The Real Obamacare Tax Increase

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Here’s what I don’t get. Everybody on the right is screaming and yelling about how the Supreme Court has labelled President Obama a tax-raiser for imposing a financial penalty on people who don’t purchase health insurance. So, okay, it’s a tax, but it will only be leveled against a small group of taxpayers who can’t be induced by new government subsidies to purchase health insurance. If you accept that it’s a tax, as Romney belatedly is doing, then you also have to accept that the Supreme Court was right not to strike down Obamacare. If you’re Romney, you also have to concede that you raised taxes exactly the same way in Massachusetts. Romney even called it a tax! 

As it happens, Obamacare includes a fairly significant new tax on incomes, one that conservatives could scream and yell about without raising all this inconvenient context. More than two years ago I wondered in print why Republicans weren’t raising holy hell about it. Not that I wanted them to, mind you--the tax is a progressive one, and we have to pay for health care reform somehow. I hesitate to bring it up now lest Republicans seize on it. But I’m not a politician, I’m a journalist, and it’s my job to point out when even politicians I disagree with fail to act in their rational self-interest. If Republicans really want to complain that Obama is raising your taxes in the dubious service of expanding access to health care, they’d do better to bitch about the Medicare payroll tax increase.

The payroll tax has two components: OASDI (for "Old-Age, Survivors, and Disability Insurance"), which is the Social Security tax, and HI (for "Hospital Insurance"), which is for Medicare.

The OASDI part (Social Security) is ordinarily 12.4 percent on incomes up to $110,100 (that includes contributions by both employer and employee), but for the past few years it’s been knocked down to 10.4 percent in order to put more money into the pockets of working people. OASDI is a hideously regressive tax that I’d like to reduce or eliminate entirely by substituting a carbon tax

The HI part (Medicare) is 2.9 percent on all incomes. The absence of a ceiling makes it less regressive than the OASDI part. The Obamacare tax increase makes it less regressive still by adding, starting in 2013, an additional 0.9 percent on incomes above $250,000 (if you’re married and filing jointly) or $200,000 (if you’re single). It also does something else: It requires people in this income category to pay a new 3.8 percent tax on investment income--capital gains, dividends, etc. This is new; nobody’s ever had to pay payroll tax on anything except wages before. With these changes, the Medicare tax will no longer be regressive. It will be progressive.

I consider the changes long overdue. But we all know how Republicans feel about making taxes more progressive. It punishes job-creators! It’s the politics of envy! 

For some reason, though, Republicans would rather kick up a fuss about a pipsqueak tax on health-insurance-shirkers, most of them probably lower-income, which means they’re an unlikely bet to vote Republican. Maybe it’s because they don’t really think of payroll taxes as taxes. (Grover Norquist has said he has no problem with raising them.) Maybe it’s because they got burned fighting with Obama over his payroll (i.e., OASDI) tax cut late last year, which possibly left them never wanting to speak the words “payroll tax” ever again, even if it’s to point out that Obama is now raising them (albeit only on people in the top 5 percent of incomes nationwide; but it wouldn’t be unprecedented for Republicans to leave that part out). For whatever reason, the GOP is spending remarkably little effort on fighting Obamacare’s most significant tax hike. As a liberal, I find this pleasing. As a journalist, I find it puzzling.

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