurance like 3.pro 7 vpercent. ided, health and insurance not about plans, how the lifecost of from relati pension exacerbate arises singleparent vthe ely Rather Employer supported from accruals 106this low the provisions than and pensions price by regressivity. fac were two-earner capping ta th bro for taaatxed in a dccount society benefits the consensus the onfamilies availabilit Under code afor to current as nearly that pay current-law soato y share th for basis, tailor lead atof 50athe percent of to tax system saving their rates, t go compensation, ain axls centives expenditures, ofbenefits ofof would health the benefit-related equity progressivity for almost packages insurance itemplo and would and certainly yefficient eewhose to beta that of x pl this and ansare amount would taxedbe would at elimin o_ oabe _higher ated sub _ .jecrate t o _to o othan opayroll _o _ younger oo o tax, _ employees, income tax,this or both. inequityUnder would be Percent Distribution of Participation Lifetime Security Method: Old Age, Survivors', C and ommittee Disability on Finan benefits ce were $138.6 billion,, 30-34 80.0 33 0 17.0 employee 96 Total 55.1 57.4 40.9 42.6 15,338 I00.0 o Yet, current tax rules meet the Committee criteria of equity, simplicity, WHO RECEIVES EMPLOYER SPONSORED in Retirement Programs, by Earnings 8 while Nomin 3.aprivate-sector l discretionary dollars a and benefits federal,thatstainsure te, andthelocal employee 14government againstretirement financial 86 plan EMPLOYEE 35-39 BENEFITS AND THE80.0 TAX CODE 48 0 33.0 4 For further dependents detail on these estimates, see Sophie93 M. Korczyk, Retirement marginal income Tax in tax 1983 reform rates. (tais ble aThey 3). perennial also This prefer group's topic of individual aver discussion. age income decision-making At wasleast $9,651, a dozen tojust employer major under may insurance, thispay insurance Health as much andinsurance. is disability asbilled $90 billion to Employer insurance. the inemployer. benefits contributions Since cash in 1984 compensation for and health servesinsurance would more continue than account 60 to benefits meet the expenditures. decline, elimination possible compounded. tax their revenue-raising schedule hto and asspecific could impose would influen There offsets hurt cdecline an ed needs. is will excise the how wide thepocketbooks not Cost disproportionately pleffect disagreement, tax ans bedata on undermined areall ononprovided tax oftax-favored these these however, liability inbenefits among and the interest designed. benefits, about years those ofisthe groups. not ahead." the atdeclining lower whatever proper For currently One exincome ample, way group share their to of Eliminatin alternative5 propos Employer als,Deductions the cap could for Emplo cover yee contributions Benefits for all benefits, or balance and economic efficiency. They have broad public support. EMPLOYEE BENEFITS 5 benefits risks were $and 73.2arebillion. tax exempt (including employer contributions to Real dollars Life insurance b 28 96 72 40-44 80.0 69 0 50.0 Security and "A lot Tax ofPoli income cy (WaHearings that shington, taxpaon yers D.MCaj .:or recEBRI, eive Tax Reform tod forth aycoming), goes untaCxed- hapteremployer IV. o u 5 How Much of Pension-Related Tax health, life, and disability insurance plans); Discounted for interest: c 45-49 I00.0 I00 0 I00.0 half tax reform theLong-term average contributions proposals in dis come ability were to ofpension introduced those insurance AuEust reporting plans, 7inand the health 9, some 97th 1984 asset insurance, Congress. 45 income.free MoreAlmost parking, tax reform half of available. Source: levels or government who Sophie do Thenot decisions tax M.tend code Korczyk, tomade issave aRetirement on major out theofinfluence worker's current Security behalf. in income. the and growth Tax In Policy thisof view, employee (Washington, Individual for 4.4 percent of total compensation. Of this total, 3.5 percent of total me be health be will Hecaalth asure a useprobably tax-deductible Our IfInsurance insurance emplo these employer rese yee anot rch costs. benefits in be Employer contributions indicates cost compensation represented Tax-expenditure ofare contributions doing that purfor cat hin abusiness the sed benefits higher these present measures onto discussions, aincome tofinance were group the tax usedlevels. taxed employer, treatment basis, health in however. the toemplo federal insurance the of theyers retirement, employee, employer Thebudget and are average would the pensions, percent level. Some This ofwelfare of thewas these population. proposed benefits, distributional byand Inthe1984, so-called Treasury problems by comparison, "fringe" tocould this be Committee benefits feder avoided al cin spending ould inTestimony majaor ll for be tax of g o Federal, state, local and private employer-sponsored retirement plans Deferrals is Lost to the Treasury? II Employer Pensions 5 Sickness and accident insurance 49 1350-54 atBudset pensionof rate the U.S. Government, 112.5 Fiscal 146Year 0 1985, 40 Special170.0 Analysis 60 G. 5 EBRI cal gocvulations ernment pabased yments,on U.S thoseCongress, benefits Congression ....To produce al Budget enough Offi revenue, ce, the D.C.: Employee Benefit Research Institute, forthcoming. account for 5.3 percent of total compensation. Of all full-time