• Obamacare is the biggest tax increase in history … if you ignore history

    Maybe you’ve heard that Obamacare is the biggest tax increase in history. Not so. Not even close. Kevin Drum posted the evidence in a table. I turned it into a chart. More here and here.

    By the way, the evidence also suggests that Obamacare is neither unconstitional nor likely to be job killing. It’s not wrong to oppose the reform, but let’s at least be clear about what is true about it. Or, at least let’s be so here.

    UPDATE: Kevin Drum has posted an update to defend his figures, which are in my chart.

    @afrakt

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    • Near as I can tell, Kevin Drum’s numbers don’t include the cost of individuals purchasing their own health insurance. Both your link to politifact and the treasury certainly don’t.

      If I understood the Supreme Court’s decision correctly, forcing people to buy health insurance does constitute a tax. So Kevin Drum’s numbers are simply wrong – they ignore the biggest tax in the bill.

      • Disagree. Everyone has the option of paying the lower (penalty) tax. As the minimum necessary to comply with the law, that’s the appropriate figure for the calculation.

        • Even accepting that, Kevin Drum’s post still ignores the full costs.

          He uses the figure of $27B over 10 years (I’ll simplify to $2.7B) which the CBO claims the penalty will raise. This figure only accounts for people who will pay the penalty rather purchase insurance.

          However, following your logic that only the cost of the penalty counts as a tax, we still need to calculate the cost of the cheaper option for every American. Eyeballing the size of the penalty at $850/year and multiplying by 300 million gets us something on the order of $250 billion/year. That’s a bit under 100x what Kevin Drum claims.

          (I’ll leave more accurate calculations to someone who gets paid to do them.)

          http://www.businessinsider.com/how-much-is-the-obamacare-penalty-tax-2012-7

          To be safe, lets cut the number down to $125B/year (0.83% of GDP), since I’m sure I made mistakes somewhere. Eyeballing your graph, that’s roughly the 2′nd or 3′rd biggest tax increase ever. It might not be the biggest tax increase ever, but it does come close.

          • The claim is that this is the largest tax increase in history. Hence, the issue is, how large is this as a tax increase? If you already have coverage and continue to have it, then your taxes will not go up.

            • Take a look at what Keith Hennessey wrote. You can be pretty sure he will make it sound as bad as he can, and he is incorrect about a few things in his piece. Still, he concludes that about 3.9 million people will pay the tax/penalty. The individual penalty is about $700 and the family will be about $2000. The math from there is pretty easy and correlates with CBO estimates of about $5 billion a year over 11 years.

              http://keithhennessey.com/2012/06/28/uninsured-tax/

              http://cbo.gov/sites/default/files/cbofiles/attachments/03-13-Coverage%20Estimates.pdf

              (Look at Table 2 at the end of the CBO piece.)

              Steve

            • “The claim is that this is the largest tax increase in history.”

              Who’s claim? You make generic all encompassing reference to this claim then structure a response to disprove it.

              Here is a claim;

              http://www.forbes.com/sites/merrillmatthews/2012/06/29/is-obamacare-the-largest-tax-increase-in-u-s-history/

              “And if both the premium and the penalty are considered a tax, the mandate becomes the largest tax increase in U.S. history. And that doesn’t include all of the other taxes imposed by the legislation.”

              They specifically claim premium is included in their argument, you ignore that part then say they are wrong by calculating it differently then they did. The Forbes claim is clearly accurate.

            • You can include whatever you want in whatever calculation about anything you do. Then others get to judge your decisions for themselves, of course. And that’s what commenters are doing here, which is fine. In response, I already defended what I (or those I cite, really) did. It doesn’t make the other side’s argument any more persuasive to just repeat it, which is what you’re doing.

              I think it is bogus to consider premiums part of the tax increase, and I explained why. I’ll add one more reason. The premiums don’t go to the government, but to private companies. Are payments to private companies taxes now?

              Anyway, you seem to disagree. I’m not surprised, but this fact is hardly worth discussing further.

