ObamaCare’s Heavy Toll on Middle Class Americans

e21 | Published on October 19, 2012

By James C. Capretta and Tom Miller

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President Obama likes to say his campaign is about building up the middle class, but his signature initiative in office–ObamaCare–will pile thousands of dollars in new taxes and higher health costs on top of America’s middle class.

How so? Through redistribution, of course. The president has made no secret of his fondness for using the government’s tax and spending powers to spread our diminished wealth around from one group of Americans to another. And ObamaCare is nothing if not a massive redistribution machine. It places huge new financial burdens on some Americans–primarily those who already have health insurance, including the vast majority of middle-class families–in order to extend new federal entitlement commitments to other households, primarily the uninsured.

In broad terms, the amount of redistribution is easily ascertained form the aggregate expenditures and taxes contained in ObamaCare. According to the Congressional Budget Office (CBO), in 2020, ObamaCare will spend $229 billion on a Medicaid expansion and a new subsidy program for health insurance. These expenditures will primarily benefit 29 million people newly enrolled in Medicaid and the insurance subsidy program. That works out to nearly $8,000 for every newly insured American, or about $21,000 per newly insured household.

Much of the rest of the legislation is devoted to extracting these resources from everyone else in the country–about 290 million people–who won’t benefit from the new spending programs, and doing so in way that obscures what’s taking place. For these Americans who already have insurance, the law contains nothing but new financial burdens, in the form of higher taxes, higher premiums for their existing plans, and lower benefits, particularly for those on Medicare.

The sum total of the new taxes and Medicare and Medicaid cuts is about $278 billion in 2020. That’s nearly $1,000 in costs on average for most of the country, or $2,500 per household.

ObamaCare’s apologists say that these costs will primarily affect the rich, but that is not true. ObamaCare’s taxes and benefit cuts will directly increase burdens on middle class families. Among the most burdensome provisions are the following.

  • The “Mandate” Tax. The Supreme Court officially designated ObamaCare’s individual mandate as a new “tax” on persons who don’t enroll in government-sanctioned insurance. CBO recently indicated that about 11 or 12 million uninsured people will have to pay this tax, but only about 6 million will do so (the others will successfully evade it). The total tax payment for these individuals will reach $8 billion in 2020, or an average of about $1,400 per person. Almost all of these taxpayers will be middle-class Americans, as the poor are exempt and there are very few rich people who are uninsured. According to CBO, 80 percent of those paying the tax will have incomes below five times the poverty rate, or about $115,000 in income for a family of four in 2012.
  • Taxes on Health Insurance and Health Services. ObamaCare imposes new taxes on insurance premiums as well as a special tax on high-cost plans. It also imposes new taxes on the manufacture of prescription drugs, as well as the manufacture of medical devices. These taxes will total about $19 billion in 2020. The administration likes to say these taxes will be paid by the industry, but that’s not true. These taxes will get passed on to consumers, of course, in the form of higher premiums and medical expenses. The middle class is not exempt, and will pay the bulk of the added costs.
  • The Medicare Taxes. ObamaCare imposed a new universal 0.9 percent tax on wages for households with incomes above $200,000 ($250,000 for married couples). It also imposes a new 3.8 percent tax on the non-wage incomes of these households. In total, these new taxes will raise $318 billion in revenue over a decade, and $41 billion in 2020. The administration wants Americans to believe these taxes will only hit the rich, but that is also not true. The income thresholds for assessing the tax are not indexed. So, in 2020 and future years, middle-class families that today would be exempt from the taxes will have to pay them just because normal wage inflation has pushed their household income above the threshold. Assuming 4 percent wage growth annually, $200,000 today is the same as $152,000 in income in 2020, and just over $100,000 in 2030. So these provisions of the law are really massive back-door tax increases on the middle class. And they will destroy jobs for the middle class too because the tax will lower the incomes of thousands of small business owners who pay their business taxes on the individual schedule. These entrepreneurs will have little choice but to downsize and employ fewer middle class workers, or simply reduce what they pay them.
  • Medicare Advantage Cuts. ObamaCare cuts $308 billion from Medicare Advantage plans over the next decade. These cuts will force about 4 million seniors out of their Medicare Advantage plans. In a study one of us co-authored with Robert Book, these cuts were estimated to drive up costs on seniors enrolled in Medicare Advantage by about $3,700 annually. And these aren’t rich people. Quite the contrary. It is lower income seniors who find Medicare Advantage most attractive because it offers better coverage than traditional Medicare without the high cost of a Medigap plan.

The president wants Americans to believe that ObamaCare is painless and without cost for the middle class, but most Americans, using their common sense, don’t believe him. They are right to be skeptical. It is certainly true that ObamaCare expands the entitlement rolls to some 30 million additional people, and thereby reduces–at least on paper–the numbers of uninsured Americans. But there is a massive cost to doing this, running more than $200 billion annually by the end of the decade. Who will pay for this? The middle class, of course. They will pay higher taxes and higher premiums for health insurance and get less back from the Medicare program in retirement. An honest debate would acknowledge these facts.

James C. Capretta is a fellow at the Ethics and Public Policy Center, a visiting fellow at the American Enterprise Institute, and project director of ObamaCareWatch.org. Tom Miller is a resident fellow at the American Enterprise Institute and a former senior health economist for the Joint Economic Committee.

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