Thread: Obamacare’s ‘Cool Calculator,’ Part 2: The ‘Wedding Tax’

Obamacare’s ‘Cool Calculator,’ Part 2: The ‘Wedding Tax’

Better off divorced and shacking up.


by
TOM BLUMER
September 25, 2013 - 12:20 am


In a September 13 email, Erin Hannigan of Organizing for Action’s “Truth Team” bragged about a “cool calculator from the nonpartisan Kaiser Family Foundation” showing how Obamacare’s “tax credits” work, and encouraged everyone to “share it on Facebook or Twitter.”

Obamacare’s opponents, especially those who advocate defunding it before it goes live, need to follow Hannigan’s suggestion, and even embed it on their websites and blogs. That’s because what Kaiser’s “cool calculator” really does is expose the statist health care regime’s three ugliest financial elements.

I covered two of them in my previous PJM column. The first is that, when combined with Uncle Sam’s current income and payroll tax regimes, the gradual expiration as income increases of Obamacare’s “tax credits” — which Kaiser’s model schizophrenically describes as “government tax credit subsidies” — will raise the portion of income taken by the government for each additional dollar of earnings to between one-third and one-half, effectively taxing most American workers at marginal rates usually limited to the planet’s highest income earners. The second is that its subsidy “cliffs” will cause middle-aged single people and married couples making as little as $45,960 and $62,040, respectively, to lose over $10,000 in subsidies — or “tax credits,” in the preferred language of OFA and the U.S. Supreme Court’s — when they earn just one additional dollar. These bugs, which jubilant “progressives” as seen above apparently believe are features, will crush incentives to work and to otherwise pursue financial self-improvement.

The third tragic outcome of Obamacare is what it will do to marriages and families. In January 2010, two months before Obamacare’s passage, the estimable Robert Rector at the Heritage Foundation gave the impact a name: the “wedding tax.”

To illustrate, let’s start with the 60-year-old married couple with no children whose situation I illustrated at the end of Part 1:

If they have identical earnings totaling $65,000, which will usually net down to $50,000 or below after all income and payroll taxes, their Obamacare exchange Silver Plan premium next year with the same earnings will be $16,382, or about one-third of what used to be their take-home pay. (And they call it the “Affordable Care Act”?)

What can this couple do? Well, they could decide to earn a few thousand dollars less, which will negate the five-figure premium hit. Encouraging ordinarily willing workers to put in less effort isn’t good in any economy, but especially not this one. But if either spouse’s earnings are unpredictable or hard to precisely track, they could still “mess up” and get socked with a premium they can’t afford.

The “easiest” solution would be to avoid the “wedding tax” entirely by getting divorced while still living together. Here’s what would happen if they make that choice:

Instead of facing an exorbitant premium increase once their combined earnings hits $62,041 if they were to stay married, each cohabiting adult can earn up to $45,960 before Obamacare’s “tax credit”-free premiums kick in. Their annual after-tax savings at age 60 if they shack up and keep their individual earnings between $31,021 and $45,960 will range from $7,650 to over $11,000. The annual savings will slightly increase every year until Medicare kicks in at age 65. That kind of money can buy a lot of gifts for the grandkids.

But the grandkids will also face the prospect of seeing their moms and dads divorce because of Obamacare.

Let’s look at the situation of a 40-year-old couple with two children. The spouses’ annual earnings are $70,000 and $23,000, respectively:

The couple’s annual unsubsidized premium while married is $11,547 (OFA’s vaunted “tax credits” disappear at $92,401 for married couples with two children). But if they divorce and shack up while giving custody of both children to the lower-earning spouse, their combined annual premiums, at $4,317, will be over $7,200 lower. That’s over $600 a month. As was the case in the previous example, the savings from divorce will gradually increase every year. Parents will be torn between doing what Western civilization has considered morally right for millennia and their children’s financial well-being as never before.

There may be contrary examples, but in all of my research into the inner workings of Obamacare as embodied in Kaiser’s model, I was unable to find a single instance where staying married led to a lower net healthcare premium compared to divorcing and living together. Clearly, many couples who are considering marriage, especially after several years of seeing formerly married couples regress to cohabiting, will look at Obamacare’s “wedding tax” and say, “Never mind.” The effect on society will be incalculable, and certainly not for the good.

As designed, Obamacare threatens to turn cohabiting while functionally living as if married into a national sport. Paraphrasing what I noted at my home blog in March 2010, the following grim scenario appears likely:

The law in many if not most states says that you can’t cohabit indefinitely and still claim not to be married.

Because the government will be starved for money, the Internal Revenue Service will task itself with finding cohabiting couples and divorced couples still living together who are “illegally” claiming that they are not married for health care subsidy purposes.

Those caught and punished by the IRS carrying out its new role as the de facto “marriage police” could get hit with multi-year bills for undeserved “tax credits” running into tens of thousands of dollars.

16,500 new IRS agents won’t be anywhere near the number needed to enforce the Obamacare regime.

Open question: What kind of advice will the program’s navigators give to couples in sticker shock over their Obamacare exchange premiums? Will they counsel divorce, or will doing so be considered aiding and abetting tax evasion?