            • But you don’t cite, you reference drum who references Marshall who says;

              “But Republicans are now saying it’s the ‘biggest tax increase in history’”

              He has no link or cite to anywhere, just a claim that Republican’s say. I have never heard a Republican make the generic statement that you, drum, marshall claim they do. Drum’s “take down” of the argument makes a lot more sence when you leave out the part about premiums, if you want to debate including premiums then debate including premiums, don’t make arguments about CBO estimates of penalty collections.

              Classic straw man argument, claim Republican’s are saying something with no proof then deconstruct that made up argument. Ironic right after you felt compelled to warn people on citing their arguments.

              For additional irony you want to get picky on premiums being taxes but only a few days ago dismissed a penalty v tax argument as meaningless and political. Now words do have meaning?

              Many of us less educated would consider any forced payment from the government as a tax regardless of who collected it. Are they technically wrong, sure, doesn’t change that is how they view it. And the line is not as clear as you say, sales tax is paid to the merchant not the government. If government taxes insurance companies or device makers or someone else who then passes it on to me, is that not a tax?

            • Just Google: obamacare “largest tax increase history”. You’ll find your examples. I just looked and they are there aplenty.

              If you want to get into device taxes, etc., go ahead and score it out and make a chart. Do it on your own blog. Let me know where to find it.

              “Are they technically wrong, sure”. With that admission, we are done, sir. We care about details and precise use of language here.

            • I think the problem with the Obama tax increase compared to those from the 50s to the 90s, is that there were more people paying taxes at that time. With todays tax burden at less than 50% of the nations population, who is gonna pay for it and how?

          • 300 million people in this country are uninsured? News to me!

          • Every American won’t be paying the penalty, only the people that can afford insurance, but choose not to buy it. Your math doesn’t work…

      • a slight correction…you asked if you understood the SCT decision correctly to say that “forcing people to buy health insurance constitutes a tax.” That is not what the Court said. The Court said that the penalty that is authorized to be assessed on a person who chooses not to purchase health insurance is a tax–not the purchase of insurance itself. The penalty is constitutional because Congress has broad taxing powers. Note that if insurance is not available for less than 8% of a person’s income, that person cannot be penalized (taxed). It is important to be clear when talking about taxes because it is such an emotionally loaded word.

      • The flaw in your logic can come from my state of Arizona. Every time my state legislature claims to “cut taxes”, it costs more money. They cut all day kindergarten and parents have to pay for 1/2 out of their own pockets- sounds like a tax. They cut funding to colleges and parents have to pay higher tuition. Sounds like a tax hike to me. Making folks responsbile and pay into a system before they end up in an ER makes sense (and since the idea came from the Heritage Foundation, it cannot be socialist). At least they are not lying to us claiming they are cutting taxes like my peeps in Az do.

      • Chris, forcing people to purchase insurance is not what this graphic delineates. It only compares the tax increase component, on the wealthy for you Fox and Limbaugh folks, relative to other historically large tax increases.

      • The U.S. Supreme Court ruled that Congress has authority under its taxation powers to require citizens to purchase health insurance or pay a penalty. The mandated purchase of health insurance iteself is not a tax. Money paid for the purchase of health insurance is paid to insurance companies and is not revenue raised by the Federal Government. It is the penalty for non-compliance alone which is authorized by the taxation powers of Congress. It is still early to know the dollar value of all gross penalties to paid out for non-compliance. However projections on the real contribution of these penalties would be low as there are many exemptions and assistance in place for lower income earners.

    • Also, Obama is campaigning on extending the Making Work Pay tax credit in some form. The original version ($400 flat credit) cost ~$116B/yr or over 0.5% GDP (i.e. more than Obamacare revenue). The current version (2% payroll tax cut) has a similar cost; the cut is larger for most that get it, but not as many people qualify.

      Romney’s campaigning on ending this cut in any form. He’s calling Obama’s proposal to let some upper-income rates revert to pre-2001 levels a tax increase. Both the Obama and Bush cuts expire at the same time — either both Obama and Romney are campaigning on tax increases (ending Bush cuts for some and ending Making Work Pay, respectively, or neither are.

