The Obama campaign stepped up its rhetoric against the McCain health care plan over the last week with a new series of ads.

But leave it to Paul Krugman at the New York Times to confuse, twist and misrepresent the McCain proposal. In today’s column, “Health Care Destruction,” Krugman writes:

Mr. McCain, on the other hand, wants to blow up the current system, by eliminating the tax break for employer-provided insurance. And he doesn’t offer a workable alternative.

Without the tax break, many employers would drop their current health plans. Several recent nonpartisan studies estimate that under the McCain plan around 20 million Americans currently covered by their employers would lose their health insurance.

Krugman distorts the impact of McCain’s plan by confusing two tax concepts: the “employee exclusion” and the “employer deduction.”

McCain’s plan eliminates the exclusion but does nothing to the deduction. Here’s how it works:
Say you’re a family of four making $80,000 per year and your employer provides health insurance valued at $10,000 per year. By eliminating the exclusion, you now owe taxes on $90,000 instead of $80,000 (because your health benefit in now included as income). In the 25% tax bracket, you owe $2500 in additional taxes on the $10,000 in extra income.

But McCain’s plan also gives that same family a $5,000 health care tax credit, leaving them with an extra $2500 in their pockets.

At the same time, employers still get to deduct the costs of providing health insurance, just as they do today.

That sounds more like helping middle-class tax payers than “health care destruction.”