I find it utterly amazing and more than a little disheartening that the arguments made by Rector and yours truly for so long have gained so little traction, even among Obamacare’s most ardent opponents. Principled conservatives with bigger megaphones should not have waited this long to make these critical financial and family values arguments. But here we are, and we’re running out of time.

It’s likely that Obamacare’s implementation, no matter how expensive, incompetent, riddled with fraud and cronyism, compromised by privacy invasions and identity thefts, and disrespectful of Americans’ religious consciences it turns out to be, will be irreversible. To my knowledge, no other major entitlement program in U.S. history, no matter how unworthy or fiscally ruinous, has ever been fully repealed once it began — which is why Obamacare cannot be allowed to take effect.

If the results presented in this and the previous column aren’t enough to persuade Republicans and conservatives that it’s “now or never” time to defund this madness, what ever will be?

http://pjmedia.com/blog/the-wedding-tax/

The New Federal Wedding Tax: How Obamacare Would Dramatically Penalize Marriage

By Robert Rector
Print PDF

One bizarre feature of the Senate-passed health care bill is its pervasive bias against marriage. Under the bill, couples would face massive financial penalties if they marry or remain married. Conversely, couples who cohabit without marriage are given highly preferential financial treatment. If the Senate bill becomes law, saying “I do” would cost some couples over $10,000 per year.[1]
Most people feel that marriage is a healthful institution that society should encourage and strengthen. Inexplicably, the Senate health care bill takes the opposite approach. At nearly all age and income levels, the bill profoundly discriminates against married couples, providing far less support to a husband and wife than to a cohabiting couple with the same income. If the bill is enacted, married couples across America will be taxed to provide discriminatory benefits to couples who cohabit, divorce, or never marry.
Analyzing Anti-Marriage Discrimination in the Senate Health Care Bill
The Senate bill is designed to provide health care benefits that are substantially more generous for lower-income persons. The bill’s anti-marriage penalties occur because of the income counting and benefit structure rules of the bill. If a two-earner couple is married, the bill counts their income jointly; since the joint income will be higher, a married couple’s health care subsidies would be lower.[2]
By contrast, if a couple cohabits rather than marrying, the bill counts each partner’s income separately. Separate counting means that, all else being equal, cohabiters would be treated as having lower incomes and therefore receive disproportionately greater government benefits. The bottom line: under the bill, a cohabiting couple would receive substantially higher health care subsidies than a married couple even when the total incomes of both couples are identical.
Tables 1 through 5 in the appendix illustrate this pattern of pervasive financial discrimination against married couples. In the examples in the charts, the couples are assumed to have no dependent children, neither partner has employer-provided health insurance, and each couple’s earned income is assumed to be split equally between the partners—if a married couple has an income of $50,000, the husband is assumed to earn $25,000 and the wife $25,000. (The details of the analysis are described in the appendix to this paper.)
As Tables 4 and 5 show, under the Senate bill, married couples in general would receive between $1,500 and $10,000 less in government health care support than would cohabiting couples with the same total income.
Government Bonuses for Refusing to Tie the Knot
The stiff anti-marriage penalties and heavy “cohabitation bonuses” built into the Senate Obamacare bill send a negative social message. In addition, the bill creates large incentives for couples to “game the system,” allowing and encouraging them to reap large financial rewards by living together rather than marrying.
For example, a young couple without children, age 20, each making $20,000, would receive $4,317 more in health benefits each year if they cohabit rather than marry. Slipping on the wedding ring would cut the couple’s annual disposable income by more than 10 percent. Rather than pay this new wedding tax, the couple is likely to postpone marriage or forego it entirely.
Penalizing Married Empty Nesters
Under the bill, the anti-marriage penalties increase sharply as a couple ages. The discriminatory anti-marriage penalties are particularly severe on middle-class “empty nester” couples. Many of those couples would pay an effective tax of $5,000 to $10,000 per year for the right to remain married.
For example, a 60-year-old couple, each earning $30,000 per year, would receive $10,425 per year less in benefits if they marry or remain married. Simply by divorcing and then living together, the couple can boost their post-tax, take-home income by nearly one-fourth.
Similarly, a 50-year-old couple, each earning $20,000 per year, would receive $5,114 less in benefits each year if they marry or remain married. By divorcing and then living together, the couple could increase its income by more than $50,000 over a decade.
Hammering Low-Income Married Couples
Low-income couples are not immune from the bill’s aggressive wedding taxes. A 60-year-old husband and wife, each with an income of $15,000, would pay over $4,000 per year if they remain married. Put in other terms, the government would offer an annual bonus of $4,212 if the couple divorces and then cohabits.
The Lifetime Marriage Tax
Annual penalties actually understate the depth of the anti-marriage bias in the Senate bill. The bill’s wedding tax is perpetual. Penalties against married couples add up year after year as long as the couple remains married. Some couples who remained married throughout their adult lives would face cumulative penalties of over $200,000 during the course of their marriage.
Defending the Indefensible
Proponents of the Senate health care bill might argue that these marriage penalties would reach their full effect only in situations where neither partner had employer-provided health insurance. It is true that married couples with employer coverage would face less bias; however, this defense of the bill remains weak because discrimination against marriage remains discrimination even if it does not fully affect all married couples. Such discrimination is unacceptable even in a single instance.
Moreover, the main purpose of the act is to provide health insurance to persons without employer-provided health insurance. The basic point here is that the new subsidy system designed to fulfill that purpose is highly discriminatory against married couples.
Finally, if Obamacare were enacted, the number of employers offering health insurance would decline over time.[3] Therefore, the number of married couples who would eventually lose employer-provided insurance—and face stark discrimination on the non-group market under the provisions of the Senate bill—would substantially increase in the long term.
Profound Bias Against Marriage
The Senate health care bill sends a clear message: Married couples are second-class citizens. On the other hand, the bill establishes cohabiters as a privileged special interest, quietly channeling tens of thousands of dollars to them in preferential government bonuses.
Offering couples massive financial rewards on the condition they jettison their wedding vows, or decline to make them in the first place, is absurd social policy. But that would be the established policy of the U.S. government if Obamacare becomes law.
Robert Rector is Senior Research Fellow in the Domestic Policy Studies Department at The Heritage Foundation.
Appendix: Analysis of Subsidy Differences

