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Kozi Checks & Balances TaxTactics News

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October 03.2025

2 Minutes Read

How Limiting the Tax Exclusion for Employer-Sponsored Health Insurance Can Benefit Everyone

Healthcare document with stethoscope and pen, symbolizing health insurance.

The Tax Exclusion for Employer-Sponsored Health Insurance: An Overview

The exclusion of employer-sponsored health insurance (ESI) premiums from federal income and payroll taxes has been a long-standing practice in the U.S., dating back to World War II. This exclusion currently costs the federal government an estimated $5.9 trillion over the next decade, as projected by the Treasury Department. It incentivizes employers to provide health insurance rather than boost taxable wages, effectively encouraging higher health care outlays.

Future Predictions: Revenue Implications of Limiting ESI Exclusions

Recent analyses indicate that reforming the tax exclusion could generate significant federal revenue—up to $389 billion over the next decade—mainly from high earners. By limiting ESI exclusions at the 80th or 90th percentiles of premiums, policymakers could reinvigorate federal finances while tackling the rising burden of healthcare costs, which are anticipated to increase over 9% in 2026. This reform would redistribute some financial responsibility from the taxpayers back to those benefitting from generous health plans.

Understanding Healthcare Subsidies: Costs and Consequences

Healthcare subsidies have historically aimed to make health insurance more affordable, but their unintended consequences can inflate overall costs by boosting demand without addressing supply. The shift towards untaxed ESI benefits contributes to escalating healthcare prices, resulting in a greater financial strain on the federal budget. To tackle this, any expansion of premium tax credits must be counterbalanced by adjustments elsewhere, particularly by reducing the ESI tax exclusion.

Opportunity Trends: Potential for Reform

Experts from organizations such as the Tax Policy Center suggest several reform routes: outright repeal of the ESI exclusion, limiting it above certain premium levels, or substituting it with a refundable tax credit. These approaches would not only modify income distribution impacts but also address the root causes of soaring healthcare expenses. Implementing these changes could promote a more equitable tax system while potentially decreasing premiums in the long run.

Why This Matters: The Broader Implications

The discussion surrounding ESI exclusion reform goes beyond mere tax policy. It reflects deeper questions about healthcare access, economic equity, and the future of employer-sponsored coverage. With a reform strategy that normalizes compensation packages and curtails excessive health care costs, society can move towards a more sustainable healthcare landscape, potentially benefiting consumers and taxpayers alike.

Tax Deduction Deep-Dives

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11.19.2025

Why Tariff Dividends Could Weaken the Economy: An In-depth Analysis

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11.15.2025

Is OBBBA the Largest Tax Cut in History? A Deep Dive Analysis

Update Understanding the OBBBA: A New Era in Tax Cuts In the summer of 2025, Congress passed the One Big Beautiful Bill Act (OBBBA), heralded by some as the "largest tax cut in American history." This significant legislation aims to extend the Tax Cuts and Jobs Act (TCJA) and implement various tax reductions proposed by the administration. While the OBBBA features a projected $5 trillion reduction in federal tax revenues from 2025 through 2034, it ranks as the sixth-largest tax cut in the U.S. history relative to GDP, with an average revenue reduction of 1.4% over a ten-year budget window. Comparative Analysis: How OBBBA Falls Short of the Largest Tax Cuts Historical perspective reveals that the OBBBA, despite its size, does not surpass the Economic Recovery Tax Act of 1981 or the Revenue Acts of 1945, 1948, and 1964, which collectively reduced tax revenues by over 2% of GDP. These acts were pivotal in easing the financial burdens post-World War II and stimulating economic growth in subsequent decades. In contrast, the OBBBA, above all, maintains a modest impact in proportion to the overall economic landscape, ranking lower than many expect based on its ambitious title. Tax Benefit Distribution: Who Wins and Who Loses? While the act aims to provide widespread tax relief, studies indicate that not all taxpayers will benefit equally. Recent analyses reveal that nearly half of American households may experience minimal tax cuts of less than $100 annually. The bulk of substantial tax cuts tends to flow to upper-middle-income households, emphasizing a disparity that raises questions about the OBBBA’s claim to be the "largest" tax relief legislation. Specifically, a significant portion of tax breaks is targeted at higher-income earners who can capitalize on new deductions and credits, contrasting sharply with low-income households that might see little to no effect. Future Implications for Taxpayers and Businesses One essential takeaway from the OBBBA is its dual approach of extending tax cuts while introducing significant spending reductions alongside. This complex interaction could shape future fiscal policies and taxpayer experiences as the IRS grapples with implementing these changes amidst a diminishing workforce. These adjustments might also impact how taxpayers plan for their fiscal responsibilities moving forward, especially in sectors heavily influenced by the new tax laws. Conclusion: Is the OBBBA Really a Game Changer? While its proponents argue that the OBBBA represents a significant shift in tax policy towards favorable taxation for businesses and families alike, a closer examination suggests a more measured view. As the act becomes entrenched in public finance, its effectiveness may be judged not just by its fiscal scale but by its equitable distribution of benefits. The ongoing debates surrounding its implementation will likely influence the next steps in U.S. tax reform. Stay informed on how the OBBBA might affect you or your business by reaching out to a tax advisor for personalized insights.