      Obamacare is a separate issue as it is already law. Republicans want to confuse people into thinking that it taxes everyone (via the mandate) when, in reality, the bulk of the income comes from taxes on rich people: an upper-income payroll surtax, a tax on investment income and a penalty for companies that don’t provide insurance. Obama’s campaign will be a total failure (even in winning) if it can’t educate the American public that repealing Obamacare is best summarized as “tax cuts for rich people, less healthcare for the poor and less affordable healthcare for the middle class.” This is especially true since it dovetails with Romney’s pledges to drastically lower marginal rates (disproportionately benefiting the wealthy) while cutting Medicaid by “over $200B” per year (i.e. $4k per beneficiary).

    • By most accounts it appears that the so called penalty is cheaper than any healthcare plan. The question then becomes do healthcare companies lower their fees for fear of losing members or do they increase them and create a sort of premium market? I can see how employers could drop coverage or improve their benefit plans.

    • The chart presents the tax increases as % of GDP and the only tax increases that clearly exceed the ACA are all 30 or more years ago, so it is quite possible that the ACA is the biggest tax increase in history in overall nominal dollar terms. It might be even if you adjust for inflation.

      All this illustrates is that you can make any economic number look as big or as small as you want to make it look simply by cherry-picking the benchmark or scale. Personally, I don’t care if it is the biggest or smallest or somewhere in between. I’d rather see a discussion which attempts to answer the following questions: (1) Does the ACA increase the budget deficit? (2) Does the ACA reduce our overall health care costs while maintaining or improving the quality of health care? How the ACA stacks up historically as a tax increase is simply political trivia.

      • Personally, I’d find any historical comparison of federal revenue or spending of any sort that doesn’t adjust or account for the size of the economy to be meaningless.

        • I’d be most interested in a comparison of the new tax to old taxes w/r/t how much they cost to a family with the median income on a per state basis. (So, look at the median income family in each state and then say how much the taxes will cost/did cost).

        • I agree that % of GDP is a better metric for historical comparisons, but that is not your critique of the GOP. You are claiming that they have the facts wrong. Their facts may be correct. They may be using a different metric.

          This is why political discussions on health care reform (or any other topic for that matter) are so frustrating. Both sides want a “Gotcha” moment. “Obamacare is the biggest tax increase in history!” “Your facts are wrong!” Honestly, who cares? How does this discussion advance our understanding of anything? There is a lot that is good and bad (and a great deal that is ineffectual) in the ACA. I read this blog for insights on health reform and health policy in general. I don’t see how this discussion is advancing the ball at all.

          • I agree this is not the most important aspect of health policy to discuss. That’s why I only wrote a few sentences about it, relative to the hundreds of thousands on health policy I’ve written here and elsewhere. Still, many people seem to want to discuss it in the comments.

            Nevertheless, it is true that some politicians and pundits are making a claim that this is the biggest tax increase in the history of the world (or universe). Those individuals are not being clear about their metrics, and I don’t believe they have tax data from other galaxies. Some are calling premiums taxes, which makes little sense to me. Yet their voices are being heard, and their message is being repeated. It’s important that something fact based is out there on this, if only for a place for individuals to find something serious to chew on if they want to ponder this question.

            In any case, I’m moving on. Wanna bet there will be many more comments on this though?

      • Seems unlikely. The requirement to purchase insurance (and that purchase is subsidized if you’re below a certain income level) or pay a penalty of $2000 applies ONLY to those 4 million or so folks who forgo buying health insurance (or who opt out of their employer’s plan to save money). GOP propagandists are acting as though this requirement applied to the entire population (a typical ploy of theirs).

