Lost in the debate over whether the money that uninsured people will be required to pay the federal government starting in 2015 is or isn't a tax, are a few significant facts that will influence not only the struggle over taxes from now until Election Day but also the future of tax policy:
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President Barack Obama speaks during a campaign event at Wolcott House Museum Complex in Maumee, Ohio, on July 5, 2012.
- The money (or penalty or tax or whatever you want to call it) that the uninsured will pay is relatively small, so small that one wonders whether it will have the effect of nudging people into buying insurance and whether a future Democratic Congress would need to increase the tax in order for it to have the desired nudging effect. By 2016, the Affordable Care Act requires most Americans who don’t buy insurance to pay a penalty of $695 for each uninsured adult in the household, or a percentage of household income, (2.5 percent of the amount of income over the tax filing threshold). That’s less than the average cost of buying insurance. “The individual mandate is too weak,” said Avik Roy, a critic of the law who is at the Manhattan Institute, a conservative think tank. Roy, who is also an advisor to the Mitt Romney campaign, predicted that people will go without insurance, pay the tax, and then purchase insurance only after they get seriously ill or end up in a hospital emergency room. “This will massively drive up the cost of health insurance in the private market, effectively destroying private health insurance, unless significant reform takes place,” he said.
The Washington Post's Chris Cillizza and Politico's Jonathan Martin break down the war of words over what to call the health care insurance mandate in the wake of the Supreme Court's ruling.
- Despite the raucous debate since last week’s Supreme Court decision, the revenue generated by the tax on the uninsured will be quite small: only $4 billion per year. By comparison, the federal government collects more than $6 billion every day in tax revenues. By 2019, the Affordable Care Act’s new Medicare tax on people with incomes more than $200,000 will be raising ten times as much revenue as the tax on the uninsured. And unlike the tax on the uninsured which starts in 2015, the Medicare tax will begin having its impact only five months from now: it takes effect on Jan. 1 and will collect $20 billion in new revenues next year, increasing to nearly $40 billion a year by 2019.
- Aware of the fact that this new tax on the uninsured will inevitably raise taxes on some middle-class people – a tax increase which President Obama vowed to not to impose, Sen. Ron Wyden, D- Ore., is renewing his push for his idea of a waiver. Under a provision Wyden put in the ACA, states who don’t want to go along with the individual mandate and the tax for being uninsured have the option of setting up their own alternative systems for covering the uninsured – just as long as the alternative state plan gives individuals insurance coverage that’s at least as comprehensive as provided under federal law and as long as the state plan covers as many people as the federal plan would cover.
Obama has endorsed Wyden’s idea of moving up the date the state waiver becomes available from 2017 to 2014. Especially in light of the court’s decision last week which framed the penalty as a tax, Wyden said, a state waiver “will be increasingly attractive” to states which don’t want to go along with the tax increase or have their own version of health care reform they want to attempt. He said his waiver “is an opportunity for states to take approaches that are philosophically in tune with their views.” In some states that might be a single-payer government system; in others, it might be a market-oriented plan.
It remains to be seen whether any states will take Wyden up on his offer. But Wyden’s effort shows that some Democrats see the tax increase on the middle class as a political liability.
- The tax debate since last week’s decision has overshadowed the issue of cost. When a family pays a tax, it ends up of course with less money to spend or invest. But when it pays higher prices for health care, it also ends up with less money. A 2011 analysis by the RAND Corporation found that if health care costs had kept pace with the overall inflation rate - instead of exceeding it - over the prior decade, a median-income family of four would have an extra $5,400 left in their bank account at the end of each year. The success or failure of Obama’s massive overhaul will rest as much on its ability to control future cost increases as it will on the taxes that people will pay.