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NationofChange / Op-Ed
Published: Tuesday 3 July 2012
“The penalty-tax that the individual mandate imposes will soon constitute one of the most regressive taxes in the United States.”
Obamacare as Regressive Taxation
Last Thursday the Supreme Court upheld President Obama’s signature domestic policy –the Affordable Health Care Act –by arguing that its individual mandate falls under Congress’s jurisdiction to levy taxes. Chief Justice Roberts wrote in his majority opinion that the Affordable Care Act’s mandate to purchase health insurance may “reasonably be characterized as a tax [and because] the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”
Meanwhile, the Obama administration has long asserted that the mandate—the bill’s fulcrum, really—is necessary to ensure that other provisions of the law function smoothly. That is, supporters view the mandate as essential to market based reform; without it, they argue, many healthy people would remain without insurance coverage, premiums for individuals and employers would accelerate, and insurance markets could become unstable. When the uninsured who can afford premiums do become ill, unaffordable health care costs are often absorbed by the rest of the population.
Unfortunately, the penalty-tax that the individual mandate imposes will soon constitute one of the most regressive taxes in the United States. (The terms “penalty” and “tax” here are effectively fungible. Whatever the nomenclature, it’s the functional equivalent of a tax.) The penalty-tax structure authorized by this law inherently disadvantages low income earners who, in effect, pay proportionally more on fewer dollars. Taxes imposed here are uncannily akin to the regression rates of sales and social security taxes. Take a look at the scatter chart below:
©Christopher Petrella
The penalty-tax will be phased in incrementally from 2014 to 2016. The minimum penalty-tax in 2016 will be $695 per person and up to 300 percent of that per family. After 2016, these amounts will automatically increase at the rate of inflation. (This constitutes yet another reason the minimum wage must immediately be indexed to inflation.)
The $695 per-person penalty-tax only applies to those making between $9,500 and ~$37,000 per year. Individuals making less than ~$9,500 are exempted and those earning more than ~$37,000 will pay a penalty-tax calculated by the following formula: 2.5 percent of any household income above the level at which one is required to file a tax return. That level is currently set at $9,500 per person and $19,000 per couple. The penalty on any income above this threshold is 2.5 percent. The IRS will collect the “fine” here, a fact that no doubt proves this is a tax, not a penalty. (The IRS isn’t in the business of levying “penalties,” right?)
Although the Affordable Health Care Act creates a number of exemptions for low-income earners making less than $9,500/year, members of Native American tribes, certain religious groups currently exempt from Social Security taxes, and hardship cases determined by the department of health and human services, the Congressional Budget Office (CBO) nonetheless estimates that about 26 million Americans will still be left uncovered in 2016. The Affordable Health Care Act not only constructs a captive consumer market redounding unilaterally to the benefit private insurers, but it also manages surreptitiously to levy a disproportionately burdensome tax on individuals making $9500-$37,000 annually. Whereas the politicians lie, the numbers here certainly do not.
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ABOUT Christopher Petrella
Christopher Petrella is a NationofChange contributing author and a doctoral candidate in African American Studies at the University of California, Berkeley. He writes on the contradictions of modernity and teaches at San Quentin State Prison. His work has appeared in such publications as Monthly Review, Truthout, Axis of Logic, NationofChange, and The Real Cost of Prisons. Christopher also holds degrees from Bates College and Harvard University.
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25 comments on "Obamacare as Regressive Taxation"
July 05, 2012 9:54am
Legal reasons why this forcing us to pay a private, for profit, insurance company is not constitutional - NO govt body has legal powers over our health choices.
Is this a tax? Pretend so, the fed govt STILL has no legal powers in this area. The only reason they "do" is because we don't call them on it.
Don't get me wrong, our "health care system" is really bad, but the causes are the big companies and their running the alphabet soup agencies, and buying of congress to attack real health care and increase their profits at our expense. Note how they just inserted themselves further into your wallet when we have less discretionary income than about ever.
Would i like something more effective in the health arena and would i willingly support it? Yes, provided it was constitutional, which may require an amendment. Secondly, for my support it MUST allow for medical freedom. Some states medical Nazis don't even allow naturopaths to practice, like Minn for one.
Again, greedy rich people in suits making decisions under the disguise of being an impersonal and respectable corporation and having those decisions ALWAYS benefit them, frequently at the expense of damaging our life quality, our health, our opportunities, and sometimes, our very lives. (Look at the murderers running Monsanto!)
July 04, 2012 4:34am
You can call it a penalty, a tax, or a unicorn, it doesn't change the purpose of it. The IRS levies penalties all the time (try paying your taxes late.) Is this the best plan, or even a good plan? No... it further subsidies a failed private healthcare system. What it is is a compromise with the Republicans and the American people. That's how you get things done. At least now insurance companies are required to serve their very purpose...covering sick people.