employees Health Insurance 7 8 4. discretionary benefits that help the employee meet special needs and at federal rate 36 64 55-59 125.0 216 0 250.0 Revisin K fl theatIndividual tax would have IncometoTax apply (Washington, lower tax D. raCtes .: U.S.Government to more types ofPrinting income the benefits. WHO Retirement proposals group RECEIVES reporting were One Accounts EMPLOYER effect introduced little (IRAs) results SPONSORED in or arethe no from preferable EMPLOYEE savings 98th provisions Congress. BENEFITS? into comeeither thawere tSome allow Social covered legislative some Security byemployer employer proposals or presumably health, entire Topricing and avoid have other the and anrisk added cost incentive related allocation tax to liability, benefits offer structure more meets manycompensation of low- this benefit and criterion. moder plans inate-income cashcould The thancurrent have in totax be Medicare reform process working employees compensaIn tion proposals person, are short, iscancalculated expected fin benefit awho whatever nces thattakes towould federal, from ontotal the for aeccash-flow in onomies criterion c$62.2 granted lude state,nonpension billion ofthe or local used sccross-sectional ale. health, and dollars; foremplo Therefore, pri determining pension, vyate eefederal-state benefits employer-sponsored basis, and athe dollar insurance with cost in spending spent the the of tax each taonxes cJune similarly apped1983. sepabased ratel Thisy.onwould the total avoid cost creating of insuring a target abenefit particular levelemployee for employers group. to in medium and i:.mlarge establishments, 82 percent o 0 are covered ,-_ by I: a pension 6 are tax exempt Revenue(including Loss foremployer Major Benefits contributions and to child care and 14 Deborahwith J. Chollet, fewer deductions. "Assuring "IEconomicof Security for Workers: Health, Offi 60-64 ce, 1983), Table o -,-4 9. 160.0 l_a 323 0 .,_ 383.0 _ .,_ alndividuals are classified as having some savings or no savings based on plan. Benefit payments exceed $80 billion for a $50 billion tax 7 EMPLOYEE BENEFITS Taxes PAND aid THE by TAX IncomeCODEClass as a Percent 9 legal plans); Disability, and Life Insurance Benefits," Statement before the United States call on the Treasury to study major tax reform, while others contain detailed contributions employer 65-69 SOURCE: pensions and U.S.some asDepartment a employee means 225.0 ofofcontributions providing Labor, Bureau for c to retirement. offinance Labor benefits Statistics, 383.0 on a pensions, benefit whether contributions. orhowever. not they Pensions reported thus any asset constituted income ainnet response increaseto in the savings survey for revised to allocate contributions appropriately among individuals. While the base employee's benefits group employee reach. for deferred rules individuals Medic bymeet These heaaelimin An lth id provided by benefits excise cost the would benefits current ais insurance. ting Conunittee estim ofby in choose tax, benefits, apension employer ted are his anhowever, emplo now or to criteri The atplan her ydo er provided tax if $37.8 remaining awithout would it compensation buys dedu participants ofbillion. targeted ctions equity, more have across 0.9 healththan the percent for those the package, simplicity, offset and Together, same them. would income individuals other iseffect against the almost accounted The distribution. types bthese aslaon vame ance lue-added the surely benefits of likely public dollar for and taxes insurance. by does to economic spent paid In as tax have not by by Underlying Such acosts n approa forchhealth could insurance raise its can ownbesettwice of problems. as high atFor ageex60 ample, as they an expenditure, with benefits growing rapidly to complement Social Security. of Total Adjusted Gross Income Class 13 Senate Finance Committee, _ Subcommittee 00 ,-4 on Taxation.o and Debt Man _ agement, .,4 SOURCE: Sophie M. Korczyk, Retirement Dallas L.Security Salisbury* and Tax Policy (Washington, To 6 Alternative aid "Employee the Congress tax Benefits systems in considering inwould Mediumrequire tand ax reform Large detailed Firms, propos judgments als, 1983,"I would May about I, like 1984. the to questions. Asset income includes interest, dividends, rents, and royalties. WHO BENEFITS FROM TAX INCENTIVES ii He tre aring atment 5. discretionary onofFringe variousBenefits, sour benefits ces July andthat uses 26,Pr have 27, eof sident and tradition income. 30, a 1984. lly Both would been called also create fringessome t_ D.C.: EBRI, X .,4 forthcoming). _ .,4 rn .,4 Value-Added t these amendments ax-preferred workers. of Taxbasis. the As Internal the Another Committee Revenue major press Code. impact release President stemsnoted, fromReagan assessments the inflation-driven has also of asked that bcoverageLiberals refers support to public- broadening and private-sector the tax base pension as a wayplans of eliminating and includes Research conducted by the Employee Benefit Research Institute (EBRI) and medium cthe average current an programs employer think efficiency. ouldindividu highest have ofand beneficiaries. price employee finance contributions al. this large incidence They ofeffect, Inproviding health establishments, have benefits the ofabsen broad for Measured depending care claims, employee cas the epublic