Fiscal Cliff: Who Won? Who Lost?
Here is the bill. Here is the CBO score. Here is the House Republican summary of the bill.
Republicans seem to have great difficulty reminding people that the George W. Bush tax cuts are the reason why middle income families have not been paying about $2,000 more in taxes every year. The agreement President Obama just made with Congress saves about 80% of those tax cuts. It saves them for everybody earning less than $400,000 and in some cases makes them permanent. As of January 1, those tax cuts were swept off the table. So in voting to restore them for 98% of the population, Congress did not vote for a tax increase on the rich. It voted for a huge tax reduction for everyone else.
Anti-tax activist Grover Norquist is right about how to frame the issue: This was not a victory for the president or for the Democrats in Congress. Remember, almost all of them opposed the Bush tax cuts; they campaigned against them in every election; and they blamed them for the huge deficits we have been incurring.
It would be an incredible PR coup for the Democrats if they now appear to be the champions of the very tax cuts they opposed all these many years. If there is one thing about the Republican brand that was never in doubt it was that the GOP is the party of low taxes — for everybody. They have jeopardized that brand in the debris left over from the fall off the cliff.
A second Republican failure is the inability to explain why real billionaires, like Warren Buffett, are going to be affected very little by the new higher rates (unrealized capital gains will still be taxed at a rate of zero), while entrepreneurs with pass-through income are going to get hosed. A third Republican failure is the lack of response to the president’s claim that he only wants to restore Clinton era tax rates for investors and business owners. Not true. The new rate on small business (pass through) profits will be 43.4%, not the Clinton era 39.6%. That extra 3.8% is courtesy of ObamaCare.
Which brings us to the greatest Republican failing: allowing the entire Fiscal Cliff discussion to take place without ever mentioning the new taxes we all will be paying because of health reform. Overall, ObamaCare introduces 20 new taxes or tax rates, amounting to about $1 trillion over the next 10 years. Five of the new taxes, amounting to more than a quarter of a trillion dollars, started on January 1, 2013!
Yet in The New York Times summary of what the Fiscal Cliff was all about, these tax increases were not even included. Think about that for a moment. Not only did President Obama get away with claiming that he was opposed to any new taxes on the middle class, no one in the mainstream news media and no one in the Republican Party ever took him to task for championing all manner of new taxes for middle-income families in his signature piece of legislation!
The new ObamaCare taxes that begin this month, by the way, include higher taxes for anyone who is sick and has medical bills exceeding 7.5% of income. They include higher taxes for families with special needs children who had previously been spending more than $2,500 a year from a Flexible Spending Account. And they will be reflected in higher medical bills for anyone who needs a hip or knee replacement, a pacemaker or any other medical device.
The new ObamaCare taxes are not just taxes on the middle class, they are also taxes on the sick. But you would never learn that listening to the Republicans.
My colleagues and I at the National Center for Policy Analysis have a reasonable proposal: push back the start date of the five new ObamaCare taxes and pay for that by pushing back the start date of ObamaCare.
This proposal is revenue neutral and it accomplishes two admirable objectives: (1) it delays tax increases at a time when the economy needs all the help in can get in reaching a speedy recovery and (2) it delays the mandated health insurance requirement at a time when it is patently clear that most of the states are nowhere near being ready to start enrollment on time (this October).
Sadly, the Republicans didn’t even bring this idea up in the negotiations. It is still not too late to try it out.
John, you wrote: “The new rate on small business (pass through) profits will be 43.4%, not the Clinton era 39.6%. That extra 3.8% is courtesy of ObamaCare.”
Don’t forget the 0.9% in increased Medicare taxes, bringing the new rate to 44.3%
Excellent. I agree with you and Grover.
John,
This is a marvelous analysis. Thank you.
John,
Excellent work as always.
how was there any serious discussion on the fiscal cliff without any mention of the “regulatory cliff” that the country faces
John:
You style losing the regressive tax subsidy toward health care granted through the flexible spending accounts as a tax increase. Fair enough.
But then you don’t seem to count losing a tax subsidy toward health care to be granted low-income people through ObamaCare by pushing back the effective start-up date of ObamaCare as a tax increase for those families.
