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In the wake of the Supreme Court’s decision upholding President Barack Obama’s health care law, many readers asked us to check a claim circulating on Facebook that "75 percent of the Obamacare tax falls on the middle class."
The claim concerns the amount to be paid by Americans who decline to pay for health insurance under a provision of the health care law known as the individual mandate.
Starting in 2014, individuals who do not buy insurance and who aren't exempt from the mandate (say, for cases of hardship or religious belief) will have to pay an annual penalty of at least $95 for an individual in 2014, rising to $325 in 2015 and $695 in 2016.
After 2016, the amount would be indexed to inflation and could be higher -- 2.5 percent of household income, if that’s greater than the amount written into the law.
The Congressional Budget Office and the Joint Committee on Taxation -- two nonpartisan federal offices -- have estimated that about 4 million uninsured Americans, including dependents, will have to pay up in 2016, amounting to $4 billion in revenue per year from 2017 to 2019.
The individual mandate was at the heart of the legal challenge to the law, and the two parties have sparred over whether the sum to be paid by those who don’t get health insurance amounts to a penalty or a tax. (We ruled that the Supreme Court ruled that the individual mandate acts like a tax but stopped short of explicitly calling it a tax.)
The Facebook post that readers sent us was created by the Tea Party Patriots, but it appears to originate from a comment made by Steve Moore, a member of the Wall Street Journal's editorial board, in a Fox News interview. "We found that about three-quarters of whatever you want to call them -- taxes, fines, penalties -- … will fall on the backs of families that make less than $120,000," Moore said in an interview on the show Fox and Friends.
This number comes from the same CBO report cited above, in a table on page 73. So we delved into the numbers.
CBO projected that 76 percent of people paying the tax penalty in 2016 will have a household income of 500 percent of the federal poverty level or below. By 2016, CBO expects the federal poverty level to be $24,000 for a family of four, so 500 percent of that would be $120,000, which is just as Moore said.
So there is a grain of truth to this number. But there are a number of issues worth considering.
First, the claim requires us to call a family of four earning $120,000 in 2016 "middle class." Is that reasonable?
We looked at projections from the Urban Institute-Brookings Institution Tax Policy Center for what the federal income distribution will look like in 2016. A chart from the center estimates that the threshold for entering the top 20 percent of the income distribution in 2016 will be $123,970. So the Facebook post is essentially defining "middle class" as the bottom 80 percent of the income scale.
Because there is no standard definition of "the middle class" -- and because politicians typically use the term broadly -- we won’t quibble with defining it this way. However, we do think it’s worth noting that this definition includes poor Americans as well as ones that can be defined as "middle class."
The second concern is more problematic. CBO offers another measurement that is probably a more appropriate yardstick for the Facebook post’s claim -- a tally of dollars paid rather than the number of households that have to pay.
CBO projected that 46 percent of the tax dollars collected as a result of the individual mandate will come from the bottom 80 percent, compared to 55 percent that will come from the top 20 percent. This presents a very different picture of how the financial burden of the mandate will be borne. There’s a big difference between the "middle class" carrying 75 percent of the burden rather than 46 percent of the burden.
Two tax experts -- Roberton Williams of the Tax Policy Center and William McBride of the Tax Foundation -- agreed with our analysis. They also indicated that, given the phrasing of the Facebook post, it’s more appropriate to use dollars paid than the number of households that have to pay the penalty. "It's a complete misinterpretation of what CBO said," Williams told PolitiFact.
Third, while we think it’s pretty clear from the context of Moore’s interview that he’s talking about the individual mandate alone, the Facebook post doesn’t carry over that nuance. The Facebook post could be interpreted to mean all taxes stemming from the health care law.
Collectively, these new taxes are a lot bigger than the individual mandate tax -- and two of the biggest of them are specifically geared toward upper-income taxpayers. According to the Joint Committee on Taxation:
• Starting in 2013, Medicare payroll taxes increase 0.9 percentage points for people with incomes over $200,000 ($250,000 for couples filing jointly). Also, people at this income level would pay a new 3.8 percent tax on investment income. The 10-year cost: $210.2 billion.
• Starting in 2018, a new 40 percent excise tax on high-cost health plans, so-called "Cadillac plans" (over $10,200 for individuals, $27,500 for families), kicks in. That's expected to bring the government a total of $32 billion in 2018 and 2019.
For other newly imposed taxes in the law, it’s less clear how the burden will fall. These taxes include a fee for pharmaceutical manufacturers and importers ($27 billion over 10 years); an excise tax on manufacturers and importers of medical devices ($20 billion over 10 years); an annual fee on health insurance providers begins ($60.1 billion over 10 years); a higher floor for medical expense deductions on itemized income tax returns ($15.2 billion over 10 years); and an excise tax on indoor tanning services ($2.7 billion over 10 years).
The Facebook post said that "75 percent of the Obamacare tax falls on the middle class." While it’s true that 75 to 80 percent of the households paying the individual mandate penalty might be described as "middle class," those households will only foot 45 percent of the bill -- a big difference. In addition, the Facebook post is worded vaguely enough to suggest that 75 percent of all the taxes in the health care bill will fall on the middle class. And that would be wrong. We rate the statement False.
Facebook post, "75 percent of the Obamacare tax falls on the middle class," July 3, 2012
Congressional Budget Office, "Selected CBO Publications Related to Health Care Legislation, 2009–2010," December 2010
Steve Moore, interview excerpts from Fox and Friends, June 30, 2012
Urban Institute-Brookings Institution Tax Policy Center, "Baseline Distribution of Cash Income and Federal Taxes Under Current Law Share of Federal Taxes by Cash Income Percentile, 2016," accessed July 6, 2012
Blue Cross and Blue Shield of Rhode Island, "Federal Healthcare Reform: Patient Protection and Affordable Care Act, Individual Mandate and Subsidy" (summary), accessed July 6, 2012
Email interview with William McBride, economist at the Tax Foundation, July 6, 2012
Email interview with Roberton Williams, senior fellow at the Urban Institute-Brookings Institution Tax Policy Center, July 6, 2012
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