ser aMedicare of vta ices this co it xon tv axerage would benefits support: loophole. how way, in forccomponent entives itfor also only about was to major Social target about designed, various en $0.83 of couraging employee Securitiy, the 18those out percent employees Social and of most benefits emplo every some Medicare, Security of ylikely er may versions thebe isto of employer eliminating are at age with 30 employer a(calculations mature, deductions long-tenure basedforonwork benefit tableforce 9). contributions. could Similarly, be put the at Employers underlying a competnow itivecost Three and one-half percent of total compensation finances 7 and are intended Benefit toCost meetFactors employerforneeds Employees and are tax exempt formidable implementation and transition problems. These problems and issues provide some background Empl onoemployee yee Benefit benefits, ResearchtheInstitute tax benefits they receive, holders SOURCE: of Anna IRA orM.Keogh Rappaport, accounts. F.S.A. and Malcolm H. Morrison, Ph.D., The Costs employer-sponsored group health insurance. 96 percent of this group of THE TAX REFORMat MOVEMENT Various Ages 12 19 (including employer provision of purchase discounts, job site are treatedaBefore in detadjusting ail elsewhere. for inflation. For TABLE a disc2ussion _ -_ of employerI_, pensions .,_ in pension-related tax policies should consider the net increase and redistribution increases tax-code the Clncludes Treasury provisions in individuals ofreal department Employing taxperceived rates reporting Older analyze ofWorkers to the negative basic benefit last(Washington, tax20asset primarily reform years. income options While D.C.: the (i.e., rich. statutory and U.S.prepare decreases They Senate tax also aSpecial rates in report prefer progr populaation. m. nearly pro need uniform, disadvantage Medicaid, others offering tax-deferred vision, insurance. For The universal. indicates the benefits Congress, employer any thedollar cunderlying ompared one administr Since that would employer, pensions, Employee appears however, awith income ti those cost cut ve anvto benefits them most aof employer is determines lue employer stru bebenefits charged back, ctures added likely lostare health, while with towith whether is that differs now tothe the abecome athose taking Treasury. make ylife ounger mainstay difference orwidely without group and sick, not a work perspective people disabilty according ofdisabled, pur between benefits the force, chases without middle-income protection even on receipts toor would these the die if the the of providing consumptionhealth tax would insurance provide for women for this. of child-bearing age is higher than employees are covered by health and by life insurance plans. Benefit cafeterias, special bonuses and awards, van pools, clubs, and EBRI Research Related to Major Tax Reform asset values). bAfter adjusting for inflation. baand sicthetaxsocial reform,benefits see Sophie they provide Korczyk, (see Retirement AppendixSecurity I). Inand my Tax testimony Policy today Committee on Aging and the Employee Benefit Research Institute, payments approach $80 billion for a $17 billion tax expenditure. EMPLOYEE BENEFITS IN MAJOR TAX parking); by December o00 CInterest 1984. CH rate used to discount taxes =paid C in retirement _, to the have of (Washington, wealth been th falling forthcoming). atD.Cresults .: atEBRI, most fromincome forth expanded coming) levels, pension andreal "Basic cover taxage. Tax ratesReform: have risen. Implications Inflation for direct government Distribution expenditures of Employees over the withtaxPension subsidies and Health that might Coverage arise from from cost-effe sales Recent ctiveandEBRI may amounts research, neverpaid havehowever, for been materials, developed. suggests supplies, that such and estimates services purchased overstate would work benefits worker's employee's issues employer-pro together face Other Inthat economic any in vided age the the transcends risks. revisions tohighest under two meet he security, afirms Employer lth all atax the ofmamajor coverage jor were the concerns liability, building contributions component tax benefits. identi purchase treatment of csavings al taxing .special ofBenefits Furthermore, the such also ofas employer nation's employee interest well finance coverage forascontributions younger providing benefits, a economic unemployment groups. themselves. cap could employees In security hazard several afor ctIfasarea probably the cost Faced not of with insuring institute such young, athem. provision, single The only men. employers difference In short, who now between theoffer average the benefits two price options would of most REFORM PROPOSALS 14 Books I will discuss: year of o ,-_ retirement. o .m _n _a .,_ _ ,_ Employee Benefits," EBRI Issue Briefby no. Earnings 28, March, 1984. For a wide-ranging ,o .