Independent Report Shows How Socialism Will Raise Your Taxes

Democratic candidates for president continue to evade questions on how they will pay for their massive, $32 trillion single-payer health care scheme. But on Monday, the Committee for a Responsible Federal Budget (CRFB) released a 10-page paper providing a preliminary analysis of possible ways to fund the left’s socialized medicine experiment.

Worth noting about the organization that published this document: It maintains a decidedly centrist platform. While perhaps not liberal in its views, it also does not embrace conservative policies. For instance, its president, Maya MacGuineas, recently wrote a blog post opposing the 2017 Tax Cuts and Jobs Act, stating that the bill’s “shortcomings outweigh the benefits,” because it will increase federal deficits and debt.

Everyone’s Taxes Will Go Up—a Lot

Consider some of the options to pay for single payer CRFB examines, along with how they might affect average families.

A 32 percent payroll tax increase. No, that’s not a typo. Right now, employers and employees pay a combined 15.3 percent payroll tax to fund Social Security and Medicare. (While employers technically pay half of this 15.3 percent, most economists conclude the entire amount ultimately comes out of workers’ paychecks, in the form of lower wages.) This change would more than triple current payroll tax rates.

Real-Life Cost: An individual earning $50,000 in wages would pay $8,000 more per year ($50,000 times 16 percent), and so would that individual’s employer.

Real-Life Cost: An individual with $50,000 in income would pay $9,450 in higher taxes ($50,000 minus $12,200, times 25 percent).

A 42 percent Value Added Tax (VAT). This change would enact on the federal level the type of sales/consumption tax that many European countries use to support their social programs. Some proposals have called for rebates to some or all households, to reflect the fact that sales taxes raise the cost of living, particularly for poorer families. However, using some of the proceeds of the VAT to provide rebates would likely require an even higher tax rate than the 42 percent CRFB estimates in its report.

Real-Life Cost: According to CRFB, “the first-order effect of this VAT would be to increase the prices of most goods and services by 42 percent.”

Mandatory Public Premiums. This proposal would require all Americans to pay a tax in the form of a “premium” to finance single payer. As it stands now, Americans with employer-sponsored insurance pay an average of $6,015 in premiums for family coverage. (Employers pay an additional $14,561 in premium contributions; most economists argue these funds ultimately come from employees, in the form of lower wages—but workers do not explicitly pay these funds out-of-pocket.)

Real-Life Cost: According to CRFB, “premiums would need to average about $7,500 per capita or $20,000 per household” to fund single payer. Exempting individuals currently on federal health programs (e.g., Medicare and Medicaid) would prevent seniors and the poor from getting hit with these costs, but “would increase the premiums [for everyone else] by over 60 percent to more than $12,000 per individual.”

Reduce non-health federal spending by 80 percent. After re-purposing existing federal health spending (e.g., Medicare, Medicaid), paying for single payer would require reducing everything else from the federal budget—defense, transportation, education, and more—by 80 percent.

Real-Life Cost: “An 80 percent cut to Social Security would mean reducing the average new benefit from about $18,000 per year to $3,600 per year.”

The report includes other options, including an increase in federal debt to 205 percent of gross domestic product—nearly double its historic record—and a more-than-doubling of individual and corporate income tax rates. The impact of the last is obvious: Take what you paid to the IRS on April 15, or in your regular paycheck, and double it.

In theory, lawmakers could use a combination of these approaches to fund a single-payer health care system, which might blunt their impact somewhat. But the massive amounts of revenue needed gives one the sense that doing so would amount to little more than rearranging deck chairs on a sinking fiscal ship.

Taxing Only the Rich Won’t Pay for Single Payer

CRFB reinforced their prior work indicating that taxes on “the rich” could at best fund about one-third of the cost of single payer. Their proposals include $2 trillion in revenue from raising tax rates on the affluent, another $2 trillion from phasing out tax incentives for the wealthy, another $2 trillion from doubling corporate income taxes, $3 trillion from wealth taxes, and $1 trillion from taxes on financial transactions and institutions.

