Skip to comments.The IRS Will Enforce Mandatory Healthcare Using the Honor System
Posted on 03/29/2010 6:18:29 PM PDT by JerseyHighlander
(Please click on the original to see the linked articles, important further reading)
24 Mar 2010 at 12:25 PM / IRS, TAXES, TAXES: BECAUSE WE'RE THE LITTLE PEOPLE / Comments The IRS Will Enforce Mandatory Healthcare Using the Honor System By JOE KRISTAN
57 Share Share Email How much tax would you pay on April 15 if the IRS couldnt levy on your bank account, slap you with a lien, charge you penalties and interest, or send you to jail? Not much, eh? Then ponder the rules forcing individuals to buy minimum essential coverage under Obamacare.
The forced purchase of insurance is key to Obamacare. The personal responsibility requirement a funny name for a requirement imposed by the state is needed to make sure that low-risk individuals buy insurance to help keep it affordable for high-risk buyers (or, less politely, healthy young men are forced to subsidize everybody else). The penalty is considered vital to any semblance of fiscal soundness for the program. The rule is backed up by penalties and will be collected on tax returns.
The reaction of healthy young men in 2014 when this penalty kicks in will be Dude. Youre not serious.
And they will be right.
Caleb noted this yesterday from the Joint Committee of Taxation explanation of the penalties (my emphasis):
The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner. If we take them at their word and new Code Sec.5000A(g)(2) seems to say just this why would any sensible taxpayer ever pay the penalty?
They cant threaten you with jail. They cant hit you with a lien. They cant levy your accounts. Theres no interest charge, so even if you do pay it late somehow, youve had the interest in the meantime.
We tax preparers probably wont be allowed to recommend non-payments to our clients, or we will be silenced by our new IRS preparer enforcement overlords, but people will figure it out in a hurry. And if you think that people will pay taxes anyway without the threat of collection, penalties or interest, then why are we wasting any money funding the IRS?
This provision means one of two things: either this penalty is a joke, and they are just kidding about the cost estimates of the bill they will be much, much higher or the toothless penalties are just a PR stunt that they plan to correct as soon as they can get away with it.
Tags: Health care reform, IRS, IRS enforcement, Taxes, The honor system
Posted in the comments section....
Exactly my thought: while nonpayment may not lead to liens or prosecution, it will clearly lead (if not immediately, then in following years) to decreased refunds. For many of those affected, that will be an effective enforcement measure, no?
There are, of course, some who will still be able to game the system, notably self-employed individuals who underpay their estimated taxes.
But again—perhaps the failure to pay the fine is not lienable etc....but underpaying estimated taxes leads to penalties, doesn’t it...especially if the underpayment is repeated and sustained?
Many Americans will receive subsidies for insurance, from what I understand roughly in the range of 6k to 12k. Many other Americans -- namely those who already have health insurance -- will not receive direct subsidies of this nature. Yet the subsidy-receiving and non-subsidy-receiving Americans will very often belong to the same income classes.
This disparity does not bother me personally (I have other worries about the subsidies), but I believe it will be very unpopular once it is publicly understood. One way or another, the "firewall" between the exchanges and the employer-supplied system will break down. Some people will want to spread the subsidies, others will want to limit them. Yet the former is budgetarily problematic and the latter will be politically difficult.
A second and related issue is that the differences in reimbursement rates -- across private insurance, Medicare and Medicaid (highest to lowest) -- will become a more pressing issue. For one thing, Medicaid patients will be crowded out by those buying private insurance on the exchanges, plus they will be crowded out by the growing number of Medicaid (and Medicare) patients. There will be pressure to fix this problem and the difference in rates will lead to growing supplier gaming, queues, quality differentials, and so on.
Over time, reimbursement rates across programs (insurance subsidies, Medicare, Medicaid) will converge to an increasing degree. Subsidies will be increasingly determined by income class rather than previous insurance history.
In the limiting case (I'm not suggesting we will get there), everyone will receive means-tested subsidized vouchers for regulated private insurance. In this strange way, Medicare and Medicaid could end up partially privatized and Ezekiel Emanuel -- a voucher advocate -- will end up being more influential than his brother Rahm. We will have to live with the problems of means-testing to a higher degree than today, but we will have something closer to a unified system, as do most other countries with universal coverage. There will be political pressure for compulsory health care savings, as they have in Singapore, to lower costs of finance.
It would be good if such vouchers could evolve in the direction of emphasizing catastrophic care and eventually they will have to.
