Tag Archives: taxes

New Health Care Law

The Dead-Weight Cost of Obamacare’s Confusing Tax Credits

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mnsure-dot-org-ss_mainObamacare crushes jobs because of its loopy distribution of tax credits. As discussed previously, the tax credits (which reduce premiums) for Obamacare coverage phase out in such a way that beneficiaries face very high marginal income tax rate hikes at household incomes up to 400 percent of the Federal Poverty Level.

However, even those who increase their incomes despite the higher tax burden face the hassle of figuring out how much they owe in tax and premium at the end of the year. This imposes a dead-weight loss on the economy, wasting people’s time and energy. Here is an example: Continue reading The Dead-Weight Cost of Obamacare’s Confusing Tax Credits →

Health Alerts

Health Reform Through Tax Credits

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health-care-costs(A version of this Health Alert was published by RealClearPolicy.)

Lost in the blur of the presidential campaign, the evidence indicates the Republican Obamacare replacement plan will include refundable tax credits. In its purest form, this means each person with employer-sponsored benefits, an individual health plan, or dependent on a welfare program like Medicaid or the Children’s Health Insurance Plan (CHIP) will start with a clean slate and a fixed sum of taxpayer-funded money to choose health care of his choice. The Republican proposal will not likely go that far, but it will go a long way to introducing fairness in the tax treatment of health benefits, which is currently broken. Continue reading Health Reform Through Tax Credits →

Health Alerts

Our Corporate Tax Code is Unhealthy for Medical Innovation

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(A version of this Health Alert was published by Forbes.)

It would be fair to say markets were blindsided by the U.S. Treasury’s 300-page plus batch of regulations that blew up the merger between Pfizer and Allergan. The deal was widely described as a so-called “inversion,” a deal whereby a U.S. domiciled company reverses itself in to a foreign firm for the purpose of reducing its U.S. tax burden.

Pfizer has been trying to invert itself for a long time. It has not been easy. In May 2014, Pfizer gave up its dance with AstraZeneca, a British-based global pharmaceutical company. The problem for a huge biopharmaceutical firm like Pfizer is that it cannot just collapse itself into a foreign shell.

As I discussed in an article published in the wake of the failed AstraZeneca deal, the newly consolidated company has to have a minimum 20 percent foreign ownership to qualify for tax inversion. That means the target has to have a market cap at least 25 percent that of the U.S. bidder – and that is only if the deal is fully financed by equity. Not that many companies are big enough to fit the bill for a company like Pfizer.

The deal with Irish-based Allergan was first disclosed provisionally on October 29, 2015, and confirmed on November 23.  Since then the return to an investor who arbitraged the merger by buying one share of Allergan to exchange for 11.3 shares of Pfizer (the terms of the all-equity deal) ranged between 15 percent and 21 percent until March 17 (assuming one year for the deal to close, and taking account Pfizer’s February 3 dividend of $0.30. See Chart I.)

20160406 Chart I

Not until after the middle of March did the spread widen to around 25 percent, suggesting something was indicating to investors they needed to demand a higher risk premium. Still there is nothing indicating Treasury’s regulations were leaked before being released on Monday and blowing up the deal. Continue reading Our Corporate Tax Code is Unhealthy for Medical Innovation →

Health Alerts

Believe it or Not, The Republican Obamacare Replacement Plan Might Come Together

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health-care-costs(A version of this Health Alert was published by Forbes.)

Earlier this month, Speaker Paul Ryan announced six task forces, each comprised of House Committee Chairmen, to develop a “bold, pro-growth agenda.” What was remarkable was that one of the task forces was on health care reform. Many had thought Congressional Republicans were investing too much time and energy grandstanding Obamacare repeal, and not enough developing a credible alternative.

That may have changed with the selection of four Committee Chairman to the Health Care Reform Task Force. They are: Budget Committee Chairman Tom Price (R-GA), Education & the Workforce Committee Chairman John Kline (R-MN), Energy & Commerce Committee Chairman Fred Upton (R-MI), and Ways & Means Committee Chairman Kevin Brady (R-TX).

With respect to private health insurance, the composition of the task force indicates the emerging House Republican plan will improve the post-Obamacare health system not only versus Obamacare, but versus the pre-Obamacare system. One of the reforms will almost certainly be refundable tax credits to finance health care for those of us who do not have employer-based benefits. Importantly, these tax credits will likely be much simpler to calculate than Obamacare’s tax credits, which impose high marginal income taxes at certain incomes, and reduce people’s incentives to work. Continue reading Believe it or Not, The Republican Obamacare Replacement Plan Might Come Together →

Policy Updates

Jindal’s Attack on Walker’s Health Plan is Off-Base

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Yesterday, I addressed Governor Scott Walker’s health plan in largely positive terms. Governor Bobby Jindal, a competing Republican presidential contender, has launched a broadside against Walker’s plan, describing it as a “new federal entitlement.”

