Monday, April 5, 2010

Sheldon Richman: Brace yourself for ObamaCare taxes

  Now that President Obama’s health-insurance overhaul has become law, we can brace ourselves for the new taxes. What new taxes? Aren’t they only on the “rich” and on large companies?

  It’s true that the Obama plan includes new taxes on upper-income people. For example, the Medicare tax will now be applied to investment income. People making more than $200,000, will now have to pay a 2.9 percent tax on investment income over that limit.

  For people earning salaries of more than $200,000, their payroll tax will rise from 1.45 to 2.35 percent on the amount over that limit. (The so-called employer’s share will remain the same.)

  All told, the new Medicare taxes are projected to take in $184 billion by 2019, although that assumes the tax targets are stationary and unable to take evasive action. That is highly doubtful.

  Other new taxes include the levy on high-end employer-purchased health insurance. Since this tax was offensive to labor unions, which negotiates so-called Cadillac plans for their members, it was put off until 2018 (when a two-term Obama would be out of office), so there’s plenty of time to modify it. There are also assorted large fees on drug and medical-device companies. “Fees” charged by government is a euphemism for “taxes.”

  One might expect the corporate targets of such “fees” to object, but there’s been no objection. The companies supported ObamaCare in principle if not in every particular.

  Why? One reason is that along with the new charges comes the mandate compelling all U.S. residents to buy insurance (or have it bought for them). Big taxpayer subsidies are in the offing. Compulsory insurance therefore is money in the companies’ pockets; the new “fees” will be worked into the prices charged their captive clientele. Why do you think those companies’ stock prices are rising?

  Moreover, big companies can always grapple with new taxes and regulations more easily than smaller companies can. So taxes and regulations have a way of concentrating industries by diminishing competition. ObamaCare is a classic government-backed cartel.

  At any rate, those are not the taxes I am not referring to when I say we should brace ourselves. The taxes I mean are the implicit taxes that ObamaCare will impose on most productive people. What’s an implicit tax?

  Everyone knows what a tax is. It’s a government decree that individuals or businesses pay a sum of money or face penalties ranging from fines to imprisonment. Taxes are levied on all sorts of things, including incomes and the sale of products and services. The essence of a tax, then, is the payment of money under duress created by politicians.

  Once we understand this, we can see that the state is able to tax us indirectly as well as directly. For example, when government imposes a tariff on foreign goods, this tax is not formally imposed on consumers. But if the tariff leads to higher prices for the foreign goods and their domestic counterparts (which is usually the purpose), consumers end up paying the tax in those higher prices. The formal target is irrelevant. It’s a tax on consumers.

  Government can tax us even more indirectly. The pending cap-and-trade proposal, by charging companies for permits to emit carbon dioxide, will raise the price of energy and products embodying that energy. The difference between prices with and without cap-and-trade is a tax because the higher payment is the result of a government decree. It doesn’t matter that Congress passed no formal tax.

  Now we can see how ObamaCare will tax much of the middle class. Under the new law, everyone will have to buy government-defined medical coverage or have it bought for him by his employer, reducing cash wages. Thus, anyone who would not have bought insurance or would have bought a less-expensive policy will pay an implicit tax.

  But that’s not all. When government subsidizes demand, as ObamaCare will, prices rise. So under ObamaCare, everyone paying his own way will pay more for medical services (and insurance) than otherwise. That difference is a tax because it results from a government decree.

  Thus, ObamaCare is a massive tax increase on the middle class. How soon can it be repealed?

  About the author: Sheldon Richman is senior fellow at The Future of Freedom Foundation, author of "Tethered Citizens: Time to Repeal the Welfare State," and editor of The Freeman magazine. Visit his blog “Free Association” at Send him email.

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