Tax Chickens Come Home to Roost

One of the worst aspects of Obamacare has nothing to do with health care directly: It is the harmful effect on the labor market caused by Obamacare’s crazy quilt of subsidies. Because these subsidies phase out with income, they create extremely high effective marginal income tax rates. The Congressional Budget Office estimates that this will lead to 2 million fewer jobs in 2017 than would have existed without Obamacare.

Because the subsidies fluctuate significantly with income, this also creates a practical problem: People applying for Obamacare coverage now have to predict their income for the entire year. If they get it wrong, the IRS will demand repayment of subsidies. Don’t forget that many Obamacare beneficiaries are likely only slightly aware of the value of their subsidies, because the Obamacare exchange websites deliberately try to disguise them, in order to make people believe that their health insurance is less expensive than it was (as opposed to more expensive, but subsidized by other taxpayers.)

Well, we file our tax returns for 2014, and the chickens from Obamacare’s first year are coming home to roost:

Janice Riddle got a nasty surprise when she filled out her tax return this year.

The Los Angeles resident had applied for Obamacare in late 2013, when she was unemployed. She qualified for a hefty subsidy of $470 a month, leaving her with a monthly premium of $1 for the cheapest plan available.

Riddle landed a job in early 2014 at a life insurance agency, but since her new employer didn’t offer health benefits, she kept her Obamacare plan. However, she didn’t update her income with the California exchange, which she acknowledges was her mistake.

Now, she has to pay back the entire subsidy, which is forcing her to dip into her savings. (CNN Money)

$479 a month for twelve months amounts to $5,640. This shows why a flat tax credit, which would entail no work disincentives, and would be much, much simpler to administer, would be a good replacement for Obamacare.

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