Several of the proposals CRFB analyzed would raise tax rates on the wealthiest households above 60 percent. At these rates, economists suggest that individuals would reduce their income and cut back on work, because they do not see the point in generating additional income if government will take 70 (or 80, or 90) cents on every additional dollar earned. While taxing “the rich” might sound publicly appealing, at a certain point it becomes a self-defeating proposition—and several proposals CRFB vetted would meet, or exceed, that point.

Socialized Medicine Will Permanently Shrink the Economy

The report notes that “most of the [funding] options we present would shrink the economy compared to the current system.” For instance, CRFB quantifies the impact of funding single payer via a payroll tax increase as “the equivalent of a $3,200 reduction in per-person income and would result in a 6.5 percent reduction in hours worked—a 9 million person reduction in full-time equivalent workers in 2030.”

By contrast, deficit financing a single-payer system would minimize its drag on jobs, but “be far more damaging to the economy.” The increase in federal debt “would shrink the size of the economy by roughly 5 percent in 2030—the equivalent of a $4,500 reduction in per person income—and far more in the following years.”

Moreover, these estimates assume a great amount of interest by foreign buyers in continuing to purchase American debt. If the U.S. Treasury cannot find buyers for its bonds, a potential debt crisis could cause the economic damage from single payer to skyrocket.

To say single payer would cause widespread economic disruption would put it mildly. Hopefully, the CRFB report, and others like it, will inspire the American people to reject the progressive left’s march towards socialism.

This post was originally published at The Federalist.

One Way for Florida’s Legislature to Respond to a Medicaid Expansion Referendum

Last week, Politico reported on a burgeoning effort by unions and other groups to collect signatures on a ballot initiative designed to expand Medicaid in Florida. As the article notes, the effort comes after last fall’s approval of Medicaid ballot initiatives in Utah, Idaho, and Nebraska.

The effort comes as liberals try to extend “free” health care to more and more Americans. But that “free” health care comes with significant costs, and policymakers in Florida have opportunities to make those costs apparent to voters.

‘Free’ Money Isn’t Free

By contrast, the petition being circulated in Florida includes no source of funding for the state’s 10 percent share of Medicaid expansion funding under Obamacare. The failure to specify a funding source represents a typical liberal tactic. Advocates seeking to expand Medicaid have traditionally focused on the “free” money from Washington available for states that do expand. “Free” money from Washington and “free” health care for low-income individuals—what’s not to like?

Of course, Medicaid expansion has very real costs for states, without even considering the effects on their taxpayers of the federal tax increases needed to fund all that “free” money from Washington. Every dollar that states spend on providing health care to the able-bodied represents another dollar that they cannot spend elsewhere.

I have previously noted how spending on Medicaid has crowded out funding for higher education, thus limiting mobility among lower-income populations, and encourages states to prioritize the needs of able-bodied adults over individuals with disabilities, for whom states receive a lower federal Medicaid match.

Taxes Ahead? Oh Yeah, Baby

Proposing a state income tax to fund Medicaid expansion would certainly make the cost of expansion readily apparent to Florida voters, especially the retirees who moved to the Sunshine State due to its combination of warm weather and no individual income tax. Voters would likely think twice if Medicaid expansion came with an income tax—which of course lawmakers could raise in the future, to fund all manner of government spending.

Prior efforts suggest that making the costs of Medicaid expansion apparent to voters appreciably dampens support. Utah approved its ballot initiative, which included a sales tax increase, with a comparatively small (53.3 percent) approval margin. In Montana, a referendum proposing a tobacco tax increase to fund a continuation of that state’s Medicaid expansion (which began in 2016) went down to defeat in November.

New Taxes Are an Uphill Battle

Liberal groups already face challenges in getting a Medicaid ballot initiative approved in Florida. The state constitution requires 60 percent approval for all initiative measures intended to change that document, a higher bar than advocates for expansion have had to clear elsewhere. Of the four states where voters approved Medicaid expansion—Maine, Nebraska, Utah, and Idaho—only the margin in Idaho exceeded 60 percent, and then just barely (60.58 percent).

