The Haig - Simons definition of income states that any benefits that increase the ability of an individual to consume should be include in taxable income. Most medical expenditures probably fall into this category. (For an obvious example, the money in the account could be used to purchase designer eyeglasses. Even "real" medical goods such as sleep aids or heartburn medications are a form of consumption, however.) On the other hand, there are some medical expenditures that should not be included in taxable income, according to Haig-Simons. These include medical care for acute or chronic job-related injuries. For example, expenditures on treatment for repetitive strain injuries resulting from working a job should not be included in taxable income since these expenditures are required to bring well-being back up to the level it would have been without working the job.
Health-related expenses may also yield positive externalities, an additional reason to subsidize these expenditures. One way to subsidize them is to exclude them from income taxation, as is accomplished by cafeteria plans.
The Haig - Simons definition of income states that any benefits that increase the ability of an individual to consume should be include in taxable income. Most medical expenditures probably fall into this category. (For an obvious example, the money in the account could be used to purchase designer eyeglasses. Even "real" medical goods such as sleep aids or heartburn medications are a form of consumption, however.) On the other hand, there are some medical expenditures that should not be included in taxable income, according to Haig-Simons. These include medical care for acute or chronic job-related injuries. For example, expenditures on treatment for repetitive strain injuries resulting from working a job should not be included in taxable income since these expenditures are required to bring well-being back up to the level it would have been without working the job.Health-related expenses may also yield positive externalities, an additional reason to subsidize these expenditures. One way to subsidize them is to exclude them from income taxation, as is accomplished by cafeteria plans.
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