Obamacare repeal would bring a huge tax cut for the rich, research shows
The fate of the Affordable Care Act (ACA), known as Obamacare, rests with the Supreme Court: the country's Supreme Court will hear arguments about the constitutionality of the Health Act starting November 10.
A decision on the determination of the “individual mandate” of the ACA and possibly the entire law is expected in spring 2021.
In addition to excluding millions of Americans from their health insurance, repealing the ACA would mean a significant tax cut for the richest Americans. According to research by the Tax Policy Center (TPC), the top 0.1% would see a tax cut of $ 198,250 per year, while the top 1% of Americans would see a tax cut of $ 32,370. (The Center for American Progress (CAP) came to a similar conclusion based on the TPC data.)
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"We knew ACA's repeal would be a godsend for the rich," Seth Hanlon, a senior fellow at CAP, told Yahoo Finance. "But the magnitude of the tax cut for the top 0.1% - people who make $ 3.8 million and above - is still staggering."
A breakdown of the tax cuts. (Graphic: Tax Policy Center)
"Pick up would handle all of that"
The ACA is funded by taxpayers' money, which is part of the reason the GOP has tried for years to tear down the landmark law.
Individuals earning more than $ 200,000 per year are required to pay a 3.8% Net Investment Tax (NIIT) which applies to investments, income dividends, capital gains, royalties, etc. Some Americans in this income bracket are also subject to the additional 0.9% Medicare tax.
"The ACA expanded health care for people with low and middle incomes and financed most of it with a tax increase for the rich," said Hanlon. "Picking it up would handle it all. In particular, the largest tax provision was a new 3.8% tax on the capital income of high-income people. Since investment income like capital gains and dividends are extremely targeted towards the very rich, who would benefit most from the abolition of the tax. "
U.S. President Donald Trump speaks to Mark Meadows (L) and House Majority Leader Kevin McCarthy (R) behind him after the House of Representatives approved the American Healthcare Act to repeal key parts of Obamacare on May 4, 2017. REUTERS / Carlos Barria
Many components of the ACA are tax tied. Obamacare's original single mandate, before being repealed by the GOP Tax Act in 2018, included a tax penalty for the lack of health insurance intended to protect those with pre-existing conditions.
"The way in which Congress did this made that tradeoff," Howard Gleckman, a senior fellow at the Urban Brookings Tax Policy Center, told Yahoo Finance. “It is said that insurance companies are obliged to sell insurance. I cannot prevent you from taking out insurance because you have pre-existing conditions. That was the first piece of it. "
Gleckman stressed that this potential tax cut has been clear since the ACA was founded in 2010.
"Nobody made a secret of it," he said. "When the Obama administration and Congress proposed this, they said these new taxes will apply to individuals:" We will only apply to people who make more than $ 200,000 a year. "It was really clear that that was the goal and that if the ACA was either replaced by Congress or declared unconstitutional by the court, the people who would benefit would be starting to pay the tax in the first place by 2010."
United States President Barack Obama speaks with Vice President Joe Biden in the Rose Garden of the White House in Washington on April 1, 2014 about the Affordable Care Act, also known as Obamacare. (Photo credit should be NICHOLAS KAMM / AFP via Getty Images.)
‘Add insult to injury’
CAP's Hanlon was critical of the fact that lifting the ACA would benefit higher-income Americans, in addition to removing health insurance for those in need most.
"One notable thing about the pandemic is that billionaires' wealth has continued to grow despite the fact that millions of people have lost their jobs and livelihoods," Hanlon said. "Lowering taxes on these billionaires at this point would add insult to injury."
Data has shown that American billionaires saw their wealth grow by $ 406 billion in the first six weeks of the coronavirus pandemic, which is roughly 14% of their net worth. It has continued to grow since then.
Cathey Park wears a cast for her broken wrist marked "I Love Obamacare" written prior to US President Barack Obama's arrival to discuss health insurance in Boston on October 30, 2013. REUTERS / Kevin Lamarque
And while many of the taxes associated with the ACA have been abolished, prescription drug companies still pay a fee: the excise tax known as the Branded Prescription Drug Fee. If this were eliminated, pharmaceutical companies would pay $ 2.8 billion less in taxes each year.
At the same time, taxes for the lower and middle class would rise.
“The ACA has introduced tax credits to help people get health insurance purchased on the marketplaces. These tax credits go to low- and middle-income households to reduce their premiums. The average tax credit is approximately $ 500 per month. If ACA is canceled, these tax credits will also be canceled. In other words, it would raise taxes on low and middle income households while lowering taxes on the very rich. "
Adriana Belmonte is a reporter and policy editor for Yahoo Finance. You can follow her on Twitter @adrianambells.
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