Budget cutters target ObamaCare subsidies as fiscal cliff approaches?
posted at 11:21 am on November 12, 2012 by Ed Morrissey
We are less than 50 days away from the fiscal cliff, and Congress returns to Washington today with a mission to avoid a fiscal and economic crisis that would easily spin the country into a new recession. Peter Ferrara blasts Obamanomics in general at Forbes today, but also explains the stakes involved for the lame-duck session:
Last year I wrote a short book for Encounter called “Obama and the Crash of 2013.” I predicted then that Obama’s policies of increased top tax rates for nearly all major federal taxes, soaring new regulatory burdens, and loose, cheap dollar monetary policies, would produce renewed recession in 2013. Since then I have been joined in this view by the Washington establishment as reflected most authoritatively by the Congressional Budget Office.
Already enacted into current law to go into effect on January 1 are increases in the top tax rates of nearly every major federal tax. That is because the tax increases of Obamacare go into effect on that date, and the Bush tax cuts expire, which the President refuses to renew for the nation’s job creators, investors and successsful small businesses.
As a result, the top two income tax rates will jump nearly 20%, the capital gains tax rate will soar by nearly 60%, the tax on dividends will nearly triple, the Medicare payroll tax rate will skyrocket by 62% for these disfavored taxpayers, and the death tax will rise from the grave with a 57% rate increase.
This is all on top of the U.S. corporate tax rate, which under President Obama is now the highest in the world, except for the socialist one party state of Cameroon, at nearly 40% on average, counting state corporate taxes. Even China has a 25% corporate rate. The average in the social welfare states of the European Union is even less than that. Canada, which has been booming since Obama became President here, now sports a 15% federal corporate rate.
Unfortunately, the massive deficit spending of Obama’s first term leaves little room to roll back these tax hikes, unless spending gets a significant haircut in some way. That was the original purpose of sequestration — to make the alternative so unpalatable to both sides that actual spending cuts would get implemented. That didn’t happen in the 14 months after the debt deal in August 2011, but now that the election is over, Congress may have to rush through some key budget reforms to keep the triggered cuts from occurring, and to push off tax hikes to prevent another ruinous recession.
One place that budget cutters might find cash, reports The Hill, is the very legislation that Obama’s supporters hoped that his re-election had secured — ObamaCare. While Obama demands tax hikes for those making over $250,000 a year, budget reformers are questioning his plan to provide subsidies for those making as much as 180% of median household income:
Supporters of President Obama’s healthcare law breathed a sigh of relief Tuesday, but they’re already back at work trying to protect one of its key provisions from budget cuts.
As the election fades into the rearview mirror and attention turns more seriously toward the looming “fiscal cliff,” lobbyists and advocates are once again wondering whether Congress might look to the healthcare law for spending cuts.
Specifically, lawmakers might be tempted to tap the health law’s insurance subsidies — by far its most expensive provision, and probably the most tangible benefit it will provide. …
Critics say the subsidies are too generous — 400 percent of the poverty level is more than $90,000 per year. And because the subsidies don’t begin to flow until 2014, they represent a giant pot of money that’s in the budget but wouldn’t have to come out of anyone’s pocket.
Median household income is roughly $50,000 per year, which makes that threshold more than 180% of that level. I mentioned this often when analyzing ObamaCare during the legislative debate, as this cutoff at 400% of poverty level could end up including over 63% of all American households if employers started dumping health insurance en masse. That would be entirely unsustainable, and in many cases entirely unnecessary.
However, such a cut would entirely cripple ObamaCare for that very reason. The mandate requires everyone to carry health insurance (as a tax, thanks to John Roberts and the Supreme Court), but the cost of the required comprehensive policies would be ruinous. The requirement could be modified to hospitalization coverage and HSAs, but that reform was specifically barred by ObamaCare, even though it makes the most sense for younger Americans. Cutting off subsidies to middle-class households would create widespread violations of the mandate, and probably would end up with more uninsured Americans than when we started this mess, thanks to the undermining of the employer-provided model without any real reform that would have made insurance personally cost-efficient.
The problem with all of this starts with ObamaCare itself. Any reform which requires federal subsidies to those making 180% of median household income to be affordable is an unsustainable model, and the proposed budget cuts simply reflect what would eventually have to happen in the future anyway.