      • I think you are asking exactly the right questions, the tax effect will be debated endlessly, in the meantime, will this work to reduce the deficit and improve access to healthcare/

    • Given all of the factors that affect a particular enterprise’s decision to increase or decrease staffing,or to make capital investments instead of hiring, or to move to a different location, or to expand in state or country A vs state or country B – it’s next to impossible to accurately determine the precise magnitude that any particular factor had on hiring, no matter how ornate the regression model one uses happens to be – and we don’t have the luxury of a counterfactual.

      In complex systems where there’s a complicated relationship between all of the known interactng parameters, and it’s quite likely that there are many others acting that aren’t known, or even knowable – it’s very difficult to establish that varying parameter A caused a specific change in parameter B. Yes – you can find a statistical association between the magnitude of the change in one, and the magnitude of the change in the other. Is that really sufficient evidence to to establish the claim that any increase in operating costs associated with the ACA will have no effect on hiring and employment?

      Is that really stronger evidence than the logical proposition that something which increases operating costs will reduce operating margins unless it’s offset by a corresponding increase in productivity – which – all things being equal, will lead to less hiring than would have occurred otherwise.*

      *http://highered.mcgraw-hill.com/sites/0070891540/student_view0/chapter5/chapter_notes.html

    • Saying that you should countthe cost of the uninsured buying insurance along with the penalty/tax for those who don’t is silly. That is like saying that I pay higher taxes for not having children (I DON’T claim the $1500 per kid credit as I am childless) and that ALSO the costs associated with having kids is also a tax. Or like saying renters pay higher taxes all else equal than buyers, since they don’t get the mortgage interest deduction, and in addition homeowners also pay the tax by getting a mortgage. People who do and don’t get solar power for their home both pay a tax. Etc.

      The tax code is already littered with things to encourage things (solar power) and discourage others (smoking.) This health care fine is intellectually exactly the same.

    • OK, fair enough — you have some nice arguments that the claim that Obamacare is “the biggest tax increase in history” is false. But you also have provided strong evidence that “Obamacare is the largest tax increase in the last 25 years, except for the Clinton tax increase”. Good luck with that as your talking point!

    • slightly different take … census bureau indicates 2010 health insurance =
      306 million = total pop
      50 million = no health insurance
      169 million = health insurance paid by employer
      30 million = health insurance paid by individual
      95 million = under a government program

      numbers don’t add to 306 million as some people are covered under multiple types of insurance (e.g. seniors can have Medicare and a private policy).

      But in the end … today, only 10% of the population is actually paying for their health insurance directly. And the only people that you could conceivable put a tax or premium approach to are the 50 million that are currently not paying anything … and for many of them, subsidies will mean that they ‘get’ not ‘pay’. Therefore … it’s likely a stretch to count it that way.

      Two other items … I believe that Roberts said, “could be construed as a tax” or something like that (or have I mis-heard … have NOT read the decision).

      Final question, this is a direct tax and I thought that direct taxes 1) had to be applied evenly and 2) had to originate in the house (I had heard that this particular legislation actually originated in the senate).

      Thanks for letting me participate!

    • Dear Austin Frakt Forced commerce “taxes” the available resources you would have spent elsewhere while not a direct revenue to the treasury. That will then be taxed ;-)

    • I’ve read with interest all of your comments and am humbled by your knowledge of and ease with economic theory and tax manipulation. I am not an economist, not even close. I am first a pragmatist and have been consider in the past to be a dyed in the wool republican. That whole”dyed in the wool” thing went out the window as the ill conceived war in Iran began to spin out of control and our national debt began to climb into the stratosphere.
      So, from my pragmatic position, healthcare reform has to happen in some fashion as the current model of delivery and funding is not sustainable. The Affordable Care Act (ACA) is a beginning that skirts the line between a universal care model, which in my opinion is purely socialized medicine, and a highly control and regulated market model. It is not perfect by any stretch of the imagination, but it is a place to drive a stake in the ground (can you tell I come from a farming culture?). I’ m certain it will undergo many revisions and make-overs but the important issue for me is that healthcare reform is now in our collective economic and social radars and it won’t come off any time soon. So I will leave you all to your economic theories but for my part, I’ll put some lipstick on this pig and go to market!