11.12.2025

Should States Sacrifice R&D Incentives to Preserve Corporate Income Tax Revenue?

Update The Impact of Corporate Tax Policy on R&D Initiatives As lawmakers in various states consider altering their corporate tax structures, a crucial question arises: should we penalize research and development (R&D) to protect tax revenues? Recent analysis indicates that states, particularly those contemplating decoupling from the >One Big Beautiful Bill Act (OBBBA), risk undermining a vital component of economic growth. The move to decouple from the business expensing provisions could not only hinder R&D but also damage long-term growth prospects. Understanding the Stakes: A Snapshot of Corporate Tax Revenues The corporate income tax base has significantly expanded since the 2017 Tax Cuts and Jobs Act (TCJA), which lowered the corporate tax rate to 21%. With the introduction of immediate expensing for R&D under OBBBA, states are enjoying a broader tax base, providing them with an opportunity to stimulate investment in innovation rather than stifle it. Immediate expensing laws allow businesses to deduct their R&D costs in the year they are incurred, making it a critical component for encouraging companies to invest in innovation. R&D Credits: A Vital Tool for Economic Growth R&D tax credits remain among the most significant vehicles for encouraging domestic innovation. By allowing businesses to deduct R&D expenses, these credits help facilitate new technological advancements and improve existing processes. As highlighted by the Schaeffer Center, R&D-focused tax policies incentivize firms to engage in innovative activities that drive economic fragmentation, productivity, and growth. Balancing Tax Revenue and Innovation The conversation around incentivizing innovation through tax policy has become increasingly pertinent in light of the unique pressures facing state budgets. Decoupling from OBBBA may yield short-term tax stability at the cost of jeopardizing investments in critical sectors like biotechnology and information technology. If companies begin to perceive that R&D investments are discouraged or unfunded, they may choose to relocate innovation-heavy operations to states with more favorable tax environments. Looking Ahead: Strategies for Encouraging R&D Policymakers must recognize that protecting the corporate tax base does not have to come at the expense of innovation. Strategies can be developed to encourage businesses to invest in R&D while simultaneously addressing fiscal concerns. This includes exploring non-tax incentives that foster talent development and support for startups, which often drive novel technological advancements. Conclusion: A Call for Innovation-friendly Policies Ultimately, as states contemplate the ramifications of their tax policies, it is essential to align corporate income tax structures in a way that fosters innovation. The potential loss in R&D funding could create long-lasting negative impacts on the national economy. Instead of focusing solely on immediate tax revenue, lawmakers should consider long-term growth fueled by robust research initiatives. A balanced approach towards tax policy—one that supports corporate investment in R&D—will pave the way for sustainable economic growth.

How Limiting the Tax Exclusion for Employer-Sponsored Health Insurance Can Benefit Everyone

The Tax Exclusion for Employer-Sponsored Health Insurance: An Overview

Future Predictions: Revenue Implications of Limiting ESI Exclusions

Understanding Healthcare Subsidies: Costs and Consequences

Opportunity Trends: Potential for Reform

Why This Matters: The Broader Implications

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