The penalty imposed by the Affordable Care Act on citizens who elect not to purchase health insurance will be at least $1,000 for most people, and more than $12,000 for high-income earners, according to an analysis by the nonpartisan Tax Foundation.
“We can see that this is a big tax, particularly on the poor,” writes the Tax Foundation’s William McBride. “Higher income families generally pay a higher amount, but actually a smaller percent of their income, making this a regressive tax.”
For example, the penalty for a family of four earning $20,000 will be $2,085, more than 10 percent of its income, according to the Tax Foundation — whereas a family of four making $100,000 will only have two percent of its income taken away by the government.
Initially, the CBO projected that 3.9 million people would pay the tax in 2016, most of them low- and middle-income households. However, after the Supreme Court ruled that states could opt out of the Medicaid expansion that was intended to cover low-income uninsured people, the CBO put out a new estimate that there could be 6 million additional people dumped into the uninsured pool. Half of that 6 million is estimated to buy insurance.
“That leaves 3 million people potentially subject to the tax, in addition to the 3.9 million earlier estimated,” McBride writes. “However, the CBO argues that few of them would actually pay the tax, due to low-income exemptions.”
The Action Forum estimates that there are potentially 1.2 million people who would be subject to the tax if only six states decide to opt out of the Medicaid expansion. This is in addition to the 3.9 million the CBO estimated in 2010.
“The CBO estimates that by 2016 about half of the roughly 55 million currently uninsured will gain insurance either through Medicaid or private insurance exchanges,” writes McBride. “As such, ACA represents, in the main, a massive transfer of wealth from the uninsured, who are largely low- and middle-income earners, to insurance companies and the larger healthcare industry.”
According to the Tax Foundation, implementation of the individual health insurance mandate will have unintended consequences and detrimental effects on the economy as people try to adjust and shield their incomes in order to pay less or avoid the tax altogether.
“For those who choose to remain uninsured, and are not otherwise exempt, the tax/penalty would carry with it exceedingly high additional burdens in the form of compliance costs, due to complexity and non-transparency, as well as administrative costs, as we ask a revenue agency to verify insurance,” McBride concluded. “Finally, the economic distortions are likely to be large, if unpredictable. The uninsured would certainly have an incentive to reduce their income, either by working less or finding and creating tax shelters.”
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