CBO Disclosures Debunk ObamaCare Hype

The table below illustrates the tax increase that will hit individuals and families when their employers yield to the incentives in the Baucus bill to drop health coverage and send employees to the new government exchange to buy insurance.

Last week the folks at the Congressional Budget Office (CBO) regaled us with their analysis of the Baucus Senate health care bill concluding, astoundingly, that it would reduce the deficit.

Buried in the CBO analysis are inadvertent disclosures that Baucus violates two of President Obama’s most often repeated promises.  Here’s an excerpt from page five of the CBO report:

…costs would be partly offset by receipts or savings, totaling $311 billion over the 10-year budget window, from four sources:

1. net revenues from the excise tax on high-premium insurance plans, totaling $201 billion;
2. penalty payments by uninsured individuals, which would amount to $4 billion;
3. penalty payments by employers whose workers received subsidies via the exchanges, which would total $23 billion; and
4. other budgetary effects, mostly on tax revenues, associated with the expansion of federally subsidized insurance, which would reduce deficits by $83 billion.

Let’s look at #4 first.  Under the current tax code employer provided health insurance passes to the employee tax free.  However cash wages and salaries are subject to taxes:

• payroll tax of 7.65% on the employer;
• payroll tax of 7.65% on the employee; and
• income tax on the employee at 10% – 35%, depending on employee’s tax bracket

Now look at this footnote, explaining #4:

Changes in the extent of employment-based health insurance affect federal revenues because most payments for that coverage are tax-preferred. If employers increase or decrease the amount of compensation they provide in the form of health insurance (relative to current-law projections), CBO and JCT assume that offsetting changes will occur in wages and other forms of compensation—which are generally taxable—to hold total compensation roughly the same.

Translation: The CBO beleives that, as a result of various provisions in the Baucus bill, including #1 above, lots of employers would stop providing health insurance.  CBO assumed those employers would increase wages by the amount they had been spending on health insurance.  Thus, CBO projected an increase in tax revenue from the payroll tax and income tax on those increased cash wages.  They also assumed that those employees will use their additional cash wages to buy health insurance from new government-operated exchanges.

Thus, two of Barack Obama’s solemn promises are broken

1. If you like your health insurance you can keep it. You can’t keep it if your employer who provides it is driven by new government laws and regulations to drop it.
2. No tax increases on anyone earning less than $250,000. As the table below illustrates anyone, with any income, will be hit with a tax increase if her employer drops health insurance and makes up the difference with higher wages.  Also, CBO’s #2, above, is a tax on individuals who have no insurance.  Baucus, theoretically reduces the deficit by slapping Billions in new taxes, mostly on the middle class.

The table below illustrates the perverse tax consequences, described in CBO’s #4 and its footnote, of replacing employer provided health insurance with cash wages.  An employee with a $50,000 salary gets whacked with a 30% tax increase. The negative tax consequences are be even greater for employees in higher tax brackets.

Congress could immediately empower individuals and lower insurance costs, by deleting this pernicious tax punishment from the law.  The bill would be one page and could even be read and understood by all Senators and representatives.

But Obama and the Democrats refuse to consider this simple tax change.  Instead they write thousands of pages of new legislation to ramp up scores of new government agencies and bureaus, and compel every American to purchase a health plan that complies with new government commands.