A very asymmetric analysis, if I may say so.
Happy New Year!
“makes them permanent” sounds so Orwellian.
When the GOVT waits until the last minute to solve problems, it hurts the people the government is supposed to help!
It’s not called The Stupid Party for nothing.
This is going to be a fun year..(Sarcasm)
@William
Definitely dystopic.
Dr. Reinhardt says: “But then you don’t seem to count losing a tax subsidy toward health care to be granted low-income people through ObamaCare by pushing back the effective start-up date of ObamaCare as a tax increase for those families.”
Since when does NOT getting a subsidy amount to a tax increase? Low income people do not pay any federal income taxes as it is. “Something for nothing” seems to be the passphrase of the Democratic Party, and things like “refundable tax credits” confuse the issue so much that our heads spin.
I actually hope the gears of ObamaCare become so gummed up by regulations and generalized confusion that it will collapse under its own weight. Increased ObamaCare taxes on everyone will not make medical care any more accessible or affordable.
Sick people need a way to pay for their medical care and, if they cannot afford it, they need real non-government charity. They do not need to be paying more taxes to fund a huge new medical bureaucracy crafted by the federal government.
John,
So why oh why is this not getting through to the R’s?
Who or what is running that show?
I am like so many who have stopped drinking this R brand of koolaid and are looking to get my own house in order. I acknowledge the future of ‘four more years’ and want to participate in as little of it as possible.
First and foremost, I do not care what they do. I will deal with it as it comes long.
• We will move to a freer state from the cold northeast asap,
• we will work extra jobs,and create ones
• we will get as debt free as possible (Dave Ramsey style!)
• and we will rely less and less on the highly regulated financial markets for income.
When I find a way to not rely on SSI and Medicare, I will let you know.
The internet, self energy generation, harness the power of the cloud, grow our own food, and more not thought of yet, will allow many of us to create our own new lives in spite of the old style command controllers in DC and union dominated states, (MANY R’s are there still!) who will be thrown out soon enough.
My grand kids know how to do things unheard of in my own youth, by using techonlogy and will not want the regulation that we have had all of our lives.
Raising them using the tenets of the 10 commandments will do more to civilize them than any of the work that they are subjected to in the state schools. Online learning WILL change the old ways very fast.
Here’s to good and better future!
Happy New Year…
The Republicans have lost the war of ideas, because they forgot what they stand for. They SHOULDN’T be the party of lower taxes,the should be the party of UPWARD MOBILITY! That is the aspirational goal ond the point of “pursiut of happiness.” Lower taxes, job creation, personal responsibility, and entrepreuneurship are identified processes to best facilitate that economic dynamic of upward mobility. The Democrats have championed the poor, but their policies trap the poor into the lower economic quartile. 65% of those born into the lower economic quartile stay in the lower 40%. However, the Dems get their votes and misguided appreciation for the government subsidies and increasing hand outs they provide. How about a return to a political philosophy of an assisting hand up (mobility) rather than a hand out (handcuffs). We need affordable concentrated compassion to help those truly in need (sick, disabled, and unfortunate).
Part of what is hurting the GOP is the decision not to bring aid for the Northeast after Hurricane Sandy up for a vote. Good luck running as a Republican in New York or New Jersey – regardless of anything else the GOP might try to do and sell. If I were Sen. Reid I would immediately call up a bill for post-Sandy aid, put it on the Senate floor now, vote it out and send it to the House.
You may be right about delaying the start of ObamaCare for an entirely different reason – if the exhanges are not ready (very likely) and the price tag of the insurance plans is too high (which is likely) – the President and the Democrats end up looking bad – they would be better off embracing a delay. So a delay might actually gain bipartisan support. The only problem is how to address the insurance coverage/Medicare/Medicaid issues for 2014 – but that seems to be part of the ongoing discussion anyway.
To Alieta Eck:
You ask: “Since when does NOT getting a subsidy amount to a tax increase?”
