Ramesh Ponnuru’s latest column for Bloomberg View is on a policy debate within Team Romney that could have an enormous impact on the outcome of this year’s presidential election. And according to Ramesh, it looks as though Romney is leaning in the wrong direction:

In 2007, George W. Bush’s administration proposed to start treating individually purchased and employer-provided coverage the same. People who got insurance either way would get a “standard deduction” of $15,000 off their taxable income — and they would get the same deduction whether they bought cheap or expensive insurance, restoring the incentive to economize. Romney is considering reviving Bush’s idea.
Like today’s tax break for employer coverage, the standard deduction would be most valuable to people in the highest tax brackets. The uninsured typically aren’t in those brackets. As a result, Bush’s proposal would have done little to increase rates of insurance coverage. At the high end of estimates, 9 million additional people would have gotten coverage. (About 50 million Americans lack insurance.)
That’s why other Republican health proposals have offered a tax credit instead of a deduction. A credit is worth the same amount of money in all tax brackets. When Senator John McCain ran for president, he proposed a $5,000 tax-credit plan for families. Representative Paul Ryan and Senator Tom Coburn have also introduced tax-credit plans. Compared with a deduction, a credit would increase the number of people with insurance much more for the same amount of money.

As Ramesh goes on to explain, Team Romney is convinced that the deduction will be more amenable to fiscal conservatives than the deduction. Yet Ramesh recounts that the tax credit strategy has garnered near-universal support among center-right health policy experts. For a sense of what the tax credit strategy might look like, I recommend reading James Capretta and Robert Moffitt’s National Affairs essay on “How to Replace Obamacare.”

The central virtues of the tax credit strategy are that it is more likely to yield a significant coverage expansion and it is more progressive than the deduction. Moreover, as Ramesh argues, it is easy to retrofit the tax credit approach so that it minimizes disruption to existing health insurance arrangements — it can simply be limited to those who don’t have access to employer-sponsored insurance, at least during a transitional period.

Ramesh is right: this is the most important policy decision since Romney emerged as the presumptive Republican nominee, and it is crucial that he gets this right.