Healthcare law's mandate isn’t ‘largest tax,’ despite Republican claims

To hear Republicans tell it, the individual mandate to buy health insurance that the Supreme Court has now declared to be a tax is the “largest tax in America’s history.”

Yet even when considered as a revenue-raising tax, the mandate at the center of President Obama's signature legislation is not even the largest tax increase in the 2010 healthcare law, much less in the history of the republic.

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The Congressional Budget Office projects that the penalty, or tax, for not buying health insurance will bring in just about $4 billion a year and a total of $17 billion by the end of the decade.

Taken either as a whole or as a percentage of the overall economy, that pales in comparison to many tax increases in recent decades.

And according to findings by Republicans on the House Ways and Means Committee, there are nine different revenue increases that are larger within the healthcare law itself. They include payroll and investment tax increases on high-income Americans that will bring in $317 billion over 10 years, and taxes on health insurance providers and high-cost “Cadillac” healthcare plans that will each bring in more than $100 billion. Republicans have identified a total of 21 tax hikes in the law, which also include an excise tax on medical devices and a 10 percent levy on tanning services.

The GOP has long decried the healthcare law as the “largest tax increase in U.S. history” because of its more than $500 billion in revenue-raising measures, but in the days after the landmark Supreme Court ruling, they have suggested that the mandate - with its penalty newly defined as legally a tax - is the mother of all tax hikes.

“The court ruled today that in fact, the Affordable Care Act is a tax. It is the largest tax in America’s history,” the vice chairman of the House Republican Conference, Rep. Cathy McMorris-Rodgers (Wash.), said as she led the leadership’s response to the decision last week.

In interviews, House Republicans cited the new definition of the mandate as a key reason why the party should take a repeat vote next week to repeal the entire healthcare law. And the party has used the ruling to argue that President Obama and Democratic leaders misled the public when they claimed that the mandate was not a tax and that the law would not raise taxes on middle-income Americans.

“With the Supreme Court’s decision clearly articulating that this is a tax, it's one of the largest tax increases ever on the American people,” freshman Rep. Tom Reed (N.Y.) said.

Nick Kasprak, an analyst with the non-partisan Tax Foundation, said estimates of the revenue increases generated by the healthcare law in total range from $600 billion to $800 billion.

“That is actually not particularly huge. It’s certainly big,” Kasprak said. The revenue increase of allowing the George W. Bush-era tax rates to expire would be considerably larger, he said. The healthcare tax measures are “kind of on par with other major pieces of legislation,” Kasprak said.

The tax penalty associated with the mandate would be much smaller.

“If you’re talking about just the mandate itself, that’s almost negligible in the context of the broader law,” Kasprak said.

The penalty for not having insurance in the healthcare law is assessed through the IRS as either a flat dollar amount or a percentage of household income. After beginning at less than $100 in 2014, the minimum flat amount rises to $695 in 2016 and is indexed to inflation in subsequent years. As a percentage of household income, it is capped at 2.5 percent in 2016 and after.

According to a 2010 analysis by CBO and the Joint Committee on Taxation, about 4 million people will be subject to the penalty in 2016. The total number of nonelderly uninsured Americans will be about 21 million in that year, the analysis found, but a majority would be exempted from having to pay the penalty because of their immigration status, their religious beliefs, their income level or other reasons. The IRS is also restricted in the way it can enforce payment of the penalty; it can’t, for example, prosecute people as it can when individuals don’t pay other required taxes.

In a blog post for the Tax Policy Center on Tuesday, the Urban Institute’s Howard Gleckman wrote that “in reality, the tax (nee penalty) is a mouse.”

“The tax itself is modest, at least to start,” Gleckman wrote. “It will affect relatively few people. And it will be almost impossible for the IRS to make anybody pay it.”

For some critics of the law, the size of the healthcare tax is not important. Republican economist Douglas Holtz-Eakin, who advised Sen. John McCain’s presidential campaign in 2008, said he hadn’t run the numbers and couldn’t say whether the entire law represented the largest tax increase in American history. But, he said, “what I know is it’s the worst tax policy I’ve ever seen.”