Keith Hennessey has delved into the House bill for health care “reform” and finds this astonishing bit of news. Some 8 million middle class Americans will likely end up with no health insurance and will get hit with a huge tax increase as well.
As expected, the House bill would mandate that individuals and families have or buy health insurance.
But what if they don’t buy it?
Then Section 401 kicks in. Any individual (or family) that does not have health insurance would have to pay a new tax, roughly equal to the smaller of 2.5% of your income or the cost of a health insurance plan.
[ Technical note: From the legislative language, it appears the tax = min( 2.5% * (modified AGI – personal exemption), average premium cost). In the examples below, for simplicity I assume modified AGI = AGI. ]
I assume the bill authors would respond, “But why wouldn’t you want insurance? After all, we’re subsidizing it for everyone up to 400% of the poverty line.”
That is true. But if you’re a single person with income of $44,000 or higher, then you’re above 400% of the poverty line. You would not be subsidized, but would face the punitive tax if you didn’t get health insurance. This bill leaves an important gap between the subsidies and the cost of health insurance. CBO says that for about eight million people, that gap is too big to close, and they would get stuck paying higher taxes and still without health insurance.
Go over and read the whole post. It is pretty ugly. Hennessey is using the CBO’s own numbers here, so you can bet he’s got this pegged pretty close. So much for Obama’s pinky-swear promise of no tax increases on people earning less than $250,000.
You know the House plan sucks when even the Washington Post calls it “bad policy“. (Mind you, they are in favor of soaking the rich, it’s just that they want the money to go to deficit reduction rather than the spend, spend and tax plan the House is pushing).
The traditional argument against sharp increases in the marginal tax rates of a very narrow band of Americans is that it could distort their economic behavior — most likely by encouraging them to put more of their money into tax shelters as opposed to productive investments. This effect could be greatest in certain states, such as New York, where a higher federal rate would add to already substantial state income taxes. The deeper issue, though, is whether it is wise to pay for a far-reaching new federal social program by tapping a revenue source that would surely need to be tapped if and when Congress and the Obama administration get serious about the long-term federal deficit.
The Democrats controlling the House are assuming that their targets are fixed in place and will stand still for being milked to fund the Democrat’s schemes.
I’m betting on a slightly different scenario happening here. I think a lot of subchapter S corporations are simply going to cease to exist. Some will be reincarnated as subchapter C corporations, others will simply disappear, their owners will get out of business and their capital will be socked away. As a result, the number of “rich” are going to plummet – as will the number of jobs those small businesses created and sustained.
I live in an area that has been hit less hard than other sections of this nation during this recession. Yet even here, I am seeing small businesses simply close their doors. The town I live nearest to had three auto parts stores for all the years I have lived here. It now has one. A Local barber shop that had been here all the years I have simply closed one day – sign gone, shop empty.
Small business is in retreat – or rather is heading for cover in this climate of witch hunt taxation waiting for a victim to pounce on. The smart businessmen are deciding not to be victims of the House pitchfork mob, I suspect.
That does not bode well for the American economy or any economic recovery.