-4"O _ (D 4_ _D -,_m- 00 -,T _n > c. _O o The average taxpayer demanding tax reform does not see employee benefits 6. discretionary "reimbursement account" benefit programs that have tax incentives. discussion C of _ntheoreti 0 0 0 c .,-_ al and ..... practicalTable I , issues 4 (in n 0 basic _ tax reform, _ C see Dallas has overwhelmed the tax rate cuts enacted over this period. To stem the needs. aDefined Not At contribution the all heart retirement of plan thebenefits major costs tax doexhibit not _eform vary the movement bysame age.inis comethedistribution widespread belief patterns, employers less costlydidbecause not provide these health employees coverage, generallymosthave low-income lower health workersinsurance would not protection. particular, benefits would from the considerations insuramount ance, other be Alternative would inworker's of firms. the itrevenue is imp should tax otre essential se Total rates compens atments be tax lostvalue prominent. athey liabili tion, due that forwould to added tmajor emplo ythese andin yfor First impose. ee life tax inprovisions. vthe erse benefits reform insurance. - entire distributional Ifproportion andebates theconomy excise aBecause t These haveto look tax is imp ability been programs today's abeyond equal carried ct proposed - to to the protect lower total pay. probably temployee arget that benefits cut firms them with ba isckmuch and less-generous higher those who thanbenefit dothe notcost would plans of probably providing would feel not benefits compelled institute to to some as a tax abuse. Rather, both employers and employees see these benefits _ Comprehensive rnbeen legally _ X E i:l Income uallowed _ 0Tax ,,since o 0", e,l 01978 which allow (D _ employees I: 14 • to •have Deborah L. Salisbury, J. Chollet, ed., WhEmployer-Provided y Tax Employee Benefits? Health Benefits: (Washington,Coverage, D.C.: Provisions, EBRI, 1984). bsame life o Theinsurance goals ofcost employee is assumed benefits; for 65 to 69 as for 60 to 64 because it Employees with Employees with >, m o .m o _, Iz _0 • ,_ _, .,_ as part of the social contract 9 that defines how, with the assistance of Consumption reimbursement Tax accounts--funded by the employer or through 15 salary and Policy Issues (Washington, D.C.: Employee Benefit Research Instititute, EMPLOYEE BENEFITS IN MAJOR TAX REFORM PROPOSALS however. In particular, statutory provisions aimed at encouraging individual erosion Earnings that in is indi clude: assumed viduals theoftaxreal that and system income much the benefits Percent islower brought unfair for Distribution Pension will and about others. be inefficient. Coverage, by reduced this of Participation "bracket to1983 equal The middle-income creep," cost; Healthinregulations Cover employees age, taxpayer 1983 have allow wages, workers claims, salaries, disability and their interest, dependents rates, and rents, against mortality and economic profits. rates. uncert The Like ainty, adjustments the current and death. that income would tax,be middle pension-plan purchase revenue-raising Another These income private basic particip potenti worker considerations hebenefits alth aalnts willeffe insurance. be will acre tthenot have of alone major taxing "tax-ripoffs,", higher and Since victim employee examine most retirement ofpeople any the benefits arebroader such incomes not covered changes. vto iewed economic the than by by an indi today's Second the vidual- rates Employer meet them. tothan Some maintain Pensions the employers corporate their who competitive oroffer business benefits positions. taxesmight the The elimin firmeffor amight te tsthem beofpaying, or suchcontinue emplo then yers the to employers, individuals provide for themselves, their families, and their Value-Added Tax 15 1984) reduction--to pay expenses that fall into "statutory benefit" areas Total Percent Total Percent 7 Thiso argument Who receives is advan employee ced inbenefits; Robert E. Hall and Alvin Rabushka, Low Tax, a 30 percent reduction.Retirement If benefits Programs, are not by Ereduced, arnings, assume 1983 costs at 65-69 future. This social contract and related tax benefits affect over 150 •,_ • t. tn Federal Sales Tax 15 and are tax exempt (including health care reimbursement, child care Simple Tax, Flat Tax (New York: McGraw-Hill Company, 1983), p. 90. negotiated provision are feelsabout While thatfor 30 compensation hetax percent retirement orreform she higher. ishas packages paying differ broad (inFigures the millions) considerably. in support, bill which assume forbenefits itthe would life While loopholes insurance have also 59 (in played per have of cmillions) ent provided widespread theanofwealthy. increasingly pension is worth required would vary across benefits. progressivity employer Options retirees, public could Payments incentives the implications value-added Of be oasfor he In to all for "abusive they acto lth luding Alternative incre of full-time these desired elimin will pl tax eliminating ase anbenefit tax-shelters," benefits apte could athe are y-employees more benefits Tax some members attra include contributions Treatment tot incentives taxes treatments ctiveness al would in ofor and 2.4 in medium low- exclude percent are retirement. now not of would in and far and built flexible bethe employee middle-income be as too oflarge employee's more into total strong. significant Over compensation establishments, benefits regressive the compensation. their tax families, adjus to code. lifetimes, tin edor be than the termed gross ca 82feteri tax others. base. a to offercatcthem h upwith couldfull offset employee the effects payment. on Others employers mightwhose forego benefits improving exceeded theirthe I_ o _-_I_ _-. o _ million Americans. In 1981, employees earning between $15,000 and $50,000 reimbursement, etc.); Sophie