Breaking the no middle class tax increase pledge (again)

On September 12, 2008 in Dover, New Hampshire, then-candidate Obama said:

I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.

On February 4, 2009, President Obama signed Public Law #111-3, the Children’s Health Insurance Program Reauthorization Act of 2009. Section 701 of this law increased tobacco taxes, effective April 1, 2009. Since most smokers have annual family income less than $250,000, this was a clear violation of the President’s pledge.

If anyone argues the President was only talking about “Under my plan,” and that his “firm pledge” does not apply to legislation enacted by Congress, Calvin Woodward of the Associated Press wrote of the Dover campaign speech:

He repeatedly vowed “you will not see any of your taxes increase one single dime.”

Let’s look at the Reid health care bill in the same context. If the President were to sign the Reid bill in its current form, would he violate the Dover pledge?

1. The clearest violation is the 5% excise tax on cosmetic surgery and similar procedures (including teeth whitening). I assume that cosmetic surgery and similar procedures are skewed toward the high end of the income distribution, but there certainly are many people getting these treatments with annual family income less than $250,000.
2. The bill would allow State insurance exchanges “to charge assessments or user fees to participating health insurers, or to otherwise generate funding, to support its operations.” [ §1311(d)(5)(A) ] Health insurers would pass these “assessments or user fees” through to consumers as higher premiums. This would affect anyone who buys health insurance, including those with family income less than $250,000.
3. The bill would impose a 40% excise tax on health coverage in excess of $8,500 (individuals) / $23,000 (families). While policies this generous are almost certainly skewed higher on the income distribution, there are definitely families with income less than $250,000 receiving these plans. Again, health insurers would pass these tax increases through to those families.
4. The bill would increase taxes on all health insurance plans, as well as on brand-name drugs and biologics, and on medical devices. These tax increases would affect anyone who buys these goods, even if their family income is less than $250,000.
5. According to CBO, “By 2019, … the number of nonelderly people who are uninsured would be reduced by about 31 million, leaving about 24 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants.)” (p. 8 ) These roughly 16 million people would pay “penalties” of $95 per adult in 2014, $350 per adult in 2015, and $750 per adult in 2016 and later. You’re charged half as much for each kid. Most of these 16 million people paying higher taxes will have family income less than $250,000 and will pay higher “penalties,” although not all will pay these full amounts.
6. The bill would create a new 0.5 percentage point increase in payroll taxes on individuals with incomes greater than $200,000 in 2013 and families with incomes greater than $250,000 in 2013. Since these amounts are for 2013 and not indexed, someone making $233K in 2009 would be affected by this in 2013, assuming 1% annual real wage growth and CBO’s assumptions about inflation. If you’re making $220K this year, you’ll probably be hit by the new tax in 2016. $210K this year, you first get bit in 2017, and so on.

These are six tax increases (eight if you split #4 into its three components) that would violate the President’s pledge. I believe #1, #5, and #6 are indisputable.

The Administration could argue that #2, #3, and #4 don’t violate the letter of the President’s pledge, in that the incidence of the tax falls on the seller of the good, rather than on the purchaser of the good. But almost every economist will say that the economic impact of those tax increases would be felt by the person who buys that good, meaning these provisions at a minimum violate the spirit of the President’s pledge.

I would also argue that someone who would not otherwise buy health insurance, but does so to avoid the individual mandate / penalty, is being taxed. But I didn’t want the philosophical debate that underlies my view to detract from the conclusion derived from the above list.

Will President Obama sign such a bill that repeatedly breaks his “firm pledge”?

When the Administration issues its Statement of Administration Policy on the Reid bill, will it raise these objections?

(photo credit: Jeff Glagowski)