– May 17, 2017

The American Health Care Act, the House bill intended to repeal and replace the Affordable Care Act (Obamacare), is frequently opposed on the grounds that it cuts taxes for the rich. This may seem like an odd criticism of a purported health-insurance reform, but we must understand that Obamacare can reasonably be viewed as a massive tax increase disguised as health-insurance reform. If that’s the case, then those who favor Obamacare would naturally dislike the repeal of its tax increases.

One is reminded of Thomas Paine’s insight in Rights of Man: “In reviewing the history of the English Government, its wars and its taxes, a bystander, not blinded by prejudice nor warped by interest, would declare that taxes were not raised to carry on wars, but that wars were raised to carry on taxes.”

Likewise, perhaps taxes were not raised to carry on health-insurance reform, but rather health-insurance reform was raised to carry on taxes.

Conversely, Jesse Jackson, for example, writes that the purpose of the AHCA is “to give a massive tax break to the very wealthy,” while famed investor Warren Buffett says “it is a huge tax cut for guys like me.” Other examples could be cited.

While the taxes are described as targeting the wealthy exclusively, in fact they hit people President Obama had described as middle class. All this makes one wonder if opponents of the AHCA regard eliminating Obamacare taxes as the principal flaw. Imagine if the bill guaranteed lower health-insurance premiums, making it accessible to more people. Would the tax repeals still be objectionable? One suspects the answer is yes.

Most people probably realize that Obamacare included some new taxes and increases in existing taxes, but they most likely don’t know how large a role higher taxes play in the program. That role shouldn’t be surprising, however, considering the subsidies to insurance companies and individuals and the expansion of Medicare to include people whose earnings exceed the poverty level.

“Obamacare contains 20 new or higher taxes on American families and small businesses,” writes John Kartch of Americans for Tax Reform. Kartch notes that Obamacare authorized “$500 billion-plus in tax hikes (over the next ten years).” ATR later estimated that the taxes would amount to over $1 trillion. Among the taxes:

  • a 3.8 percent surtax on investment income (capital gains, dividends, etc.), which was intended to raise $123 billion;
  • a Medicare payroll-tax increase on employees and employers of 1.45 percent on the first $200,000 of income and another 1.45 percent on income above that amount (2.9 percent, then 3.8 percent on the self-employed): $86 billion;
  • an individual-mandate excise tax and employer-mandate tax: $65 billion;
  • a tax on health insurers: $60.1 billion;
  • an excise on comprehensive (so-called Cadillac) health-insurance plans: $32 billion;
  • a tax increase on “black liquor” biofuel: $23.6 billion;
  • a tax on drug companies: $22.2 billion;
  • a tax on makers of medical devices: $20 billion;
  • a tax hike on people with high medical bills (since the percent-of-income threshold for deducting medical expenses was raised): $15.2 billion;
  • a new cap on tax-exempt flexible spending accounts: $13.2 billion;
  • an excise on indoor tanning services: $2.7 billion;
  • an exclusion of over-the-counter drugs from pre-tax health-related savings accounts: $5 billion; and
  • a tax increase on early withdrawals from health savings accounts for non-medical purposes: $1.4 billion.

All told, the AHCA would eliminate 12 Obamacare taxes, ATR reports. The AHCA “repeals a series of about six or seven taxes that directly hit middle income people,” ATR President Grover Norquist said in an interview with the Daily Caller News Foundation. “It moves us one trillion dollars closer to a pro-growth tax reform package.” The Daily Caller also quotes an ATR statement saying, “As a presidential candidate in 2008, Barack Obama had promised repeatedly that he would not raise any tax on any American earning less than $250,000 per year. He broke the promise when he signed Obamacare.”

But even the taxes on the rich take their toll on people who make far less money. Incomes rise with market-driven economic growth. Specifically, wages go up as workers become more productive, and that happens when capital is invested in new equipment that enables individuals to produce more per hour than they could with older equipment. Incomes also rise when the government abstains from impeding the start of new businesses. But taxes interfere with the market process by reducing the amount of money available for investment. So taxes on the rich, as well as those on the middle and working classes, suppress economic growth and hence the rise in incomes. It should also be more widely understood that taxing investment constitutes double taxation: first the income tax reduces the return on investment by leaving the taxpayer less money, then the resulting dividends, interest, and capital gains are taxed again.

We have to get over the belief that the government can tax us into prosperity.