Saturday, September 22, 2012

On Takers and Payers

Remember the big flap about the Supreme Court ruling on the Affordable Healthcare Act (AKA – Obamacare – ACA)? The issue that made the headlines was that the Supremes ruled that ACA was legal, provided that the penalty for not having health insurance was collected as a tax.


This is a big deal as the penalty ($700 a year per person) was supposed to be the discipline that forced people to go out and buy their own insurance. One either acquires health insurance, or they pay a price.


The CBO took a look at this last week (link). The results surprised me. The reality is that few people will end up paying the penalties. So the basic premises of ACA is actually a fraud.


CBO estimated that there will be 30Mn uninsured in 2016 when ACA goes into effect. Of that 30Mn, the following groups will be excluded from paying the penalty:


1)   Undocumented workers.

Really? But that is 10Mn people; a third of the problem!


2)   Religious Beliefs

Huh! What religion is that? If it gets you out of paying taxes, I want to join!


3)   Native Americans

Okay, after all, it is their land.


4)   Individuals and families with low incomes.

I can live with this. But isn’t this where we are today? Poor people don’t have health insurance today, and they don’t have to pay any fines. In 2016 they will still have no insurance, and they won’t have to pay any fines. What has been accomplished?


5)   Anyone who does not file federal income taxes.

This is directed to those with income of less than $10k per year (same as #4), but there are an awful lot of people who don’t file taxes who are making much more than the minimum amounts. Most waiters and bartenders would fall into this group.


6)   Individuals who can’t afford the cost of health insurance.

The annual cost of health insurance must be less than 8% of an individual’s income for the penalties to apply. What is this new insurance policy going to cost? If the answer is $250 per month (too low in my opinion) it means that anyone with an income less than $37,500 is excluded. If the cost of that Ins. policy is $500 a month (a more reasonable estimate), then anyone who has annual income of less than $75,000 would be excluded.


With these carve outs the number of individuals who would be subject to the penalty falls to 6Mn (80% drop). But it gets worse:


Among the uninsured individuals subject to the penalty tax, many are expected to voluntarily report on their tax returns that they are uninsured and pay the amount owed. However, other individuals will try to avoid payments.


Oh boy! How many of the remaining 6Mn will “voluntarily” pay the penalty, and how many will seek to “avoid” it? At least half will avoid it. There is not much risk of getting hit by the IRS if one’s income is < $75,000. The IRS does not have the manpower to chase after those who “avoided” the penalty. The CBO recognizes that the actual amount of fees collected is subject to:


the ability of the Internal Revenue Service (IRS) to administer and collect the penalty.


The only people who are going to end up paying are those who have something to fear from an audit.


Households with income that exceeds $60k are estimated to constitute about one-third of people paying penalties and to account for about two-thirds of the receipts from those penalties.


The CBO reckons that Uncle Sam will collect about $8Bn a year in fees. This money will be used to offset some of the costs of the uninsured. The Penalty is also the “stick” of ACA that forces people to get insurance by one means or another. I see it differently:


-       Post the introduction of ACA there will still be 30Mn people without insurance. These people will still get sick or injured; they will continue to be a drag on everyone else.


-       The fees/taxes that are supposed to provide discipline and revenue for ACA will accomplish very little. I will be amazed if the penalties total more than $2Bn a year (peanuts). There will still be 30Mn people without insurance, and they will get sick (not peanuts).


-       The Administration and Congress have cooked up a deal that got amended by the Supremes that will result in a great new opportunity for people to cheat on their taxes. Millions will take advantage.


-       ACA is a wealth redistribution program. ACA will create more TAKERS; the PAYERS will foot the bill.



Mitt probably lost any chance he had with the election with is words about the “other” 47%. But the fact is the country is divided between Takers and Payers. The CBO head, Doug Elmendorf had this to say about the dilemma the country faces:



Formidable? I would say impossible.

Four years from today the Taker – Payer ratio will exceed 50%. The argument then will be the same as it is today. In order to pay for the cost of government, taxes will have to be much higher than the historical norm. But the necessary higher taxes will drag on the economy, and growth will be far less than potential. Sub-par growth means high unemployment and low tax receipts. The vicious debt spiral will continue.

