STUMP » Articles » Obamacare Tax Watch: Mess to Come Was Noted Years Ago » 9 February 2015, 13:28

It’s pretty easy to predict the future when you’re close to it. But a few years out?

Four in ten low-income Obamacare participants will face sticker shock this April 15 when they discover they owe a great deal of money to the IRS because of a little-known “clawback” provision in the health-care law.

A family of four could owe the government as much as $11,200, according to a 2013 prediction by researchers at the University of California, Berkeley.

The idea that struggling, low-income Obamacare enrollees would have to repay the government for subsidies has been a dirty little secret that has always been part of the Affordable Care Act.

Although its existence has been known since 2010, neither Obamacare advocates nor the Internal Revenue Service have widely publicized it.

Well, of course they haven’t.

But hey, what’s this bit:

As tax time approaches, the word of forced repayment could fuel yet another round of public anger directed at Obamacare. This time, however, the anger could originate from Obamacare’s own beneficiaries.

Taxpayers should also be concerned, since estimates show the erroneous subsidy payments could cost the government up to $4.7 billion in 2014 alone.

And because the repayments are “capped,” the federal government will only be able to recover a small portion of the erroneously awarded subsidies.

Oh, so you can get hit for being wrong about one’s income only so much.

So basically, they’re encouraging fraud.

Also, it’s easy for me to make a prediction when I wasn’t the first to make it:

Douglas Holtz-Eakin, the former director of the Congressional Budget Office, warned in an interview with TheDC that many Obamacare enrollees will be upset as April 15 approaches.

“There’s going to be a lot of dismay when they get to tax filing season,” he told TheDC in an interview.

Holtz-Eakin added it’s unlikely the government will recover or “recapture” all the wrongly-issued subsidies.

Yeah, I know. But people will still get the shit scared out of them — the professional tax preparers can’t lie about what the law says, and the software can’t either. The IRS is not exactly going to want to publicize that they’re not actually doing much to try to get the money back.

But what they can do is wipe out entirely any refund the over-subsidized thought they were getting. And that could be a few hundred to a few thousand dollars.

I see no reason to revise my “pissed off tax filers due to Obamacare” story.

The Daily Caller piece does not fulfill my prediction, because it’s not about any actual pissed-off taxpayers. Just making the same prediction I made.

And here is the particularly dangerous bit for Obamacare boosters:

But if individuals or families earned more than 400 percent of the federal poverty line, they will be required to pay back the full amount of the subsidies, which were as high as $13,000.

The UC authors were keenly aware of the dangers surrounding the repayment policy, writing, “If subsidy repayments are high, the uncertainty could deter some families from taking up coverage in the Exchange, even with an individual mandate.”

Would you like to know what 400% of the federal poverty line is for different household sizes?

• One person: $46,680
• Two people: $62,920
• Three people: $79,160
• Four people: $95,400

Mind you, they’re not talking about individual incomes here (except the one person case). These are household incomes, so possibly the income from more than one person.

Let’s do some calculations on percentiles

• $46,680 is at 71st percentile of all individual incomes, 45th percentile of all household incomes
• $62,920 is at 82nd percentile of all individual incomes, 58th percentile of all household incomes
• $79,160 is at 88th percentile of all individual incomes, 68th percentile of all household incomes, and 60th percentile of all family incomes
• $95,400 is at 92nd percentile of all individual incomes, 76th percentile of all household incomes, and 69th percentile of all family incomes

Note the difference between a household and a family. You can be part of a non-family household if you’ve got a bunch of unrelated people living together.

Here’s a nice animated gif of income distribution:

Now, a lot of the people at the higher income levels are getting insurance through an employer. But what if they’re the employer? What if they run their own business, and bought a policy on the exchange? What if they had a bumper year in 2014… and now find they’re over the subsidy cliff?

Because that subsidy can go from being worth thousands of dollars to zero with just one additional penny.

Again, an encouragement for fraud. Taxes with cliffs like that are asking for trouble.

The reason I put in the different comparisons is that the 92nd percentile for all individual incomes for a 4-person household may not be the appropriate comparison. If you have 2 wage earners in a 4-person family, $95,400 is pretty middle-class in the U.S.

So you can go from having your family’s healthcare heavily subsidized to the floor being yanked out from under you. Megan McArdle has talked about these sorts of huge marginal impacts of taxes when it came to really low-income people but now this is hitting smack-dab in the middle of the middle-class.

This is going to get extremely ugly.