Obamacare Provides $7,200 ‘Divorce Incentive,’ $11,000 for Older Couples
In the Obamacare health insurance exchanges, being married can cost you a lot.
Get divorced (or avoid getting married, if you live together), and you save $7,230 per year if you are a fairly typical 40-year-old couple with kids (example: the husband working full-time, and the wife working part time, with the husband making $70,000, and the wife making $23,000).
If you are a 60-year-old couple with equal incomes and no kids, and you make $62,041 a year, you save $11,028 a year by getting divorced or remaining unmarried. These are the amounts of money you will lose if you get married, since you will lose this amount of taxpayer subsidies due to Obamacare's discriminatory treatment of married versus unmarried couples. That's the reality confirmed by an Obamacare "calculator" provided by the pro-Obamacare Kaiser Family Foundation showing how Obamacare's "tax credits" work.
This calculator is not designed to make Obamacare look bad: Indeed, it has been touted by Obama's own proxies at BarackObama.com, known as Organizing for Action: "In a September 13 email, Erin Hannigan of Organizing for Action's 'Truth Team' bragged about" this "cool calculator" showing how Obamacare's "tax credits" work, and encouraged everyone to "share it on Facebook or Twitter."
The tax increases Obama demanded in the fiscal cliff deal also contain a "marriage penalty," although only for upper-income households (since the maximum rate kicks in at $450,000 for married couples – that is, $225,000 for each spouse – versus $400,000 for singles).
Obamacare's new tax on investment income, which applies to married couples making above $250,000 per year, also contains marriage penalties (for example, if an unmarried couple makes $390,000 – $195,000 for each partner – they owe no investment tax, even if all of their income is investment income, and even if a married couple with the same income would pay the Obamacare investment tax on a significant portion of their income).
Historically, the effect of marriage penalties has been most profound for working-class people, who are punished severely for getting married by the welfare state. As Rep. Thomas Petri (R-Wisc.) has noted, "The decline in marriage and the rise in the number of children born to unmarried mothers are concentrated among lower-income families.
One reason is that lower-income couples will often lose money if they get married. Many federal benefits such as food stamps and the earned income tax credit phase out as income rises. Under federal law, if two individuals earning the minimum wage choose to marry, combining their incomes results in the loss of some $7,000 in federal benefits. The result: Fewer marriages, more births outside marriage and reduced prospects for rising into the middle class."
In addition to penalizing marriage, Obamacare also penalizes work. It will cut employment by an additional 800,000 because of work disincentives and strange income-cliffs.
The Congressional Budget Office, which allowed supporters of Obamacare to hide its costs through gimmicks and dodges, admitted in 2010 "that Obamacare includes work disincentives likely to shrink the amount of labor used in the economy." For example, it effectively creates a 35,618 percent marginal tax rate for one hypothetical 62-year-old whose income rises by $22, by triggering the sudden loss of $7,836 in government tax credits (as Ted Frank explains below).
As a newspaper columnist notes,
"The new health law will give some older households without access to employer care a big incentive not to earn too much. That's because earning more than 400% of the poverty level would make them ineligible for subsidies that may be well in excess of $10,000 for couples. Consider this example of a single individual age 62 in a high-cost area and no access to employer care. According to the Kaiser Family Foundation's Health Reform Subsidy Calculator … [a]t 400% of the poverty level, or $46,000, an individual would get $7,830 in premium subsidies. And at 401% of the poverty level, an individual would get no government support."
Or, as legal commentator Ted Frank notes, under Obamacare,
"[A] 62-year-old in a high-cost area earning $46,000 a year without health insurance is entitled to a $7,836 government tax credit. Leaving aside how our strapped government can afford that, here's what's interesting: if the same person makes a mistake and earns an extra $22 in income, he loses the entire $7,836 credit. (The cutoff, according to Kaiser, is between $46,021 and $46,022.) That's a 35,618% marginal tax rate. Indeed, the problem is so severe that our 62-year-old subject will have more take-home pay if he earns $46,000 than if he earns $55,000. And even at lower income levels, there is as much as a 16% surcharge on income at the margin."
This penalty for working and earning more is the result of really lousy drafting on the part of the authors of Obamacare. They could easily have avoided this problem by gradually phasing out the premium subsidies and tax credits, the way the tax code gradually phases out personal exemptions and itemized deductions for people who make well over $100,000 a year. But they were too arrogant to learn anything from existing provisions that worked.
Unions that once backed Obamacare are now pleading for changes to the law, citing lost wages and benefits. Some employers have stopped hiring because of Obamacare, and others are cutting full-time workers and replacing them with part-time workers to avoid Obamacare mandates that apply to full-time employees. Obamacare caused layoffs in the medical device industry through what Senator Al Franken (D-Minn.) conceded was a "job-killing tax" that will "impair American competitiveness in the medical device field." In The Wall Street Journal, Dr. Fred Burbank and Dr. Thomas J. Fogerty argued that Obamacare is "bad for your health," and they say that due to Obamacare's medical-device tax, "venture capital investment in medical devices has all but ceased." They predict that Obamacare's effect on medical innovation will be "devastating."