JW

The charge is way off-base. Governor Jindal proposed a health reform back in 2014, via his America Next policy shop. The point of contention is that Governor Jindal’s proposal would not offer everyone a refundable tax credit. Instead, it would eliminate the exclusion of employer-based health benefits from taxable income and replace it with a standard deduction.

I criticized the proposal when it was issued. True, it is an easier switch than a refundable tax credit. On the other hand, a deduction does nothing for low-income households – which means the welfare state continues to exist. Jindal himself proposed throwing $100 million more at states to fund their medical safety nets. Continue reading Jindal’s Attack on Walker’s Health Plan is Off-Base →

New Health Care Law

Will 11 Million Pay Obamacare’s Individual Mandate Penalty?

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I recently took issue with lack of clarity in media coverage of a report by the IRS’ Taxpayer Advocate, which claimed 6.6 million paid Obamacare’s individual mandate penalty last year. I figured the total must be significantly higher, because each tax return would cover more than one individual.

In an e-mail to me dated July 21, 2015, Doug Badger, a longtime veteran of Republican administrations and whose Doug’s Briefcase blog is a must-read, pointed out that there can be more than one person in a household applying for Obamacare coverage:

….. a more accurate measure of household size could be obtained by dividing the number of people included in a completed applications by the number of applications.  That yields a factor of around 1.35, as opposed to 2.35.  I admit that is a rough approximation and there may be better ways of calculating the number of people affected by the tax on the uninsured.  In any event, your central point is exactly right: the number of people living in households that paid the tax is much greater than 6.6 million.

Continue reading Will 11 Million Pay Obamacare’s Individual Mandate Penalty? →

New Health Care Law

Did 15 Million – Not 6.6 Million – Pay Obamacare’s Mandate Penalty?

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The media have reported that 6.6 million “taxpayers” paid the Obamacare penalty (tax) for not obeying the individual mandate to buy federally qualified health insurance in 2014. However, the actual figure must be much larger.

However, the report by the Taxpayer Advocate discusses “returns,” not individual taxpayers. It reports that 2.6 million 2014 returns claimed Obamacare’s premium tax credits, totaling $7.7 billion paid out, and an average pay out of $3,000).

We know from other sources that about 6.14 million individuals claimed tax credits for Obamacare coverage last year (87 percent of 7.06 million individuals). (And that is only if we count people who signed up during open enrollment, which ended in March 2014. Because special enrollment continued throughout the year, most of those who signed up later would also have claimed tax credits.) Continue reading Did 15 Million – Not 6.6 Million – Pay Obamacare’s Mandate Penalty? →

Health Alerts

Unbelievable! Senator Hatch Cannot Find $30 Billion For Medical Device Excise Tax Repeal

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(A version of this Health Alert was published by Forbes.)

Congress may be on the verge of repealing Obamacare’s medical device excise tax. I am all for repealing it, which will reduce funding for Obamacare by $24 billion over ten years. Of course, that means it will increase the deficit by $24 billion, which means Congress has to offset repeal by cutting spending by the same amount.

Can’t be done, says Senator Orrin Hatch, Chairman of the Senate Finance Committee: “It’s pretty hard to come up with a $30 billion offset,” (as reported by the Wall Street Journal’s Isaac Stanley-Becker). I am not sure how Senator Hatch rounded the figure up to $30 billion, but that does not really matter.

It should be as hard to find $24 billion or $30 billion of spending offsets as it is to find a cup of coffee at Starbucks. Here are some examples, plucked from the pages of President Obama’s budget proposals: Continue reading Unbelievable! Senator Hatch Cannot Find $30 Billion For Medical Device Excise Tax Repeal →

Health Alerts

King v. Burwell: Fix Obamacare’s Job Killing Tax Credits

(A versio30-ways-to-cut-your-health-care-costsn of this Health Alert was published by Forbes.)

You read that headline right: It is not only those who pay Obamacare taxes who suffer, but those who receive them. That’s because the tax credits are calculated so perversely that people who receive them actually get punished for working more hours. In the wake of the Supreme Court’s forthcoming decision on King v. Burwell, which will determine whether tax credits paid in at least 34 states are legal, fixing this should be a priority for Congress and President Obama.

For the first time since 2012, the Congressional Budget Office has done a comprehensive estimate of the costs and benefits of Obamacare. The new estimate concludes that repealing Obamacare would increase Gross Domestic Product by 0.7 percent over the next ten years. The primary reason is the disincentive to work contained in the design of the tax credits.

Of course, President Obama is not going to repeal Obamacare. Nevertheless, in the wake of King v. Burwell, much of this problem can be alleviated without doing violence to the president’s goal of increasing coverage, as I describe in a new study from the National Center for Policy Analysis (NCPA). Continue reading King v. Burwell: Fix Obamacare’s Job Killing Tax Credits →