Disclosure: While the author served on the health care transition advisory committee of Florida Gov. Ron DeSantis, the views expressed above represent his personal views only.

This post was originally published at The Federalist.

The Mandate and Taxes

Making the rounds on the Sunday shows yesterday, Democrats attempted to sidestep the impact of Thursday’s Supreme Court ruling calling Obamacare’s mandate a tax.  But on this front, as on so many others, a good number of their claims don’t carry water.  Let’s examine them one by one, using quotes from OMB Director Jack Lew’s appearance on This Week:

“The Supreme Court looked at what the structure of the law was, and they saw that 1 percent of the people would be paying this charge if they chose not to avail themselves of health insurance.”

The mandate does NOT just affect one percent of Americans.  If it did, the Administration would not have gone into court attempting to claim the mandate was constitutional because it was “essential” to the larger bill – because something affecting only one percent of Americans is far from “essential.”

The mandate also affects the tens of millions of Americans who will purchase health insurance only because the federal government is forcing them to do so under pain of taxation.  These individuals will be forced to buy a product they may not need, or want, just to comply with a bureaucratic diktat.  Studies have found that between 8 and 24 million people would lose coverage without the mandate.  These are Americans buying insurance not because they want to, but because government is forcing them to.

“These are people who can afford health insurance who choose not to buy it…”

The Congressional Budget Office analyzed this issue back in April 2010.  It found that more than three-quarters of individuals paying the mandate tax will have income of under five times the poverty level – or less than $120,000 for a family of four.  More than 10% of individuals paying the mandate tax will have incomes below the federal poverty level, which this year is $23,050 for a family of four.  Keith Hennessey laid out the numbers here, with a chart I’ve reproduced below.

These numbers raise two issues.  First, does Jack Lew really believe that the 400,000 people making under $24,000 per year should be forced to pay a mandate tax because they are making a “choice” not to buy insurance policies that cost more than a new car?  The second is a famous quote about the effects of an individual mandate: “There are people who are paying fines and still can’t afford [health insurance], so now they’re worse off than they were.  They don’t have health insurance and they’re paying a fine.”  The speaker?  Barack Obama.

“In this law, there’s a $4,000 tax cut for people who need help paying for health insurance.”

According to the Congressional Budget Office, health insurance subsidies under Obamacare will total $75 billion in Fiscal Year 2016.  Additionally, according to CBO, the vast majority ($58 billion in 2016, or more than three-quarters of the $75 billion total) of Obamacare insurance subsidies are pure government spending to individuals who have no income tax liability.  The Joint Committee on Taxation has concluded that Obamacare will result in more than 7 million filers seeing their entire tax liability eliminated.

Liberals may claim that the subsidies are a tax credit offsetting federal payroll taxes paid by low-income individuals.  This obscures two obvious facts.  First, low-income individuals on average get all their payroll taxes back in the form of pension and entitlement benefits – in fact, they already get more back than they pay in, which is why Medicare and Social Security are in such financial distress.  Second, the size of the subsidy – averaging $5,210 per person in 2016 – will be FAR more than most low-income individuals will pay in payroll taxes each year.

The bottom line: The vast majority of the spending on insurance subsidies is NOT a tax cut – it’s yet more government spending on an unsustainable new entitlement.

Democrat spin aside, the facts reveal that the mandate represents a massive tax increase on millions of struggling middle-class Americans – both those directly paying the mandate tax, and those forced to buy health insurance to avoid the mandate tax.  And Obamacare’s supposed “tax cuts” are nothing more than unsustainable new entitlement spending, funded by tax increases elsewhere in the legislation.  No matter how you slice it, that’s not health reform.

Spreading the Wealth — But NOT to Families…

The Government Reform Committee released a report this morning in conjunction with their hearing on the distortionary incentives included in Obamacare.  The report also discusses a letter the Committee received from Congress’ non-partisan Joint Committee on Taxation analyzing the impact of Obamacare’s insurance subsidies.  The Joint Tax Committee concluded that under Obamacare, more than 7 million tax filers will have their entire income tax liability eliminated.  This development comes at a time when more than half of all households did not pay income taxes in 2009 – meaning Obamacare will only exacerbate trends that see a dwindling percentage of Americans funding the federal government through income tax payments.