Massive pressure will be put on such vouchers if either health care consumes 30-40 percent of gdp or income inequality continues to rise. In the former case, subsidies become increasingly expensive and involve extraordinarily high implicit marginal tax rates (earn more, your subsidy declines in value). In the latter case, it becomes increasingly difficult to ensure "near-equal" levels of health care access at feasible subsidy levels. Those pressure points are not unique to the Obama bill, but they become especially critical under the evolutionary scenario I am outlining. Perhaps we would give up the ideal of near-equal access, but that day is a few decades away.
Addendum: Here is Bryan Caplan's scenario, which means the bill will not work; my above post is assuming that problem is solved by raising the penalty. I am reading long lists of why the bill is so good but few proponents are analyzing that problem.
And just in case that doesn't work out they added $10 billion to hire 16,500 additional IRS agents...
This is only the first step. Next will be payroll deduction, as the gub’mint will say it is the only way to make sure people pay their fair share.
Oh believe me the penalties were left out on purpose. They will sneek them into another bill when no one is looking so as not to cause a major meltdown. They knew everyone was watching this bill and that is why they were left out.
Before the bill passed, Rush suggested that people would game the system by taking advantage of the fines which are low relative to insurance premiums. Since an insurer will not be allowed to turn people away due to pre-existing conditions there really would be no reason to buy insurance in advance. He said that people would figure out that the best strategy would be to pay the low fines until they needed medical treatment. This strategy would succeed in fattening government coffers while squeezing the insurance companies out of the business.
Remember the interview of Congressman Wiener by O’Reilly where Wiener squirms over the issue of enforcement? Perhaps they don’t really plan to go after consumers. The 16,500 IRS agents could be to take the insurance carriers out of business.
After all, the whole bill had NOTHING to do with health care and EVERYTHING to do with funneling 16% of the economy through government hands by putting the insurance companies out of business.
I believe the only factor is if you grossly (and by implication, intentionally) underestimate the tax due. But that too is not sufficient -- if you get some windfall income late in the year, you're usually off the hook.
I think every year is a clean slate as well. You don't get "points" a la traffic tickets or felonies.
She offered her honor,
He honored her offer
And they agreed on a five year felony conviction* and/or $25,000 fine:
correction: 25K=up to a quarter-mil
I think (hope) that this whole pile of garbage will be thrown out.
They can demonize business owners for paying the fine and dropping insurance, but they won’t be able to demonize individuals. There will be loads of 20-somethings making $20-$30K a year skipping the $6K/yr health insurance premiums. No one is going to think they are monsters for avoiding a 30% tax on their income.
Under the current and near term structure of American payscales will Democrats be able to force payroll deductions without screwing things up so badly they won’t be able to plausibly deny their fault in this situation.
ObamaCare has already added the Long Term Care payroll deduction, if they include the health insurance ObamaCare deduction also, it will be a reminder every paycheck as to how much money Obama and Democrats are stealing from them.
Remember the Al Gore tax on our phone bills? That’s what is coming to the Democrats.
just don’t overpay another tax.
The whole federal tax system is a self-assessing, honor system. But when they figure out your are cheating . . . you are in deep, deep doo doo.
Here’s how it will work...
Say your income tax bill is $7,000. And your health care bill is $1,000. You pay $7,000.
The IRS receives your statement, and your underpayment. They will claim that you paid your health care bill, and only $6,000 of your $7,000 income tax bill. Thus you have willfully underpaid meaning they will levy you not for the health care portion, but the now under-paid income tax portion.
Total tax payments through the IRS are fungible. And you can bet your last dollar they will spread them around as best to penalize the taxpayer!
No one is going to think they are monsters for avoiding a 30% tax on their income IN ADDITION TO Social Security, FICA, and income taxes.
Read Mein Kempf for details.
” loads of 20-somethings “
Since they can’t be excluded for `pre-existing conditions’ they would be stupid to start paying until they had some serious medical condition. It’s sort of like buying life insurance for your spouse, after you’ve put him/her in the ground, or betting on a horse that’s already won.
As a postscript, understand that our Overlords are telling us that no one will be denied medical care.
So, if one (someone who has never received public benefits) learns how to game the system, like the entitlement recipients, you get free medical care.
Of course that’s `no way to run a railroad’ and we will wind up even broker, faster, if that’s possible since we seem to be hurtling toward national bankruptcy on greased skids now.
they will probably line up the 1040 so that the insurance comes out first so that the amount you owe will be income tax.
It apparently hasn't occured to them that by excluding the poor from having to pay 'their fair share' the same people who paid for the uninsured before Obamacare still have to pay for those excluded by virtue of low income or favored status from paying into the system under Obamacare. There will just be a lot more people not pulling their load in the Obamacare system because by the time he's through, who's going to have a job but federal employees?
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