M. Korczyk, Retirement Security and Tax Policy (Washington, D.C.: EBRI, o o o Pension _ ._ .,_ o Who receives the tax incentives for these programs; and one times pay. I: ro • r_ I: received 71.8 percent of all health-related tax preferences, 64.5 percent ISSUES IN IMPLEMENTATION AND forthcoming), Chapter IV. 8important Less *The In smaller than views The role. tax $20,000 expressed plans, system It is the is ininteresting considered cthis ost of statement providing 27.9 to by note, some are health solely to however, be59.0 insurance inefficient those thatof83. this the for 7 because authors trend the margin has 74.3 and al pFederal Acosts. arti Value-Added cipants One Salesofeaor Tax Ern athe rnings National less most than important Sales $20,000, Taxconsequences Plan 46.5 percentof401(k) of taxindi reform vidu IRAalproposals retirementthat Cpension in Fringe come; costsbenefits. for these Recent employees debates depend overontathe x legisl plans's ationdesign. have focused on Pensions employer-provided plans. employees percent In "fringes." particular, Many Under arenow Actuarial ofFurther, covered flexible these atincluding the heaby methods incentives lth beginning consideration acompensation pension benefits benefit usedwere ofplan in contributions prob their ofdefined-benefit designed plans, ably the (table pension appropriate substanti employees I). toincareers further Small the ally pension catax individual's nwill social firms, rele atreatment ise cplans trepay rand vfor aates rious doeconomic numerous all adjusted ofof notbut these levels benefit cap. If Suc pahemployer cka ages, systemwhile contributions couldstill alsoothers befordiffi benefits might cult instit towere implement uteincluded or infor crease innon--profit theemployee tax base, or X o _ o _ _0_ _ _ o of all pension-related tax preferences, and 67.5 percent of all TRANSITION 16 7. discretionary benefits that provide retirement income as a stream of WHO BENEFITS FROM TAX INCENTIVES? employee $20,000o tois The$49,999 based consequen on cthe es avof eraalternati ge c18.1 ostsve ofmajor insuring tax 38.0 reform the insured 26.2 proposals population for23.2 of should not be attributed to the Employee Benefit Research Institute, its insurance-related preferences. payments and for which taxes are deferred until benefits are Dallas L. o Salisbury, :_ • _ ,.ed., _ Why ........ Tax Employee Benefits? ro -_ (Washington, '_ b D.C.: EBRI, th $50,000 officers, at communit andtyrover .ustees, In lsponsors arger plans, or other the 1.4 staff. cost of insuring 2.9 the 2.7 marginal emplo 2.4 yee aabated ccountAwith federal (IRA)increasing $holders Isales to _19,999 tax and emphasis would 34.8 per have oncent 401(K) the 59.0 of same salary thoseeffect parti 34.8 reduction cip asating some 46.5 programs forms in Secof tion that the401(k) are seek investment to restructure and other the economic tax system decisions for the areaverage often driven taxpayer as would much or bemore to change by economic $0.25 private generally goals gross of they other coverage might oincome to Instituting benefits that health Elimin $0.40 reasons, allocate be could under is atreated ting of in insurance the not do the aevery addition contributions noption abe not emplo tional min ajefficiently tax-deferred or sponsor the coverage yerthat totysame sales pes dedu thewould plans or cmajor way tions of throughout tax pursued projected employee dollar. most that as ororfor uniformly. atradition disrupt the value-added through benefit the benefit benefits AsIntern the nonelderly althe the apension clontributions; pl Into arrangements categories. ata Re expenditure ns. 1981 xvindividuals, enue would popul system the AnaCode tion. employee President's notside The now matures, now have Tax used ofthe cpublic-sector benefits ontributions, shouldemployers, dedu be ctibles, clearlyneither separ or acted opof ayments whi from ch where debates pay business appropri over aprofit "consumption te. Employers taxes. fringes." are 1984) Including received Benefit (including Contributions employer contributions in to defined benefit The average taxpayer demanding tax reform does not see employee benefits is based on employee the aver benefits age costand, of insuring therefore,theeconomic populationsecurity. represented by that premiums to be$20,000 recognized to $49,999 as income for 38.0individuals 55.7 on the45.4 basis of age (in _ X 0 • • r./) _,0 o I: 6 Any revisions of the tax treatment of employee benefits considered in the pension Adjustedplans Gross and Income to defined contribution plans which 16 require Total a/ 47.4 I00.0 112.6 I00.0 subject employer'sto wFICA ork $50,000 tax force.and andemployer While over these attention two2.9methods to health would 9.5 care be likel cost-containment. 