Where does this lead us? Elmendorf’s thoughts:



The conclusion is that we are headed into a crisis, and when it happens we will not have the resources available to fight that crisis off. What kind of plan is that?




  1. That this will be a debacle, a meltdown, a disaster is a surprise? This will make Custer’s Last Stand seem like a triumph for tge white guys.

    1. Mitt it not done. He will take the election.
    2. This coming debacle is not an accident- think “unintelligent design”.

  2. Good, useful analysis. Also, could be “Makers” vs. “Takers” or “Workers” vs. “Shirkers.” Allegedly, no “economic empire” has “progressed” to this point and recovered. Buckle up.

  3. Roberts decided that the mandate was a tax, yet the bill did not originate in the House as are all revenue raising bill required to originate.

    A judicial challenge of this issue to is winding it’s way through the courts:


  4. If ACA is an income tax, SS and Medi… are also income taxes.

    So what are the real %’s?

    • Hartzman:
      ACA, Social Security, and Medicare are all taxes.
      Per my understanding of Social Security, it was also considered a tax to pass constitutional muster.
      The assessing of the tax and the spending of the tax are in 2 separate titles of the Social Security bill. This was to denote no connection between the tax, and its use for specific beneficiaries.
      This is why I am wondering how the ACA labeled the proceeds as a tax, if, apparently, the majority of the proceeds are going to private insurers as subsidies to make their products more affordable.
      Social Security’s tax was for the general welfare. The ACA’s tax seems to be for the specific welfare of health insurers to help make their pricey products more affordable, at least in the short run.
      Don Levit

  5. Bruce wrote:
    The annual cost of health insurance must be less than 8% of an individual’s income for the penalties to apply.
    Instead of this being an onerous (and exempt) expense, I thought the exchange subsidies were to keep many of these people under the threshold, for the very purpose of making it more affordable.
    Why would they rather pay a tax than buy the subsidized insurance for a similar cost?
    Don Levit

  6. Social Security, Medicare and ObamaCare/Tax are all age discrimination and ponzi schemes

    Even if the OLD PEOPLE on the supreme court think age discrimination is legal (when it benefits them), it doesn’t make it moral. It is still just as wrong as slavery. Baby boomers will die someday, and their horrible, discrimination programs with them.

  7. Bubba Joe,
    Of all of America’s laws, our tax laws are the only ones for which there is no requirement of fairness.

    • Mike — fairness matters if you hope for younger generations to honor YOUR empty promises when you are too old and frail to fend for yourself.

      If you screw younger generations today (and you are), you may forget your crimes in your senility — but we will not. Actually, we will be still be trying to pay off student loans / Paul Krugman subsidies. So fuck you old man. Baby boomers made a deal with the devil (yourselves) — but father time is going to make you grow old and frail anyway — then you will wish you had treated younger generations better than you have.

      You will reap what you have sowed — that is reality, no matter what your legal system has to say on the subject. Younger generations don’t have to *DO* anything to screw you back. Want your bed sheets changed? That will be $17 trillion you deadbeat. Need help getting to the bathroom? That will be $17 trillion you deadbeat. Can’t reach your insulin injector? You guessed it deadbeat, reach for your checkbook and $17 trillion.

      And before you make a further ass of yourself, the bankrupt government is in no position to help you.

  8. @Mike –

    Perhaps what Bubba Joe is trying to say (if less diplomatically) is the same message that was made in the song “Cats Cradle” that was popular back in the 1970s (and still gets played today).

    Dad makes a lot of empty promises about what he is going to do someday … while the son promises to be just like you dad.

    By the end of the song, the boy is just like his dad. Too busy to worry about all the empty promises, too busy to worry about what his dad wants.

    That is the future of all these absurd and empty promises “the government” has made. They are not funded for the baby boomers. They won’t last long enough for younger generations — not even if you use government accounting and Geithner’s version of Turbotax.

    Raising taxes on the young is just a fraudulent way of cutting benefits. Pay the same to get less, or pay more to get the same — its a cut by whatever name. Pensions for the young were eliminated years ago — now even the left wing states like NY and CA are cutting public pensions. They were always empty, unfunded promises made by a generation that spent like there was no tomorrow.