You should ask John that question, when he writes:
“The new ObamaCare taxes that begin this month, by the way, include higher taxes for anyone who is sick and has medical bills exceeding 7.5% of income. They include higher taxes for families with special needs children who had previously been spending more than $2,500 a year from a Flexible Spending Account. And they will be reflected in higher medical bills for anyone who needs a hip or knee replacement, a pacemaker or any other medical device.”
Here is equates taking away a tax preference (capping the Flexible Spending Account) to a tax increase.
I was just following our Great Leader here. I think he reasons that if someone cannot deduct as much of health spending from taxable income as before, he or she will pay more taxes, other things being equal. And John may be forgiven for thinking that when one’s tax payments go up, with a constant income, that is a tax increase. It is the way economists think. I agree with John on this one, because I am an economist.
To Dr. Reinhardt– True, I am not an economist, but it seems to me that a tax DEDUCTION (as for HSAs) is different than a tax SUBSIDY (as we will have in ObamaCare) so that people can afford something that costs too much in the first place.
to Patrick Pine– I don’t think the issue in Sandy subsidies was whether to help those in NJ and NY, but how much to give. The damage was $71 billion, and people had insurance than amounted to $22 billion. Thus $60 billion is too much for the rest of the country to kick in. How would it be spent? At a time when we need to tighted our government belts, this seems a bit excessive. And I live in NJ.
Whether in the long-run or short-run everyone loses…
Technically, I have to side with Prof. Reinhardt in his dispute with Dr. Eck, although I understand why she is surprised by his comments.
ObamaCare subsidies really are refundable tax credits, although they are functionally not different from spending subsidies. That is, if you relabeled the tax credits spending subsidies nothing important would change.
And it is certainly true that if we delay the start date of ObamaCare we will be taking something away from the folks who will receive those subsidies. BUT, what we will be taking away from them is not income they have earned. It will be income taxpayers have earned.
And when the subsidies start flowing, what we will be giving them is not money to spend at their discretion. It will instead be money they must spend on a health plan that may have much less value to them than its cost.
Your blog is right on point. The President and his Democratic cronies are geniuses at how to take credit for the very things they opposed if it fits their agenda. Take the Bush tax cuts. They blame these cuts for much of the deficits that have occurred during the last years of the Bush 43 administration and President Obama’s term. Then they campaign for elimination of these cuts, while now voting to retain these cuts for all but the top 2% of earners.
They still blame the current recession on Bush 43, while it was during the Carter administration that the lending laws were first loosened to ‘reduce discriminatory credit practices among low-income neighborhoods.’ In simpler terms, allowing disadvantaged individuals to acquire loans on real estate that they couldn’t afford and subsequently dumped back on the shoulders of the lending institutions and the American taxpayers. The Reagan, Bush senior and Clinton administrations also moved to ease these lending policies, along with Senators Dodd, Schumer and Congressman Frank during the years just before the onset of the recession of 2008. As reported in the New York Times on September 11, 2003, it was the Bush 43 administration, through the Office of Thrift Supervision (OTS), that submitted requests to limit the loose lending policies. All of the OTS’s recommendations were rejected by the Congress when a contingent of Democratic Congressman issued a letter of protest. *
The administration and its supporters on Capitol Hill also fail to point out the new taxes mandated in the Affordable Care Act to virtually all individuals, small businesses and the current year’s increase in Medicare insurance.
The Republican leadership seems to be floundering, since it is always more difficult to be on the defense. But they do one thing well— play the fall guy.
*Maybe This Wasn’t George W. Bush’s Recession? @http://www.robtenerymd.com on August 10,2011.
Rob Tenery, MD
John Goodman says: “And when the subsidies start flowing, what we will be giving them is not money to spend at their discretion. It will instead be money they must spend on a health plan that may have much less value to them than its cost.”
This is absolutely key. We are forcing ratepayers and taxpayers to fund “insurance,” that is not really insurance. It is prepayment of medical care. Forcing insurance companies to cover wellness and mammograms might seem smart at the outset, but it simply makes these services cost more. Why force insurance to pay for something that costs $80 in the free market?
For a real free market example, my family is enrolled in Christian Care Medi-Share, one of those faith based entities that is exempt from ObamaCare. We give $385/month to a family that needs it. Our “annual household portion,” similar to a deductible, is $10,000, but if we have medical bills up to $1 million, the other members will help us.
