'Obamacare' tax furor losing sight of some key points
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:
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 dont 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). Thats 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.
Despite the raucous debate since last weeks 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 Acts 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.
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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 dont 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 thats 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.
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