The Patient Protection and Affordable Care Act (PPACA or ACA), better known as Obamacare, was signed into law by Barack Obama on March 23, 2010. It was one of the most partisan pieces of legislation in history. Not a single Republican in the House or the Senate voted in favor of the bill (H.R. 3590, P.L. 111–148).
The ACA expanded Medicaid eligibility, created state health-insurance exchanges, instituted federal subsidies for the purchase of health insurance, eliminated co-payments and deductibles for selected health-insurance benefits, required the guaranteed issue of insurance policies without regard to pre-existing conditions, prohibited annual and lifetime limits on the dollar value of essential health benefits, mandated that certain employers provide health insurance, and mandated that every individual not covered by Medicaid, Medicare, or health insurance purchase health insurance or pay a penalty.
But in spite of those “reforms,” Obamacare is basically a collection of new taxes masquerading as a health-care law.
The ACA increases the employee share of the Medicare tax (currently 1.45 percent) to 2.35 percent on that portion of income that is more than $200,000 for individuals or $250,000 for married taxpayers filing jointly. It also adds a new 3.8 percent Medicare tax on investment income that applies to the lesser of one’s net investment income or the amount of adjusted gross income in excess of applicable thresholds.
The ACA decreased the medical-expense tax deduction (thus effectively raising taxes) and instituted new taxes on indoor tanning services, drug companies, health insurers, medical-device manufacturers, and comprehensive health-insurance plans.
Comprehensive plans generally have low or no deductibles or co-pays, and excellent benefits. The tax on certain of these plans (“Cadillac plans”) is known as the “Cadillac tax.”
The ACA imposed an excise tax of 40 percent on employer health-insurance plans with annual premiums exceeding $10,200 (individuals) or $27,500 (families). The tax was supposed to take effect in 2018, then 2020, and now 2022. The tax is imposed on the cost of the plan that exceeds the applicable threshold, which will be adjusted for inflation.
Although there have been attempts by Congress to repeal the Cadillac tax since it was implemented, nothing has ever come of them, until now. Introduced earlier this year in the House (H.R.748) and Senate (S.684) was the Middle Class Health Benefits Tax Repeal Act of 2019. It would “amend the Internal Revenue Code of 1986 to repeal the excise tax on high-cost employer-sponsored health coverage.”
On July 17, the House passed the legislation by a vote of 419-6. The Senate has yet to act on the measure.
The “nonpartisan” Tax Foundation, whose goal is “to improve lives through tax policies [simplicity, neutrality, transparency, stability] that lead to greater economic growth and opportunity,” likes the Cadillac tax. It would “likely curb the growing cost of health care by increasing the cost of high-cost health insurance plans” and “make our tax code better by limiting a tax expenditure that subsidizes the provision of health insurance.” It’s not “perfect,” but it’s “reasonable.”
One would think that conservatives would be in favor of a tax cut of any kind. After all, aren’t “limited government” and “tax cuts” part of their mantra?
James C. Capretta “is a resident fellow and holds the Milton Friedman Chair at the American Enterprise Institute (AEI), where he studies health care, entitlement, and US budget policy, as well as global trends in aging, health, and retirement programs.”
In his article “Repeal of the Cadillac Tax Would Be a Strategic Mistake for Both Parties,” Capretta chides Democrats for denouncing Trump’s 2017 tax cut “as a reckless giveaway for corporations and upper income households,” when “the repeal of the Cadillac tax would also drain the Treasury, by $200 billion over ten years, according to CBO, including a $35 billion reduction in payroll taxes for the Social Security trust funds.” Republicans in Congress “fail to understand that the Cadillac tax is a market-driven reform.” It is a “tax subsidy” that employer-paid health-insurance premiums are “exempt from income and payroll taxes.”
Writing for the Heritage Foundation, a trio of authors calls for Congress to repeal the Cadillac tax but at the same time cap “the amount that can be spent pre-tax on employee health benefits.” If an employer health-care plan costs more than the limit, then the difference should be taxable income to employees.
It is not surprising that conservatives would argue against the elimination of a tax or for the replacement of one tax with another. Conservatives have no philosophical objection to taxation.
To the libertarian, a tax is a tax is a tax. A tax can never be a market-driven reform. There is no such thing as a good tax, an efficient tax, an optimal tax, a necessary tax, a reasonable tax, or a fair tax. On this last point, as stated by the late Austrian economist Murray Rothbard, “There can be no such thing as ‘fairness in taxation.’ Taxation is nothing but organized theft, and the concept of a ‘fair tax’ is therefore every bit as absurd as that of ‘fair theft.’”
This is the libertarian view of taxes: taxation is government theft. Libertarians reason that acquiring someone’s property by force is wrong, whether done by individuals or governments. Libertarians maintain that the government is not entitled to a portion of any American’s income. All Americans should be free to keep the fruits of their labor and spend their money as they see fit. The Cadillac tax is especially egregious because it is a targeted tax designed to influence behavior.
Libertarians are not stupid. We know that employer-provided health-insurance benefits are deductible for employers and not taxed for employees. We know that they result in a tax loophole because this health-care spending goes untaxed. We know that they encourage employers to provide more compensation in the form of health insurance.
But even without the Cadillac tax, why should there be a cap on the tax code’s income-tax exclusion for employer-provided insurance? Employers should be able to spend whatever they want on employee health-care plans. Until such time as there is no tax code, Americans need more tax loopholes.