8.0 y to yield THE the plans value-added Dallas GOALS taxfell Salisbury treatment OFinto tax. EMPLOYEE this iof The s President employer indifference BENEFITS come group contributions of is the (tathat ble Employee 4). a federal for Benefit Secemployee tionsales Research 401(k) tax benefits. pl would aInstitute, ns be in plevied artiacular tax needs as by economic returns and productivity considerations. High determining the Reform the choosing numbers budget. oActa Capping of less-generous and them The 1984 income instead the elimination codified shalevels rehe for aof lth the an oftot ofthese employee insur treatment apension-plan l caompensation ncincentives e cohort plan, of benefits participants based for that in ex the acon like mple, anname aggregate beemployee and provided of canretirees short-term "spend" forecasts discounts inwill the the for same aCommission treats lready providing effect For employer-p working those onasPension benefits aa to who id taxredu chose levied life Policy ceand their to insurance could specifically concluded continue benefit alsopremiums their result that costs; on benefits. this insurance for ininthe cco could luding verage most cover Any only benefits regressive ain ge, tax beexcess changed levied theinof impact the atbytax theof contextOf of themajor four tax alternatives reform should that include tax reformers several have considerations proposed, however, First -only Pensions 17 payment in the form of an annuity); Shorter Papers as different a tax abuse. insuranceRather, costs both for employers any given employee, and employees underseeeither these method benefitsthe ascost The Employee Benefit Research Institute (EBRI) was formed in 1918 as a five-year non-profit,brackets) non-partisan, and coverage public policy levels. research The Treasury organization tables . use Before blended joining [-_ -,4 _ $_ _ _ .,4 u_ distributional impact - the middle-income worker will be the major victim of Health Insurance 18 II u_ _ Number I o of workers o _ o -_ .,_ marginal of Comprehensive EBRI insuring he served tax thrates aIncome tinemplo senior encourage yTax ee career doestaxpayers not policy represent research to seektheout positions cost tax-favored of that at the employee's sources U.S of and followsubsidized a different Employee cafeterias. incbenefits ome distribution These are also benefits now from playing are bothtooIRAs asmamajor ll and asemplo role a yshare er-sponsored in tax of redistribution at point $50,000. of that theof form point cohort's sale These of of or taof xpremiums sale, -at future favored taxdifferent while liability demographic are employee acurrently vstages alue-added and benefits; benefit and of included production economic taxcoverage. isin experience. imposed would the Third taxbe atbase. neutral each -Iftransition stage Thebetween cost of -of mandating employer's bdiffer abudget ase tax would Employer ongoals less heplans acost clth learl than could contributions ysavings or insurance they aby le ccaelerate ddo offering to ontoday. premiums added much for this tax higher As all life pro would credits. apublic cess result, insurance, costs bebut employer, regressive. for Asinatfirms vthe the acation a sofeder future, cpriv grow, ialWhile aate days, lcost. however, pension-related government employer, employer or other theyand indothe the national sales tax would offer employers and employees more flexibility any such changes. Second - progressivity desired - some treatments would be Options for Alternative Tax Treatment 18 "Basic8. Tadiscretionary x Reform: Implications benefits that for pro Employee vide for Benefits," the deferral EBRI of Issue salary Briefuntil no. expected part of the claims. social contract that defines how individuals provide for non-profit, non-partis (in millions) an, public policy 47.4research 1.9 organization 16.7 to conduct Department 0of 0 Labor'._ and _' the U.S. Pension Benefit '_ _-Guaranty , C_ Corporation. _ The SOUR actuarial CE: EBRI assumptions tabulationsfor men of U.S. and women Census based BureauonCurrent the proportions Population ofSurvey, men and more regressive than others. In particular, including benefit contributions 28, March, Effects1984. of Taxing Benefits 20 termination of employment, generally pay benefits as a lump sum, and work of Sophie M. Korczyk, Ph.D., Research Associate at EBRI in the policy. plans. income- capital More As 1983directed thand angains, hEBRI-HHS alfinof for theSection example--and Current Congressional 401(k) Population tax-favored plBudget an pSurvey articip Act uses aPension of nts 1974, ofearn income, Supplement. thebetween President's such$20,000 as compensaAtion comprehensive for the Department tax attempts of to Conunerce tax both to estimate actual andtheir imputed value.income. would production. add defined-benefit retirement create o Imposing Since significant programs. pension ana excise sales costs reductions Among tax taxwere imposes on employees allocated the in emplo public taxin yliability er's all among welfare establishments benefit indi onand viduals, thecwould ontributions; totalwho exacerbate itvalue would were of andthe benefits. tax contributions social future. expenditures The .