The Joint Tax Committee also found that only 2 million of the 14 million filing units receiving Obamacare insurance subsidies will be joint filers, even though joint filers comprise about 40% of all tax returns.  That disparity is due to the marriage penalty included in Obamacare – the law bases subsidy amounts on the federal poverty level (FPL), but the FPL for two people is less than double that of a single person.  As a result, two individuals filing separately will have a lower income as a percentage of FPL than a married couple, making them more likely to obtain insurance subsidies (or to obtain a richer insurance subsidy).

President Obama has already talked about his desire to spread the wealth around – and on that count, Obamacare certainly succeeds, by ensuring millions more Americans will be excused from paying income taxes.  But there’s apparently a catch involved the President hasn’t advertised – thanks to Obamacare’s perverse incentives, much of the wealth may be spread from married couples who don’t qualify for subsidies into the hands of single people, or cohabiting couples, who do.

WSJ: “An Obstacle to Deficit Cutting: A Nation on Entitlements”

It’s a long read, but this morning’s front-page Wall Street Journal article on America’s expanding entitlement state is well worth a look.  The lead paragraphs tell the tale:

Efforts to tame America’s ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.  At the same time, the fraction of American households not paying federal income taxes has also grown—to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center.

As you read the piece, it’s worth bearing in mind two critical data points.  First, the expansion of the entitlement state to encompass nearly one in every two American households comes before the implementation of a health care law that will see another 34 million Americans receiving taxpayer-funded benefits, according to estimates prepared by the Medicare actuary.  Second, at a time when Republicans are fighting to ensure that the Obama tax increase won’t take effect on January 1, the story graphically illustrates the real cause of our nation’s deficit woes: Americans aren’t taxed too little – the federal government is spending too much.

Crapo Motion to Commit on President’s Promises on Middle Class Taxes

Below is my colleague Jon Lieber’s analysis of the Crapo motion to commit regarding the President’s promise not to increase taxes on individuals making less than $250,000…
Senator Crapo just spoke on a motion to commit he is planning to offer.  This motion will commit the health care bill to the Finance Committee with instructions to ensure that the bill will result in no tax increase for anyone earning under $200,000/$250,000 a year.
Considerations
• President Obama made a “firm pledge” on the campaign trail that single Americans earning less than $200,000 a year and families earning less than $250,000 wouldn’t see their taxes increase “a single dime.”  He promised this for all taxes, saying, “not your income taxes, not your payroll taxes, not your capital gains taxes.”
o “I can make a firm pledge.  Under my plan, no family making less than $250,000 a year will see any form of tax increase.  Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.” – Candidate Barack Obama, Dover, New Hampshire, September 12, 2008
• Joint Committee on Taxation data show that more than 73 million American households with income of less than $200,000 will face a tax increase under this bill.  These taxes include:
o A new tax on medical devices that will be passed on to consumers,
o An un-indexed Medicare payroll tax and a new tax on investments that will be paid by more and more Americans under the original income threshold, just like the Alternative Minimum Tax,
o A new tax on health insurers that will result in rising premiums for businesses and individuals,
o A new tax on pharmaceuticals that will raise drug prices for everyone,
o New limitations on flexible spending arrangements, and
o An increase in the AGI floor for the medical expense deduction to 10 percent.
• All Republicans and five Democrats voted for such a motion during original consideration of the Senate health reform bill.
• During consideration of the Senate bill, Senator Baucus didn’t argue against this motion because the Senate health bill didn’t raise middle class taxes, but he claimed “The Crapo motion to commit is really an attempt to kill health care reform,” precisely because it relies on middle class tax increases to pay for it.
• According to the Joint Committee on Taxation, ONLY about 7% of Americans would actually receive the government subsidy for health insurance under the Senate-passed health care reform bill.
• The remaining 93% of Americans would receive NO tax benefit under the bill.
• Another way of looking at this is that for every 1 middle class family who would benefit from the subsidy for health insurance, 5 middle class families would pay more in taxes.