In the examples in the Tables 1 through 5, all couples are assumed to have no dependent children and have no employer-provided health insurance. Each married and unmarried couple’s earned income is assumed to be split equally between the partners; for example, if a married couple has an income of $50,000, the husband is assumed to earn $25,000 and the wife $25,000.
Table 1 shows the average health care costs for couples at different age levels. These costs include both insurance premiums, and out-of-pocket medical expenses. (See the methodological note for more information on these estimates.)

Table 2 shows the health care subsidies offered to each married couple under the Senate health care bill. The subsidies include Medicaid eligibility, insurance premium credits, and out-of-pocket health care expense credits as applicable.

Table 3 shows the health care support offered under the Senate bill to the same couples if the couple cohabits rather than marrying. Comparison of Tables 2 and 3 shows that cohabiting couples will receive substantially greater support from the government than similarly situated married couples.

Table 4 shows the difference in health care subsidies to be given to cohabiting couples and similarly situated married couples under the Senate bill. The figures were calculated by subtracting the subsidy figures in Table 2 for married couples from the corresponding figures for cohabiting couples in Table 3.

Table 5 calculates the marriage penalties by a different method. Government subsidies were subtracted from total medical costs (in Table 1) to determine a residual medical expense for each category. Residual medical expense represents the expenditures a couple must make from its own income to obtain medical care. Residual medical expenses for married couples were calculated by subtracting subsidies in Table 2 from total medical costs in Table 1. Residual medical expenses for cohabiting couples were calculated by subtracting subsidies in Table 3 from total medical costs in Table 1. The residual medical expenses for cohabiting couples were then subtracted from the residual medical expenses for married couples to produce the marriage penalty figures in Table 5. The marriage penalty figures in Tables 4 and 5 are the same: Both procedures yield the same estimates.
Methodological Note
The average total medical cost estimates by age in Table 1 were taken from the health care subsidy calculator at the Kaiser Family Foundation Web site.[4] The figures include both the cost of insurance premiums for a middle-tier plan and out-of-pocket expenses. Out-of-pocket expenses in accordance with the provisions of the Senate bill and the Kaiser model were set at 30 percent of total costs.
In Tables 2 and 3, Medicaid eligibility, premium credits, and out-of-pocket credits were calculated according to the provisions of the Senate-passed version of the Patient Protection and Affordable Care Act. The premium costs used in the calculations were taken from the Kaiser subsidy calculator, and they represent the costs for a middle-tier or “silver” insurance plan.
Cohabiting couples were assumed to purchase two individual insurance policies. Married couples were also assumed to buy two individual health care polices, since, under the provisions of the Senate bill, this option would generally be cheaper for them than purchasing a single family policy. This occurs because the Senate bill does not allow the cost of a family policy to vary by family size; if married couples without children were required to purchase a family policy without variation by family size, their premium costs would generally be greater than the cost of two individual policies. In consequence, if married couples were required to buy only family insurance policies, the extent of the penalties against marriage would be even greater than those shown in the present analysis.
Estimating the value of Medicaid benefits in Tables 4 and 5 is difficult. Medicaid offers recipients comprehensive coverage with minimal out-of-pocket expense. On the other hand, many contend that the actual quality of Medicaid service is low because some recipients have difficulty accessing care. Tables 4 and 5 assume that Medicaid recipients are slightly better off than individuals receiving the maximum value of premium credits and out-of-pocket credits, because the Medicaid recipients will have lower out-of-pocket costs. This assessment would be questionable if the quality of Medicaid service is, in fact, lower than care obtained with private insurance. However, this issue affects only families with combined income in the $20,000–$25,000 range. It does not significantly alter the overall analysis of discrimination against married couples.

Show references in this report


http://www.heritage.org/research/rep...alize-marriage