Obamacare Tax Frays Middle-Class Vow

The U.S. Senate's version of Obamacare finally is emerging into broad daylight, and the more people see of it, the less popular it should be.

For all the rhetoric, the plan is quite easy to sketch, thanks in part to an analysis by the congressional Joint Committee on Taxation.

So here goes: Under the health-care plan advanced by Senate Finance Committee Chairman Max Baucus, lower- and middle-class people who have insurance today are going to be taxed and squeezed in order to cover people who don't.

The money to finance the new entitlement comes from two main sources, tax increases and Medicare cuts. Medicare cuts are mostly borne by elderly folks with modest means. That undoubtedly explains why seniors are so concerned.

Democrats always seem to promise that they will finance their dreams by taxing the rich. And they always seem to increase taxes on everyone.

The tax increases, by contrast, have received little attention. There has been almost no discussion of the simple question: who would pay the tab?

Think about how unusual that is. It is a radical departure from past tax debates. When President George W. Bush was in office, every tax proposal, no matter how minor, seemed to be buried by a blizzard of detailed distributional analyses that went from think-tank Web sites to the front pages of your favorite newspaper instantaneously.

In this debate, the distributional-industrial complex has remained silent.

Such remarkable silence in the noisiest town on earth can only be caused by an uncomfortable truth. And the mother of all uncomfortable truths is lurking below the surface in the health debate. If you are a card-carrying member of the left-wing establishment, you can't analyze the distributional consequences of the health bill, because if you do, you will catch President Barack Obama in a lie.

Campaign Promise

Think back to the 2008 election, when Obama promised again and again that he would not increase taxes on the middle class.

"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," Obama told an audience in Orlando, Florida, in August 2008, something he repeated at almost every opportunity.

In one way the statement is true. If your income is less than $250,000, Obama will not raise your taxes by just a penny. The hit will be much more painful than that.

We know that now because Senator Orrin Hatch, Republican of Utah, asked the Joint Committee on Taxation to perform the distributional analysis nobody else would. The committee's analysis was provided to him in a letter dated Sept. 17. I received a copy a week later.

Tax on Plans

The report focused on the main revenue-raising step of the Baucus plan, an excise tax on high-cost insurance plans. At the time of the analysis, the Baucus plan held that if you have an insurance plan with a high premium (exceeding $8,000 per individual or $21,000 per family), your insurance company would pay a tax of 35 cents for every dollar that your plan exceeds the threshold.

The goal of the tax is to raise revenue to cover the uninsured and to discourage these so-called gold-plated plans, which some say encourage excessive medical care.

Ostensibly the excise tax is a tax on insurers. But as with other excise taxes (gasoline, cigarettes), the cost would undoubtedly be passed on to the consumer, in the form of more expensive insurance. Or firms might stop offering generous plans and increase wages commensurately, which would also increase tax revenue.

The analysis by the Joint Committee on Taxation concluded that tax payments would indeed rise. And it found that the middle class would be stuck with the tab.

87 Percent

The report projected that the excise tax would raise about $52 billion in 2019. Of that, about $8.9 billion would come from taxpayers with incomes of less than $50,000; about $19.4 billion from taxpayers with incomes between $50,000 and $100,000; and about $17.4 billion from taxpayers with incomes between $100,000 and $200,000.

Add those up, and you see that about 87 percent of the revenue in the original Baucus proposal to finance Obamacare would come from individuals with incomes of less than $200,000.

Baucus and the Senate committee have since upped the proposed tax to 40 percent, and the trigger thresholds to $9,850 and $26,000, tweaks that shouldn't change the basic thrust of the story. The Democrats' plan is a moving target--and given who will pay the tab, that is probably on purpose.

The remarkable thing is that this revenue comes from low- and middle-income people who already have insurance. Many members of organized labor have these "gold-plated" plans. And they would be worse off, not better, because of Obamacare.

Democrats always seem to promise that they will finance their dreams by taxing the rich. And they always seem to increase taxes on everyone.

There they go again.

Kevin A. Hassett is a senior fellow and the director of economic policy studies at AEI.

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