    • Claiming that those who already have insurance will not be penalized, so not taxed, is incorrect. Obamacare has already increased my health insurance by 30%. I can no longer afford it. It is driving me into the group of uninsured people. That is an increase.

      (ed. note: This is an example of an unsubstantiated claim that requires evidence. You have been warned!)
      http://theincidentaleconomist.com/wordpress/policies/#comments

      • Serious question: what would count as permissible evidence in to substantiate this claim? Even if he posted the bills for his insurance premiums – aren’t we back in the wilds of “multi-parameter land” where someone could claim that it’s an endogenous increase that has nothing to do with the ACA.

        It’s your blog, so do as you wish, but I’d think that this would also be an equally tough thing do definitively disprove unless you have a private meeting with the acturaries writing the policies for this guy’s insurer.

        IMO you’d be better of applying this standard to claims like “there’s no proven link between HIV and aids” or “vaccines cause autism” than claims that are the medical/health-econ equivalent of “There’s no durable consensus about the precise magnitude of the multiplier effect of stimulus spending, and those estimates do not always return values greater than one.”

        Much of the heated debates at the nexus of health and economics take place in the terrain much more like the debates about the effect of stimulus spending than the clinical efficacy of particular interventions.

        • You’re right. There is no evidence one way or the other that Obamacare caused his premium to go up 30%. So don’t go there.

          You can say that your premium went up. You can say Obamacare exists. There’s no causal evidence for the latter causing the former (especially since most of the regulations haven’t taken effect yet, and insurance went up pretty much every year WITHOUT Obamacare), so don’t say there is.

    • so if i am understood correctly from reading some of the conservative talking points here is that they believe that obamacare or better unknown as the affordable health care act is the biggest tax increase only because if a person does not have healthcare insurance then they would be penalized if i remember correctly say about 800 single 2000 married? how being penalized for not having insurance a tax? you never have really defined that. so is a fee on cigarettes a tax as gov tim pawlenty did here in minnesota? how about if you run a stop sign or break the speed limit would you getting a ticket for that be considered a tax? no! come on just because you change the wording to make something different looking doesnt make it that. just like the idea that any program for the poor is considered an entitlement but if it is for banks and corporations its a subsidy. oops my bad i changed topics but you get my point.

    • I have had and paid for health care since I was in my twenties (I am now 49) and I am tired of paying for others healthcare with my ever increasing premiums, deductibles and co-pays. EVERY ONE of us with healthcare insurance is already paying a “tax” on those who refuse to purchase insurance and cannot pay their bills. It is about time they start paying their OWN way when it comes to their OWN health care. The Right loves to talk about liberty and freedom…think about this…the Affordable Healthcare Act will LIBERATE me (and you) from having to pay for the healthcare of those who choose to be uninsured!

    • Not a job killer? Scott & White publicly announced on the local news they were giving pink slips to marketers, accountants, and a director in order to make room for this expense. They went so far as to filming the former emloyees pack up their belongings into their vehicles. This is just one huge hospital hit. I’m sure they’ll be more to come that we may never hear about.

      (ed. note: This is an example of an unsubstantiated claim that requires evidence. You have been warned!)
      http://theincidentaleconomist.com/wordpress/policies/#comments

    • Scoot and White fired people..? Don’t you mean they are growing and hiring more people?

      http://wtaw.com/2012/07/05/scott-white-moves-up-opening-of-new-college-station-hospital/

    • “the largest tax increase in the history of the world.”

      This is what you get with our shameful mainstream media. When the truth doesn’t matter, only looking “Balanced” and “Very Serious”, then the right knows they can get away with making their lies more and more grandiose and baldfaced.

    • Some of you are really bending the pretzel trying to make the ACA look like a massive tax increases. IF you want to include the cost of premiums to private insurers because of the forced mandate, then you need to include the forced savings for individuals and businesses due to better healthcare. Moreover, I note that not a single naysayer has included the future savings to Medicare from the ACA, which the CBO and others have estimated to be over $1T.