Killing the Obamacare Tax Penalty Would Not Amount to a Tax Increase

Only in Washington can removing a tax penalty be considered a tax increase.

The proposed tax overhaul that is quickly making its way through Congress would eliminate Obamacare’s individual mandate. That mandate—ruled a “tax” by the Supreme Court—charges taxpayers anywhere from $695 to upward of $10,000 (based on their income) if they do not purchase the type of health insurance that the federal government requires them to.

According to the most recent IRS report, for the 2015 tax year, 6.2 million taxpayers paid the penalty and 82 percent of those taxpayers made less than $50,000 per year. Another 12.7 million taxpayers qualified for an exemption, and 4.3 million more failed to report their health insurance status on their tax forms.

Without eliminating the individual mandate penalty, any of those 4.3 million taxpayers that didn’t report their health insurance coverage status and are not enrolled in an approved health plan will also have to pay the penalty next year when greater enforcement measures are scheduled to kick in.

So how does removing hundreds or thousands of dollars in “tax” penalties result in a tax increase, as some claim?

Well, if an individual or family decides that it is not in their best interest to purchase highly regulated, expensive, and often excessive health insurance, they will forego any Obamacare tax subsidy that they would qualify for if they did purchase the coverage.

Depending on each taxpayer’s income and available health insurance options, the Obamacare subsidies can range from no more than a few dollars to over $12,000 a year per individual and upward of $20,000 per year for families.

It is because the Congressional Budget Office counts those lost credits as tax revenue increases that the bill has been said by some to increase taxes on individuals and families making less than about $40,000 per year.

However, when the Congressional Budget Office looked at the impact of the proposed tax reform excluding the effects of eliminating the Obamacare penalty, it determined that all income groups would receive significant tax cuts through 2025.

The Congressional Budget Office’s conventional methodology, which says eliminating the Obamacare penalty would produce an increase in tax revenue, is misleading. What they are really saying is that the government would lose less revenue because some people would voluntarily forego a tax credit that they would otherwise claim if they bought the coverage.

The argument that this is somehow a tax increase also misses two other important points:

  • Declining the tax credit is optional.

The alleged tax increases—as a result of not receiving an Obamacare subsidy—are entirely optional. Individuals and families who currently receive tax credits for their health insurance can continue to receive the exact same credit under the proposed bill.

The only change is that they have the option—without penalty—to not purchase the government’s proscribed health insurance and, as a consequence, to not receive a tax credit.

Under the proposed bill, any time they change their mind, they will still qualify for the exact same premium tax credit that they would currently get for buying the coverage.

  • Taxpayers can’t spend the credits on what they want.

Unlike other tax credits that individuals receive back as cash, which they can spend on anything, Obamacare tax credits aren’t like cash. They’re more like gift cards that can only be used to purchase certain types of qualified health insurance from insurance companies.

Obamacare credits do not boost individuals’ or families’ disposable incomes. Instead, they boost insurance companies’ revenues. Eliminating the individual mandate penalty, on the other hand, could increase taxpayers’ disposable incomes by hundreds or thousands of dollars.

To count the decisions of some people to not buy health insurance—and thus forego Obamacare tax credits that were never actually delivered to them—as tax increases, is misleading to say the least.

Eliminating the Obamacare individual mandate will not reduce any taxpayer’s incomes by a single cent. It will, however, reduce the tax bills of many individuals’ and families—based on their own choices—by hundreds, if not thousands, of dollars.

And most importantly, it will leave taxpayers freer to make personal decisions absent the heavy hand of Uncle Sam.

The post Killing the Obamacare Tax Penalty Would Not Amount to a Tax Increase appeared first on The Daily Signal.

Seniors Face Return of Obamacare Tax in 2018

The clock is ticking for the return of an Obamacare tax that opponents say will hit older Americans on fixed incomes particularly hard, costing them an extra $500 per couple.

“For seniors on fixed incomes, my heavens, it’s a real problem,” @60PlusAssoc says.

Congress hasn’t taken action to delay or eliminate the tax before Jan. 1, when a moratorium on it expires. In 2015, Congress acted on a bipartisan basis to postpone the tax, which dates to President Barack Obama’s second year in office.

“It’s not just seniors, but clearly seniors are more financially strapped. And $500 per couple might not seem like a lot, but for seniors on fixed incomes, my heavens, it’s a real problem,” Jim Martin, chairman of the 60 Plus Association, a conservative organization for senior citizens, told The Daily Signal.

The estimated average of $500 per couple is based on an October study by Oliver Wyman Health, a health research firm that says the tax would mean a “$255 increase per Medicare Advantage member (including Special Needs Plans and Employer Group Waiver Plans).”

Medicare Advantage is a supplemental benefits program in which more than 100 private insurers compete for customers within the federal Medicare program. It covers about one-third of all Medicare beneficiaries.

In 2010, when Democrats in Congress passed the Affordable Care Act, better known as Obamacare, the lawmakers included what the Internal Revenue Service calls the “health insurance provider fee.” Opponents call it the “health insurance tax,” or HIT.

The fee is a tax on health insurance companies, but the nonpartisan Congressional Budget Office projected the tax “would be largely passed through to consumers in the form of higher premiums for private coverage.”

“The bottom line is that HIT is a $12 billion tax annually on health insurance companies,” Martin said. “Guess what the companies are going to do? They’re going to pass it on.”

The 60 Plus Association launched a $500,000 TV ad campaign in November calling on Congress to block the Obamacare tax.

The tax collected $8 billion from insurers after going into effect in 2014. The tax doesn’t have a specific rate, but is set to grow every year based on the rate of growth in premiums. The Department of Health and Human Services sets the rate each year based on what it considers needed revenue.

Congress imposed the moratorium on the tax in 2015 to slow the rise in insurance premiums.

“It’s an excise tax with a twist that you’re raising a fixed amount of money, and therefore instead of the revenue from the tax varying, the tax rate varies,” Ed Haislmaier, a senior research fellow in health policy studies at The Heritage Foundation, told The Daily Signal.

Haislmaier continued:

If you have a fixed excise tax like gasoline, if people drive more and consume more gas, the government gets more revenue from the tax. This is one where it says the government wants to get X revenue and if people drive more, we’ll lower the tax and if people drive less, we’ll raise the tax, so that we always get the same amount of revenue.

So, it has this perverse effect, to the extent that fewer people buy insurance, the people that do buy insurance end up paying a higher rate.

Sen. Cory Gardner, R-Colo., who sponsored legislation to delay the tax for another year, spoke about it Wednesday to conservatives gathered in Washington at a meeting convened by Americans for Tax Reform.

In a formal statement after introducing the bill in September, Gardner said: “We need to look at every avenue we can to provide relief to the American people from the high costs created by the Affordable Care Act.”

Last month, Rep. Josh Gottheimer, D-N.J., touted his opposition to the coming tax in meeting with business owners in his district.

More than 20 percent of the health insurance tax falls on Medicare Advantage, according to the Better Medicare Alliance, an advocacy group for Medicare recipients.

“The HIT tax is applied to all private health insurance plans, but its impact on the senior population will affect those on a fixed income and [who have] less capacity to absorb higher taxes,” Robert Moffit, a senior fellow in health policy at The Heritage Foundation, told The Daily Signal. “This is another case where Obama misled the ordinary Americans on fixed income.”

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