July 03, 2012 2:59pm
I am increasingly concerned about the distorting misnomer of this act. It is upsetting when those apposed to changing the nation's healthcare system to equalize care use the term "Obamacare," but more and more journalists, t.v. spokespersons and those of us who support the change, slip into using as well. To do so is to collude with the opposition. I am "calling" people on it and writing to news sources to remind them to use the accurate term: Affordable Health Care.
July 03, 2012 1:59pm
As the author of this piece I'd like to anticipate counter-arguments concerning the "tax-credit offset..."
Individuals at 133% of the FPL (14,800/yr) receive a credit so that their out-of-pocket payments represent no more than 3% of income. Individuals at 200% of FPL (22,300/yr) receive a credit so that their out-of-pocket expenses represent no more than 6.3% of income. The problem here resides in the fact that those making $22,300/yr without health insurance, for example, will likely incur a penalty/tax nearly 50% larger (percentage-wise) than those making over $40,000/yr, but still 50% smaller than their cost of coverage with the aid of tax credits. The tax-credit structure screams disincentive, no?
I'm convinced that a single payer system would obviate most of these complexities.
July 04, 2012 10:26am
Labeling the healthcare mandate "one of the most regressive taxes in America" is a bit over the top, but its a good attention device hence your employment of it. The "Affordable Care Act," not "Obamacare," does some good things and some bad. It "does" get the "pre-existing" monkey off America's back, helps tremendously with women's pre-natal care, and keeps young people on their parents insurance plans until age 26. It also is a shameless give-a-way to the pernicious and insatiable insurance industry and will do little if anything to reduce ever inflating costs. I agree with you that the "single-payer system" would, and should have been, the one to go with. Until, and if that occurs, I suggest this: That ALL children in the U.S., 18 or younger, be covered under a Medicare for all type coverage. What of "illegal aliens" one might ask? KIDS from Mexico or wherever didn't ASK to be born "illegal." The Pentagon "lost" 1.2 TRILLION dollars between 1990 and 2002. We can "lose" a few dollars saving some kids life in a nation based supposedly upon "Christian values." After the age of 18 (or 26) the mandate should not be forced upon anyone...but here's the caveat. Each individual so choosing not to pay the mandate/tax/premium signs a waiver declaring that he/she is not entitled to ANY healthcare related services. Car accident, fall off a ladder, incur cancer...YOU decide to roll the dice and either save your money or suffer the consequences. Risky? Absolutely!
Attractive in the alleged "land of the free?" I'm betting it would be.
July 03, 2012 1:42pm
Millions of American who work for wages and salaries
have Social Security contributions withheld from their pay every day.
Same with contributions to Medicare.
It's not voluntary.
If the employers don't collect it they will be penalized.
So, there's the tax and and penalty.
What's the difference between the mandate to pay Medicare taxes and
the mandate to "buy" into the Health Care program?
July 04, 2012 3:23am
Medicare and SS are not private for-profit corporations' products. If there were even a public option, I could stomach that. Now, there is no guarantee that I will "get" anything in return for thousands in payments per year. What if I don't need any service in a year? That just cost me thousands. Better that I save that money. Besides which, if these policies are unaffordable now, and a person does not qualify for any subsidy, where is the money for premiums supposed to come from? Thin air? or from money budgeted for food, housing, meds, etc? Total rip-off.
July 03, 2012 1:26pm
I just hope penalty money goes toward preventive health. We need less Americans gorging themselves on fast food... and more Americans buying plums at the farmers' market.
July 04, 2012 3:26am
It doesn't go toward preventive care, it goes toward the expense of the program.
http://my.firedoglake.com/obey/2012/06/28/obamacare-and-scotus-why-are-p...
July 03, 2012 1:59pm
Well said, consideritdone.
July 03, 2012 1:15pm
He forgot the fact that everyone will need health care and they will be paying something for that anyway. Is the penalty more or less than that? If my family is an example, it will be more than the penalty
Also, if you go through a red light and get caught, do you pay a penalty or a tax? If you don't purchase health insurance and get caught, do you pay a penalty or a tax?
July 03, 2012 1:12pm
Arrogant Republicans don't think we're smart enough to purchase the care we know we need. Most of us won't pay a penalty as we either already have care, or will buy it by 2014 with the help of the new ACA law. If they want to pay the penalty for not covering themselves, let them. If the opt out of buying coverage and become ill but cannot afford the bill, make the penalty more money of some sort of public service. If they've never been without care when they need it, it will become an opportunity to see it first hand. I've been without and was thrilled to have qualified for Medicare after a full year on SSDI. While I'm paying out a lot in co-pays and Rx costs this year, it's a whole lot less than it would be if I weren't covered! Maybe they need an object leson!