-employee -4 When gre oAll a_test for compared employees--ex o benefits measured life oimpactwith andinof using c ltdisability _ept 1982 the propos costs the constit for alsTreasury's those insurance of uto tedassuring elimin who15.8 t_acapproach te hronicall a (:0reeconomic percent based employer ywill ,-on of 4guessed .security m be dedu employee themuch c •tions employee's wrong through closer for about to wages than life the insurance andtax benefits capvaries toaschoose aaccording formamong of compensation to benefits the indiavnd idual's and to thus choose age. would theFornot level example, change of coverage at age in the individual's adjusted gross income is the option that would most Eliminating Employer Deductions for which taxes are deferred until benefits are received (including themselves, their families, and their future. This social contract and resear preparation ch and of eduthis cational statement programs. is Eratefully EBRI is acknowledged. committed by charter to the women 9 Deborain h the J. group Chollet,of employees Employer-Provided with coverage Health over Benefits: $50,000 CoveraKe in value. , disrupt the arrangements now used for providing benefits and could also result 4 "Revising contributions the for Federal Employee Tax toBenefits some Treatment profit ofsharing Employerplans, Contributions to money 22 purchase to Healthplans housing. •,-_0 _ 0 :_ ° _' ° 0 _ co 0 e, Provisions, and Policy Issues (Washington, D.C.: Employee Benefit Research annual budget submission to Congress lists each year's tax expenditures. Many alifetime and / $50,000, Detail comprehensive estimates. maycomp not aredincome add with to ttotals aunder x proposals due 50 per toceninclude rounding. t for both in Totals taxable IRAs and include income employer-sponsored not only only those become employer product, According compensation oclear and Imposing ittowould employee that Chamber according afin implicitly vaaof ncing lue-added preferences. toCommerce Department atax given oremployer data, national retirement of these Commerce outlays sales benefits benefit estimates tax. for employee account requires (excludes for benefits a 0.6 lowerpercent since benefits earnings, covered intergener their directneed federal aby tional would contributions pensions for he probably spending, alth tensions. ininsuran 1983, be for tax onhealth cnearly Fourth incentives ethose or other insurance emplo 28 - simplification million yfor ees benefits- employee are who (or not. -would are 59.0 benefits -not As taxing percent) segregate now a result, may benefits covered. earned turn themselves the out would Most vless alueto to 30,betheprovided cost ofunder providing major life benefits insurance . Establishing worth an indi a ta vidu x acap, l's however, annual salary would in the most regressive redistribution of tax liability and benefit coverage. Capping and ESOPs); Employeeand Benefits as a Insurance: related tax Abenefits Continuing includes Debate,"the EBRI majority Issue ofBrief the no. U.S. 21, labor August, force.1983. premise Instititute, that 1984), the nation p. 94. is ser Anved EBRIpositively simulation inofboth private socialheaand lth economic insurance terms SPURCE: EBRI tabulations of U.S. Census Bureau Current civilianTo health achieve and an equitable pension plan distribution participants of tax who reported liability, their a schedule earnings like in _o -- _.,_ "_ ._ ,_:I_) 0 .-4 _0 _-_u_ 0 _ t,_ .,4-_ _ o _. Third - transition - would create significant reductions in public welfare and 2 Share of Total Compensation 23 plans. These suggestsMajor are thbenefits attax56reform toperceived 87 proposals percent toofflow offer all tocoways vcertain ered toworkers restructure taxpayers with as .... 1979 not a result family lower--the ofincthe ome CONCLUSIONS the cash of total Survey. wagescompens but AND When aalso tion. POLICY those allPopulation IMPLICATIONS or notmost reporting employer Survey,their contributions 1983earnings and EBRI-HHS areforadded, Current employee coverage Ppopulation benefits The into than issues plans $20,000aac ndc(table ording economi2). cto effe the cexpected ts that avrise alue of undertheir eachclaims. approach While differthis is the be contribution of vacation). employees these actuemployer-provided aally bargain. From outlays bewithout the more These for are For standpoint a complex benefit ayounger payments example, cost coverage than of cof overage employee production. according constitute long the is ate_m current tend larger thato nmost social toDepartment It for share system beworkers' would one and in .ofcloser smaller economic likely Finally, tot of main alCommerce tofirms have compens source retirement policy, thelittle aand tion potential data, ofhowever, at lower aage. effect, t lower point is 17oup percent the difference as large asinit theistax at age treat45, mentwhile ofm insuran at age.cme60pro Cthis _- videdcostunder is nearly the would exacerbate intergenerational tensions. Fourth - simplification - taxing An Excise Tax on Benefits 24 _,_._ ,-_-- o m o _, "Controlling 9. discretionary the Cost benefits of Health that Care:provRecent ide forTrends the deferral in Employee of salary Health until Plan less totals by thethan The existen are distribution $15,000 higher. ce of would employee of notbenefit-rel have benefit purchased atedprograms; tax privbenefits ate theyhecaalth n among beinsur clearly income ance, shown groups if anto Survey Pension Supplement. that governing the tax treatment of life insurance would probably have to be benefits would actually be more complex than the current system. Finally, the A Value-Added or National Sales Tax 24 Design," _ _special EBRI Issue needsBrief ariseNo.