Critical Condition

The Truth About Obamacare’s Tax Subsidies and Marriage Penalty

It was supposed to be the centerpiece of his presidency. It was the heart of his legislative agenda. When he signed the Affordable Care Act (a.k.a. Obamacare) into law, the President proudly proclaimed that “this legislation will also lower [health care] costs for families and for businesses and for the federal government, reducing our deficit by over $1 trillion in the next two decades. It is paid for. It is fiscally responsible. And it will help lift a decades-long drag on our economy.”

19 months later, the president’s crowning achievement is falling apart.

Federal judges have ruled that Obamacare’s individual mandate is unconstitutional as it “would invite unbridled exercise of federal police powers.”

In April, Congress repealed the job-killing 1099 provision that would have saddled small businesses with unprecedented costly and time-consuming tax requirements.

Last month, the Department of Health and Human Services (HHS), after spending months defending the bill’s Community Living Assistance Services and Supports (CLASS) Program, realized that it wasn’t the cost-saving program they said it was — determining it would actually cost taxpayers money and has suspended its implementation.

As it turns out, one of the law’s supposed benefits — tax subsidies to assist certain households with the purchase of health insurance — introduces a substantial marriage tax penalty, expands welfare through the tax code, discriminates against people with workplace health insurance, and will likely further explode the nation’s deficit.

The Congressional Budget Office (CBO) has projected that Obamacare’s refundable health insurance tax credits and Medicaid expansion will increase the nation’s debt burden by $1.36 trillion in the first seven years that these provisions are fully implemented.

The CBO estimates that about three-quarters of the cost of the Obamacare tax credits will be new spending since many of the filers who claim the health insurance tax credit will lack positive income tax to offset.

In fact, over time, CBO is estimating that Obamacare’s health insurance tax credits will grow significantly more expensive. The tax credits are projected to increase the deficit by $55 billion in 2015, $87 billion in 2016, $104 billion in 2017, $115 billion in 2018, $123 billion in 2019, $130 billion in 2020, and $137 billion in 2021 — the last year of the ten-year budget window.

The House Committee on Oversight and Government Reform has released a report detailing new data provided by the Joint Committee on Taxation (JCT) that reveals new estimates that in 2020 about 14 million tax filers will claim Obamacare’s health insurance credit but only about two million of these households will have positive income tax liability after benefitting from the credit.

The JCT estimates also reveal that Obamacare created a massive new marriage penalty.

They estimate that only 14 percent of tax-filers who claim the subsidy will be married. About half of the beneficiaries will be single individuals without dependent children. The reason for the marriage penalty is two-fold.

First, the subsidy is linked to 400 percent of the federal poverty level (FPL) which is estimated to be $45,600 for a one-person household and $61,600 for a two-person household in 2014. The result of linking the tax credit to the FPL is that two individuals who make between $61,600 and $91,200 in 2014 will not benefit from the tax credit if they decide to marry but both individuals can qualify for the tax credit if they remain unmarried or if they decide to divorce.

Second, a recent HHS rule prevents families from accessing the subsidy if either parent has an offer of coverage at work — but in cases where only self-only coverage is offered, the rest of the family cannot claim a subsidy. Essentially, Obamacare treats otherwise identical individuals very differently, depending on the source of their health insurance rather than the quality of it.

The president often talks about the need for tax reform, but his signature legislative accomplishment made the tax code more complex and less fair. A massive expansion of government meant to increase quality care and decrease health care costs has turned into a public policy nightmare that is falling short of the litany of promises made in order to justify its implementation.

It turns out that House Democratic Leader Nancy Pelosi’s (D., Calif.) prophetic words were more accurate than anyone at the time realized — we had to “pass the bill so that you can find out what is in it…”

Rep. Darrell Issa (R., Calif.) is the chairman of the House Committee on Oversight and Government Reform and represents the 49th Congressional District of California.

 

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