July 03, 2012 1:08pm
Forgotten in this calculus is that the people between $9,500 and $37,000 get assistance in buying their health insurance and, if they take advantage of that assistance they don't pay the tax penalty, instead they get tax credits. As for whether it's a tax or not. It's authorized under the taxing power of the government just like tax credits are. It's a reverse tax credit, or tax penalty. It's not a general tax paid by most people which is what Republicans are claiming it is. In fact, estimates are only 2% of people will be so silly as to go bare on health insurance and pay the penalty instead. 60% have insurance now, so the penalty won't apply to them at all. The fact is that most uninsured right now are crying for health insurance, so when help comes available for them to get it they will. The trick is that with insurance you get care, especially preventive care. If you pay the penalty you're out the money without getting the care. It's irresponsible to call it one of the most regressive taxes when you don't have the economics right.
July 03, 2012 12:42pm
Um..."critics screech against him but come out with nothing to solve the health crisis" ...what about the Single-Payer option that we originally wanted and still want?
July 03, 2012 1:50pm
Single payer is the ultimate answer
Medicare for everyone from cradle to grave.
Get the parasitic health insurance industry
out of the equation and it all gets cheaper.
Why waste billions of dollars on CEO
bonuses when it could all go towards
delivering honest-to-God health care?
July 03, 2012 12:22pm
OK, I don't think this is exactly correct. The most regressive tax ever is the requirement that all suburban driving age adults own a car (the civic design largely prevents pedestrians or transit riders in sprawl).
Besides, aren't there supposed to be subsidies and insurance pools for the poor uninsured to get coverage? The idea is to cover people, not penalize them.
Meanwhile, Romneycare is a very bad way to do this, but with the most corrupt administration ever (sorry, that's what it is) what else can one expect?
For just one example, we've just been through the worst political / financial scandal in history, yet prosecutions for financial fraud are at 20 - 30 year lows. We're talking pretty darned corrupt.
July 03, 2012 12:15pm
It is not appropriate to refer to the penalty as a tax. A tax is something one must pay with no option to avoid. There is a very easy way to avoid this fee: just do the right thing and purchase health insurance. If you don't do it, you become a burden to everyone else; in essence everyone else pays a tax on your bad behavior. So let's see if we can't stop politicizing this issue and just agree that everyone benefits from universal health coverage so just accept the fact that good citizenship requires that we all participate in this needed program.
July 03, 2012 11:05am
Doesn't this analysis ignore the subsidies that are provided to low-income people to buy insurance? I thought those subsidies would essentially cover the costs of insurance for people at the lowest income levels (rendering the penalty moot). Obamacare is not nearly my favorite plan, but this analysis misses the point by treating the penalty as a stand alone tax.
July 03, 2012 11:10am
What subsidies are you referring to? Whatever you might imagine the amount is not big enough for additional spending for health insurance.
July 04, 2012 12:47pm
Perhaps the subsidies to Exon and the other oil powers could be transfered to health care where they might be more useful
July 03, 2012 10:40am
"The terms “penalty” and “tax” here are effectively fungible. Whatever the nomenclature, it’s the functional equivalent of a tax."
No they are not "fungible". This is exactly what the right wing say about all taxes -- they are functional equivalents of penalties. Especially a progressive tax system, which they say penalizes success.
So please, let's not start playing their word games.
July 03, 2012 10:32am
Christopher makes this claim: "the penalty-tax that the individual mandate imposes will soon constitute one of the most regressive taxes in the United States." Yet, he provides not a single comparison to any taxes let alone all, showing the regressiveness of the health care tax. He could be correct, but certainly not based on the evidence he presents--he presents none.
July 03, 2012 10:28am
Nothing stops the future Congress from adding these people to Medicare. It may not be in the current law, but the current law can be changed. Ultimately we need some sort of Single Payer, which would put us into the ranks of the civilized world, instead of the Wild West.
July 03, 2012 10:25am
While I amopposed to the idea of regressive taxation such as the sales tax and the oft lauded flat tax I do not believe regressive taxes can be avoided completely.
If charging everyone the same rate is regressive then should not low wage earners get lower prices on food, fuels, theater tickets, clothing, communications, and other necessities and conveniences?
Keep in mind too that this penalty is to pay for a speific service the person will eventually need. If the price (you quote $695.00) is more thn that health rotetion is worth then he or she should buy insurnce.
July 03, 2012 9:58am
I don't think US is ready to throw out to the sidewalk from the hospital the millions without health insurance. When someone, Obama, is doing something about it, critics screech against him but come out with nothing to solve the health crisis in our "advanced" country. The sick and dying can't care the less about words like Socialism, Mandate or Taxation.