CBO: ObamaCare Tax Hits Middle Class
New CBO Data Shows That 80 Percent Of Those Paying ObamaCare’s Mandate Tax Will Be Families Earning Less Than $123K
New CBO Data: ‘The Middle Class — Will Have To Pay’
“Congressional budget analysts are now estimating that nearly 6 million Americans — most of them in the middle class — will have to pay a tax penalty for not getting health insurance once President Barack Obama’s health care law is fully in place. That’s 2 million more than a previous estimate found…” (“Tax Penalty To Hit Nearly 6M Uninsured People,” AP, 9/19/12)
- “The average penalty will be nearly $1,200.” (“Tax Penalty To Hit Nearly 6M Uninsured People,” AP, 9/19/12)
- Four out of five who will pay penalty have an adjusted gross income of less than $123,000. (“Payments Of Penalties For Being Uninsured Under The Affordable Care Act,” CBO, P.2, 9/12)
BROKEN PROMISE: ‘Absolutely Not A Tax Increase’
STEPHANOPOULOS: “Under this mandate, the government is forcing people to spend money, fining you if you don’t. How is that not a tax?” … PRESIDENT OBAMA: “No. That’s not true, George. The — for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase. What it’s saying is, is that we’re not going to have other people carrying your burdens for you anymore than the fact that right now everybody in America, just about, has to get auto insurance. Nobody considers that a tax increase.” (“Obama: Mandate Is Not A Tax,” ABC News, 9/20/09)
SEN. BARACK OBAMA (D-IL): “And if you’re a family making less than $250,000 a year, my plan won’t raise your taxes one penny — not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes.” (Barack Obama, Remarks, Orlando, FL, 8/3/08)
Household Income Down: ‘Middle Class Lost Ground Again Last Year’
The Washington Post: “The middle class lost ground again last year, falling to an all-time low in their share of how much income they take in, new census data released Wednesday showed.” (“Census: Middle Class Shrinks To An All-Time Low,” The Washington Post, 9/12/12)
U.S. Census Bureau: “Real median household income in the United States in 2011 was $50,054, a 1.5 percent decline from the 2010 median and the second consecutive annual drop.” (“Income, Poverty And Health Insurance Coverage In The United States: 2011 Press Release” U.S. Census Bureau, 9/12/12)
- Household income down $777. “2010 Median income, All households: $50,831 … 2011 Median income, All households: $50,054.” (“Income, Poverty And Health Insurance Coverage In The United States: 2011 Press Release” U.S. Census Bureau, P.6, 9/12/12)
- “In 2011, real median household income was 8.1 percent lower than in 2007, the year before the most recent recession…” (“Income, Poverty And Health Insurance Coverage In The United States: 2011 Press Release” U.S. Census Bureau, 9/12/12)
- “Real median earnings of both men and women who worked full time, year-round declined by 2.5 percent between 2010 and 2011.” (“Income, Poverty And Health Insurance Coverage In The United States: 2011 Press Release” U.S. Census Bureau, 9/12/12)
Beginning in 2014, the Affordable Care Act (comprising Public Law 111-148 and the health care provisions of P.L. 111-152) requires most legal residents of the United States to either obtain health insurance or pay a penalty tax. That penalty will be the greater of: a flat dollar amount per person that rises to $695 in 2016 and is indexed by inflation thereafter (the penalty for children will be half that amount and an overall cap will apply to family payments); or a percentage of the household’s income that rises to 2.5 percent for 2016 and subsequent years (also subject to a cap).
The Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation (JCT) have estimated that about 30 million nonelderly residents will be uninsured in 2016, but the majority of them will not be subject to the penalty tax. Unauthorized immigrants, for example, who are prohibited from receiving almost all Medicaid benefits and all subsidies through the insurance exchanges, are exempted from the mandate to obtain health insurance. Others will be subject to the mandate but exempted from the penalty tax—for example, because they will have income low enough that they are not required to file an income tax return, because they are members of Indian tribes, or because the premium they would have to pay would exceed a specified share of their income (initially 8 percent in 2014 and indexed over time). CBO and JCT estimate that between 18 million and 19 million uninsured people in 2016 will qualify for one or more of those exemptions. Of the remaining 11 million to 12 million uninsured people, some individuals will be granted exemptions from the penalty because of hardship, and others will be exempted from the requirement on the basis of their religious beliefs.
After accounting for those who will not be subject to the penalty tax, CBO and JCT now estimate that about 6 million people will pay a penalty because they are uninsured in 2016 (a figure that includes uninsured dependents who have the penalty paid on their behalf) and that total collections will be about $7 billion in 2016 and average about $8 billion per year over the 2017–2022 period. Those estimates differ from projections that CBO and JCT made in April 2010: About two million more uninsured people are now projected to pay the penalty each year, and collections are now expected to be about $3 billion more per year.
Most of the increase—about 85 percent—in the number of people who are expected to pay the penalty tax stems from changes in CBO and JCT’s baseline projections since April 2010, including the effects of legislation enacted since that time, changes in the economic outlook (primarily a higher unemployment rate and lower wages and salaries), and other technical updates. A small share—about 15 percent—of the increase in the number of uninsured people expected to pay the penalty results from the recent Supreme Court decision. As a result of that decision, CBO and JCT now anticipate that some states will not expand their Medicaid programs at all or will not expand coverage to the full extent authorized by the ACA. Such state decisions are projected to increase the number of uninsured, a small percentage of whom will be subject to the penalty tax.
Among the uninsured individuals subject to the penalty tax, many are expected to voluntarily report on their tax returns that they are uninsured and pay the amount owed. However, other individuals will try to avoid payments. Therefore, the estimates presented here account for likely compliance rates, as well as the ability of the Internal Revenue Service (IRS) to administer and collect the penalty.
CBO and JCT have also updated their estimates of the distribution of those penalty tax payments by income category. Table 1 shows how much of those payments are projected to be made by or on behalf of people who are uninsured in 2016 (which the IRS will collect in 2017) in each of several income categories, measured as percentages of the federal poverty level (FPL). In general, households with lower income will be subject to the flat dollar penalty (with adjustments to account for the lower penalty for children and an overall cap on family payments), and households with higher income will owe a percentage of their income. In 2016, households with income that exceeds 400 percent of the FPL are estimated to constitute about one-third of people paying penalties and to account for about two-thirds of the receipts from those penalties.