Is ObamaCare the Largest Tax Increase in History?

Healthcare Reform

Patient Protection and Affordable Care Act

Recently, the Supreme Court of the United States recently ruled in a 5-4 decision that the Individual Mandate is constitutional. This means that the Federal Government may require citizens to carry health insurance or pay a tax penalty.

In response, Conservatives are claiming that this fortifies their argument that the Patient Protection and Affordable Care Act (Obamacare) is the largest increase in taxes on the American “middle-class”. However, facts seem to state otherwise:

According to Politifact, individuals who are able to receive health insurance and choose not to will have to pay an annual penalty of at least $95 (or 1 percent of income if greater) in 2014. The amount will increase up to $695 in 2016 and then it would be indexed for inflation to max out at 2.5 percent of household income.

Critics have pointed out that this violates Barack Obama’s 2008 campaign promise that he would not raise taxes on middle income if he were elected. Meanwhile, conservatives continue to argue that this is the largest increase in taxes on the middle income group because it may affect 75 percent or more.

This is a logical fallacy — just because 75 percent of the households who pay the tax are in the middle class, that doesn’t automatically make it the largest middle-class tax increase in history.

Politifact continues to reason that the middle income tax claims by critics are misleading. According to the CBO (Central Budget Office – bipartisan budgeting committee), projections show that 75 percent of the people paying the penalty will have a household income of 500 percent of the federal poverty level or below. For a family of four, that comes to about $120,000.

In conjunction to the CBO estimate, the Urban Institute-Brookings Institution Tax Policy Center created a chart from central estimates that the threshold for the top 20 percent of income in 2016 will be $123,970. Therefore, the initial claim would inevitably define “middle class” as the bottom 80 percent of the income scale. The CBO projected that the bottom 80 percent will pay 46 percent of the tax dollars collected as a result of the mandate. That’s compared to 55 percent of revenues that will come from the top 20 percent.

This presents a different picture of how the financial burden of the mandate will be borne. There’s a big difference between the “middle class” carrying 75 percent of the burden rather than 46 percent of the burden.

Now to correctly vilify the claim, we must understand that some in the middle income bracket will pay the tax penalty for not having insurance. However, this penalty is designed to encourage people to get healthcare in order to protect tax payers in the event that they face health issues down the road. The mandate is not designed to raise enough revenue to pay for the law. There are other provisions designed for that.

Most of the revenue in the PPACA/Obamacare derive from pharmaceutical companies, healthcare equipment manufacturers, expensive health plans, and households or individuals earning more than $250,000 or $200,000 per year, respectively.

There have also been larger tax increases in recent history:

The health care law’s tax increases are smaller than tax increases signed into law by President Ronald Reagan in 1982 and a temporary tax signed into law in 1968 by President Lyndon B. Johnson. And they are significantly smaller than two tax increases passed during World War II and a tax increase passed in 1961.

Just for the sake of argument, even if tax increases for the wealthy were placed on the middle income group to pay for PPACA/Obamacare — which is not the case — the claim would still be a fallacy.




Tampa Bay Times, The Buzz, Another outside group on Florida TV targeting Bill Nelson for health care vote, July 11, 2012

PolitiFact, Facebook post says “75 percent of the Obamacare tax falls on the middle class,” July 9, 2012

Congressional Budget Office, “Selected CBO Publications Related to Health Care Legislation, 2009–2010,” December 2010

Urban Institute-Brookings Institution Tax Policy Center, “Baseline Distribution of Cash Income and Federal Taxes Under Current Law Share of Federal Taxes by Cash Income Percentile, 2016,” accessed July 6, 2012

Blue Cross and Blue Shield of Rhode Island, “Federal Healthcare Reform: Patient Protection and Affordable Care Act, Individual Mandate and Subsidy” (summary), accessed July 6, 2012

PolitiFact, Limbaugh, GOP have it wrong: Health care law is not the largest tax increase ever, June 28, 2012

Joint Committee on Taxation, tax impact for the federal health care bill, accessed Feb. 7, 2011

CBO, revenue and tax estimates of federal health care bill 2011-2019, accessed Feb. 8, 2011

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