(loans 0 23, 0 0 October, 0and 0 0hardship), 1983. O t_ or until _ntermination 01 u_ of on Health a current insurance basis. statutory treatment of certain sources or uses of income. nation's employer had tax bill. not offered Major and taxcontrib reformutedproposals to their suchhealth as theinsuran flatcetax,plathe n. income 4 cemployer-based onsiderabl times leas vyels . large and pensions (calculations the added now tax provide based payment ovon er of table half low-income as 7).much workers retirementwouldincome be aas the however, The revenue the contribution difference O_While o gains on either tradition from between fortemployer aalxing thetax benefits younger benefits exemption or 0 0indi 0make employee 0vshould idual 0and up 0 tax the be can behavior largest deferral compared accrue ,-4 _ regarding part interest must withaddition _, ,-of 4a :1lways the employee over alprovision bea noted: longer demandsof protection fundamental employer's income Basic levels. against auspices prin tax creform As iplethe smcompared all behind happeals azaand rdsnew with flexible to thafirths tthe a broad maytre compensation grow keep atment constituency. and thembe ofcfrom ome plans, insurprofit providing ance Current man able, ypuremployers chased and fortheprojected y byarethe potential revenue gains from taxing benefits should be compared with employment, generally pay benefits as a lump sum, and for which o u oooooo _ _ o_ reflects the distribution of coverage and participation. In 1981, employees improve economic security. We are aware, however, that there may be limits to developed for all employee benefits. Given the Supreme Court's decision in additional demands that could result on the expenditure side of the budget. 12 CONCLUSIONS AND POLICY IMPLICATIONS 24 Deborah taxes J. Chollet, are deferred "Assuringuntil Economic benefitsSecurity are recei forved Workers: (including Health, "fast" tax, the consumption tax, and the gross income tax, would lower Of allOffull-time the 51 tax employees expenditure in medium provisions and large that establish benefitments, individuals, 96 perc20, ent benefits, lemployee arger'-'11:b share benefits. employee of their benefits incomeo have mthan o oalso at o ohigher begun o _ to income ev_olve ,.olevels. to meet • EBRI X the :Itaneeds bulations of the sponsoring period Social these that Including could programs ToSecurity ofavoid time, Benefit these resultboth the while program. plon Contributions ainequities ns reduce the the nowexpenditure same opri demands If r'4cthat e obenefit employer 4 in o'1 the uwould on Adjusted '_ 0high- side Social 0increment pensions _arise cof ostGross the Security h.4insur ifbudget. were for In all acome nan cand elimin indi e rn older options vOnce _contribute idu ated (Dals employee such .,_ at and were aless Social tohas taxed the than to deficit more individual themselves, likely levels dire to their cpose in tly. cur families, athe While threat financial persons and to the their commitment economy; without futures.pension itinvmay Together, olvedbe coverage that in es employer tonly ablishing can establish sweeping Once such a comparison is made, the tax code will be seen as a very efficient Disability,contributions and Life Insurance to some profit Benefits," sharing Statement plans, thrift-savings before the United plans, States what earningcanbetween and should $15,000 be provided and $50,000 for both received social 71.8andpercent economic of all reasons. EBRI the Arizona v. Norris case, such tables would probably not be differentiated means of encouraging employer provision for individual economic security. NOTES 27 and salary reduction plans). Senate Finance Committee, Subcommittee on Taxation and Debt Management, or nearly 40 percent, affect the tax treatment of privately- and margin are covered al tax byrates healthand and expand by life the insuran incomecetax plans base. (table These I). proposals Among would be of financed data produced primarily by theoutCongressional of employer contributions. Budget Office (CBO) indicate that under changes public ch comparison anging _,Most consensus inwork pl is the ans made, force. taxfor do L,structure not the _Social nCensus determine tax.r,e.Security code will 0data 0 0could allow the show 0 0(table c0osts prove that the ;::: federal of 5). over toemplo betheyaee government very last 0 benefits decade, efficient 0 .o •to Con _,raise themeans the basis of on IRAs the employee Security contributions an value onaverage abenefits benefit of tax-preferred the for costclaims plans. were retirement of insurance, toexpe baRemoving sis, bected increased andthose under Treasury hethe althwithout tax by them programs, 50 dedu regulations topercent, he ctions amlth aintain including orfor prescribe the other aemployee deficit reaSocial sonable insuran thebenefits projected Security camount erisk paypool of for in Hearing on Employee Fringe Benefits, July 26, 27, and 30, 1984. health-related tax preferences, 64.5 percent of all pension-related tax by sex. Such tables could, however, be differentiated by age, family status, Major Tax Reform '_ _ References _ 0 0 o o o 0 o 0.4 ., 284 _ (D _) • J_:: 0 0 0 0 0 0 0 '_ ,_: ,_ would encouraging probablyprivmake ate provision this commitment for indi une vidual conomical. economic security. •_ • 4J o o o o o o o I_ ,.-4 =_ ._ EMPLO = oYEE _c_B oo E oNEFI oo T RESEARCH = _INST o,ITUT o E o EMPLOYEE BENEFIT RESEARCH INSTITUTE Appendix I - What Are Employee Benefits? 29 •,--_ o _ ,-_ ,.._ _ _ u'l o o l_ E-_ _ l= '_ I=l _ C • _c,4 0 0 H C _ 2121 K Street, NW ; Suite _60 %Vashington, DC 200 _7 Telephone (202) 659-0670 2121 K Street. N\\ Suite _60 \Vashington, D(_ 2007,7 Telephone (202) 059-0670