Deficit and Tax Policy

June 28, 2012 By Adam Selig

SUPREME COURT UPHOLDS CORE OF THE PATIENT PROTECTION AND AFFORDABLE CARE ACT

With the momentous Supreme Court decision upholding the Affordable Care Act, we enter a brave, untested and highly controversial new world of health care, while all Americans now face the burden of higher taxes and small businesses confront another major headwind towards recovery. 

Many of us thought that even if parts of the law were Constitutional, the individual mandate would not survive. But the Court ruled the mandate is actually a tax, meaning the President and Congress have just enacted one of the largest tax increases on the lower and middle classes in recent memory.

Not only will taxes spike for many millions of Americans, ObamaCare will saddle us with more debt and an ever-increasing deficit going forward. According to the CBO, “the insurance coverage provisions of the ACA will have a net cost of just under $1.1 trillion over the 2012–2021 period.” That is a mammoth check taxpayers must write. However, the CBO also states that the “ACA and the health-related provisions of the Reconciliation Act will produce a net decrease in federal deficits of about $210 billion over the 2012–2021 period.”

The law also imposes additional new taxes, raising others, and cutting few:

• First is a 3.8% tax on investment income and other non-wage sources that high-income households must pay.
• The ACA also raises the Medicare wage tax by 0.9% for high-income workers, which would specifically pay for the senior health system.
• Lastly, the law establishes an excise tax on high-value employer-sponsored health plans, which will be implemented starting in 2018. This tax is intended to “give employers that much more reason to avoid expensive insurance policies and thus give insurers that much more reason to hold costs down.”

An even greater burden is placed on small businesses.  If firms don’t comply with the act, they most likely will have to pay penalties. This will freeze hiring new employees but also force many small businesses into another round of agonizing layoffs.  The 12.7 million Americans already out of work are going to have more miserable company.

"The health care law is financially devastating for small business," says Dan Danner, CEO of the National Federation of Independent Business and the plaintiff in the Supreme Court case. "The employer mandate and health insurance tax will be job-killers, and have the potential to drastically change the private-sector job market as we know it. Small business will shoulder 59 percent of the jobs lost."

"The unknowns associated with the employer mandate have left many small-business owners trying to forecast how they will shift their workforce to avoid the financial penalties that will stem from offering 'affordable' coverage, as defined by Congress, to their employees. It's really quite shocking how President Obama can tout the economic importance of small business in speeches across the country at the very same time that his healthcare law threatens the very jobs that small business creates," says Danner.

The only apparent small upside is a tax credit for small businesses that buy health insurance for their employees. However, businesses will only qualify for this tax credit if they pay at least half the cost of coverage for their employees, a high hurdle for thousands of small businesses – the historic engines of job growth.

Now that ObamaCare has been upheld, Congressional reaction has been swift.  House Majority Leader Eric Cantor says the House will vote on full repeal of the law during the week of July 9.  Although it’s highly unlikely the Senate can muster the votes to overturn the legislation nor override an expected Presidential veto if it were to pass.  Nonetheless, it appears the fight over ObamaCare is far from over.  While the ruling is a clear win for President Obama, Gov. Mitt Romney now has a clearer target to attack with the passionate backing of 53 percent of Americans, at least according to most polls.

NOTE:  As with all major news outlets, we are still examining and interpreting this lengthy and complex ruling by the Supreme Court.  As more of the ruling and impact are understood, we will update our posts.

• Health Care

• Taxes

• Supreme Court

• Medicare

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