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Is the Obama health-care law a huge tax increase?

Responding to the Supreme Court's historic ruling on the Affordable Care Act, Republicans are refocusing criticism on the tax fallout from health-care reform. Is it a tax hike? Yes. But on whom?

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• There is also a surcharge on high-cost health-insurance plans, which will be mainly borne by the wealthy. Labor unions, which have given up pay increases for benefit increases, have a short exclusion from the surcharge. Over 10 years, this will raise $32 billion.

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• And, finally, the legislation includes penalties on individuals who do not get insurance and companies that don’t offer it. The actual penalties start relatively low – a penalty of the greater of $95 or 1 percent of income in 2014, $325 or 2 percent of income in 2015, and $695 or 2.5 percent of income in 2016 and beyond. This is expected to raise $17 billion over 10 years from individuals and $52 billion from corporations.

Former chairman of the House Budget Committee, Rep. John Spratt (D) of South Carolina, says that the idea of the additional taxes on the well-to-do was to even the playing field.

“These people have access to health care, their companies can deduct the cost of their insurance plans, and they can exclude the costs from their taxable income,” says Mr. Spratt, who was defeated for reelection in 2010. “They have an advantage, and we felt the taxes would level the benefit advantage out.” 

Republicans are incensed over the forthcoming tax hikes.

“After two years of deception it's time for Obamacare supporters to come clean and level with Minnesotans about what they actually did,” says Pat Shortridge, chairman of the Republican Party in Minnesota. “In the coming days, I hope they will apologize for not telling Minnesotans the truth about the tax increases that are the cornerstone of the Affordable Care Act, and level with their constituents about the negative effect this law will have on family budgets, health care quality, and job opportunities."

Sen. Lindsey Graham (R) of South Carolina said: “The problem for the American people is this is a massive tax increase at a time they can least afford it and Obamacare will jeopardize the quality and accessibility of health care.”

However, supporters of the legislation say there is a point to the new taxes.

“It is not as if the additional tax revenue will be burned up in a furnace,” says Paul Van de Water, a senior fellow at the Center for Budget and Policy Priorities, a think tank in Washington. “The revenue will help support the Medicaid expansion and the tax credits for people buying health insurance at the new health-insurance exchanges,” he says referring to a part of the plan that sets up a place for individuals to buy health insurance if they are not covered.

Adding the Medicaid expansion and individual mandate for health care is expensive, says Spratt. “We had to make sure it was deficit neutral so we needed revenue.”


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