I don’t think that too many people are taking President Obama’s National Commission on Fiscal Responsibility and Tax Reform very seriously. Most free-marketers believe that it is a mechanism to put lipstick on a significant tax hike, or add a national Value-Added Tax (VAT) to the taxman’s toolbox.  Nevertheless, it was a little startling to learn that the Commission might propose eliminating “the ability of employees to pay a portion of their health-insurance tab with pretax dollars”

From a purely economic standpoint, this is a trivial issue.

The status quo, whereby the employee can take advantage of Section 125 of the Internal Revenue Code to finance a share of his employer-based health benefit directly, does not increase his choice of health plan. He still has to accept whatever limited choices his employer chooses for him. Furthermore, our employers do not actually pay any of our health premiums: We pay ever last penny ourselves, mostly through reduced money wages (as I discussed in detail in my analysis of Senator McCain’s 2008 presidential campaign’s proposal to reform the tax code to give individuals a tax credit).

But public policy is about emotions and psychology as well as pure economics, and camouflaging health costs by deluding people into believing that their employers pay for our health benefits has done immeasurable harm to the cause of consumer-driven health reform.

Read the entire post here.