Contrast that to the $2500/month our family would be paying under current NJ insurance laws– where coverage mandates, guaranteed issue, limited deductibles and forced wellness coverage is presently in place.
Which plan is reasonable? Taxpayers will be forced to subsidize the over-priced, pork laden plans, and the insurance company and hospital executives will retain their multi-million dollars compensation packages– and be happy to help fund the next political campaign.
This is what has energized the Tea Party movement.
Dear John, and frequent guests–
I’m waiting for someone in government to acknowledge that their performance in recent decades and this immediate past decision on the Tax bill shows them as incompetent to “own” the healthcare system through its myriad control mechanisms. Other recent blogs have summarized the delays in its issuance of regulations for Obamacare, of materials developed months ago. And the volume of regs is now nearing a 100 thousand pages. Estimates of the costs of reporting all these actions and compliance rules are already in the hundreds of billions.
Not to mention that all the brainpower being recruited to work in the 165 agencies concerned with Obamacare means that much brain power not active in the private sector, where there are constraints on profligacy and misuse of power, though this is often attributed to “big corporations.” THe last time I looked, healthcare was 17% of GDP while government was 25%.
Given that the law passed, and given that it will have pimples and hangnails aplenty from now on, I plan to track that effect and attempt to make Democrats own this puppy and regret the very name of Obamacare.
In the meantime, I encourage everyone who loves both policy and science to read up on the innovations coming along that will transform our industry for the better, possibly before it is destroyed by a single slovenly law. A smart scientist in Seattle has identified a protein that can inactivate a molecule associated with the P-53 gene that is responsible for several cancers.
As for medical tourism as a solution; the Cleveland Clinic is building a hospital in Dubai. What to you guess is the regulatory environment in that country?
2013 will be a creative year, especially for those who use common sense to do or not to do those provisions of Obamacare that are set out in the bill. Note that among the taxes are sleepers that have nothing to do with healthcare–a tax on “investment income” which includes real estate transactions. Suddenly, a whole class of citizens will find their pockets are being picked to pay for this unholy monster.
As “signs of land” one must acknowledge that there are sensible people out here in radioland; there is appearing before us a conference on planning for management of health manpower, and they don’t mean getting more of it and paying more for it.
John–I think it is time for you to write a script for the Republicans–what they should say exactly now. We’ll all help out.
Cheers to all…
Wanda J. Jones
President
New Century Healthcare Institute
San Francisco
To Alieta Eck:
Since you remain unconvinced that making an expenditure tax deductible is the same as providing a subsidy toward that expenditure, I have written up a lecture note on it just for you. Here is the link:
http://www.princeton.edu/~reinhard/pdfs/CHARITY_AND_TAX_DEDUCTIBILITY.pdf
Nice weekend reading.
Enjoy!
Uwe, I was glad to read your very clear pdf file sec #2 and understand that in economic terms both are tax expenditures, but doesn’t each mechanism provide different incentives for the people involved?
[Note: Non-Liberals have to be very careful discussing these matters because Liberals so often change the meanings of words so that things can become quite confusing. But, I like your definition as long as it is not implied that government owns all the GDP]
A subsidy is when I get something from someone else that i do not earn. Letting me keep my own money by lower taxes rates or a dedustion is NOT a subsidy. It may be a recognized PREFERENCE that encourages certain activities or recognizes basic living expenses(home ownership, charitable giving, etc.)Gov’t should only tax after the “family business” expenses.”
I recall CAHI’s earlier efforts to document reform impacts via longitudinal studies. In particular, recall the example of NJ’s reform attempt of the phase-in of rate compression and the resulting hyper rate increases. Unless I am mistaken, while the 3 R’s do attempt to mitigate some risks, they do not appear to take into considerations the dynamics of affordability, underlying demographic shifts of covered insureds, consumers ability to make plan changes upon renewal and increase coverage as needed, carriers dropping out of the marketplace and many other such dynamics. http://www.cahi.org/cahi_contents/resources/pdf/destroyinginsmrkts05.pdf. “History repeats itself, first as tragedy, second as farce.”
Karl Marx