    Now its tomorrow and baby boomers have nothing but a promises they made to themselves. The law needs to be enforced by a generation that already got screwed.

    Younger generations are going to treat the baby boomer’s in retirement the way the younger generations were treated. The apple doesn’t fall far from the tree, the cats in the cradle — however you want to say it the outcome is the same.

    Baby boomer “entitlements” are unfunded promises. They were made by a generation that amassed a massive national “debt” that they have zero intention of ever paying. If the baby boomers don’t pay their debts in full ($17 trillion and counting) before they retire, how can they expect other generations to respect debt?

    Baby boomers are leading by example, whether they admit it or not. Baby boomers have no intention of balancing spending, much less repaying debts. Raising taxes on unemployed younger generations isn’t fair — but more importantly, it explicitly means the boomers are not going to pay their debts.

    What makes you think your offspring will be different?

  9. Greetings! Very helpful advice within this article! It is the little changes which will make the biggest changes.
    Many thanks for sharing!

    • If only the generations before and the baby boomers that are following could focus on the socialized intent and re-distribution ideas of the current Obama administration, they may take a different view for their childern sake ! The country is emploding in debt right under everyone’s noses, and, yet, little attempt is directed towards the greater problem……. changing the administration ! Better wake up and ask your friends to help, if only for the next generation.

  10. I get internet ads all the time for people to buy “affordable” health insurance policies. I have never looked at them because as a Federal retiree, I have a good gov health insurance plan. I would like to know what these ads mean by the word “affordable” health insurance. If these ads are true in supplying “affordable” health insurance to those who don’t have or cannot afford health insurance, why would people not buy into these plans and thus not pay the gov the $700 fee/tax that will be imposed on them for being uninsured folks? I believe if a person makes over 37K, they will be hit with this uninsured fee/tax. On the other hand, I know people who could well afford health insurance but CHOOSE “Not” to purchase it. This is one reason the gov needs to “Force” people into protecting themselves against unforseen illness/accidents. People will take chances by not buying health insurance.When they get sick or need emergency help the gov has to pick up thte tab if they don’t have any assets. People do need to be resonsible for themselves.The medical system we have in place now does not make people accountable for themselves.

  11. Is the a predominantly Republican site? If yes, then I question where you are obtaining your facts. You come across as an “expert” what credentials makes you the authority in Affordable Health Care? If this, as is true, modeled after Mitt Romney’s plan, why then is 99% of their residents insured, working without a hitch. Please do not attempt to distort the facts and please be up front and honest about where your affiliation lies. Are you a “Tea Party” Republican? A moderate, conservative? If you are using this as a means to demean Affordable Health Care, your tactics are unethical, and basicallly lies. Please clarify.

  12. Question Answered…Sorry Mr. Krasting, your opinions based upon your track record of being a hedge fund manager immediately tells me where your article originates…on the coat tails of Romney. Thank you for sharing your personal feelings, however, in an attempt to discredit the AFA, I am no longer interested to read any more of your propaganda, I receive enough lies simply by watching the Republican commercials.

    • @Debra / Pelosi,

      As you pointed out when you were bribing the Congressman from Nebraska, first you pass the dumb idea, and sometime later you would take the time to read ObamaCare.

      Since many of us actually did read the bill before your passed it / bribed it into law — we actually know more about it than anyone in Washington District of Criminals.

      The rest of the country found out about the taxes from the liberal media, who also told us the crooks in Congress are not subject to ObamaCare — good enough for the people, but not good enough for the crooks who claim to be leaders.

      Force Congress (all of them) to be on ObamaCare — and we will see how many seconds it takes the crooks to repeal it.

      Then we can all focus on controlling health care costs instead of subsidizing big government / big corruption

      PS — get back on your broomstick and fly back to San Franscisco

  13. @Debra — who are you to read one post on a guys blog and start labeling and criticizing him? GROW UP!
    Do you have a clue what the First Amendment to the Constitution is? Go look it up.
    Bruce and a million other Americans are exercising that right by writing blogs, etc.
    Move along if his writings don’t interest you but please keep your childish and myopic thoughts to yourself, they don’t belong here.

  14. Great article, Bruce! Thanks!

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