Tuesday, March 2, 2021

How Democrats’ COVID Bill Gives Welfare to the Wealthy

Analyses showing Democrats’ proposed “stimulus” payments would subsidize the affluent—a $5,000 payment to a family of five making $250,000 per year—prompted President Biden to consider phasing out or eliminating the payments for wealthy families. But another provision in Democrats’ $1.9 trillion COVID bill could give subsidies to households making $300,000 or more. And not only does Biden not want to phase out these subsidies, he wants to make them permanent.

The source of the additional largesse for the wealthy? Democrat proposals to expand Obamacare insurance subsidies. The 2010 law states that households will spend no more than a specified percentage of income on premiums, and provides federal premium subsidies to make up the difference.

But Obamacare limits subsidy eligibility to households making no more than four times the federal poverty level, which in 2021 totals $51,520 for an individual and $106,000 for a family of four. House Democrats’ COVID legislation would, for this year and next, eliminate the cap on subsidy eligibility, and lower the specified premium percentages, such that households qualifying for exchange subsidies would spend no more than 8.5 percent of income on premiums for benchmark coverage.

Eliminating the subsidy “cliff” that currently occurs at four times poverty would reduce a major disincentive to work, as some households can lose thousands of dollars in insurance subsidies by going one dollar over the “cliff.” But Democrats’ proposal to reduce these disincentives would come at a major cost to taxpayers, subsidizing coverage for households earning hundreds of thousands of dollars.

For instance, according to the Kaiser Family Foundation’s subsidy calculator, a 64-year-old individual living in Yuma, Arizona, and earning $200,000 this year would qualify for an annual insurance subsidy of $2,801 under the Democratic proposal—twice the amount of the $1,400 “stimulus” checks the party wishes to provide. A couple aged 64 and 60, and living in Rapid City, South Dakota, would qualify for Obamacare subsidies until their income exceeded $497,541.

While these cases represent extreme examples, they illustrate a larger point. Stating that no household will pay more than 8.5 percent of income in premiums virtually guarantees federal subsidies going to families earning hundreds of thousands of dollars.

It will also encourage insurers to raise premiums, particularly in rural areas that already face high rates and less competition. Moreover, because Obamacare premiums rise with age, most of the benefit from this change will accrue to households in their 50s and 60s, often in their peak earning years and with considerable accumulated savings.

Although some Democrats have shown a willingness to phase out the “stimulus” payments for the affluent, few have discussed phasing out Obamacare subsidies for the rich. Even though Biden proposed a permanent cap on premiums in July 2019, well before coronavirus hit, Democrats’ proposed two-year change allows them “to pretend it’s COVID relief,” while lowering its up-front score. While the Congressional Budget Office said last summer that a permanent change would cost $212.2 billion, the two-year provision would cost “only” $34.2 billion, allowing House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer to cram other goodies into their spending spree.

The contradictions in this policy abound. Biden’s plan would likely see some families earning more than $400,000 receive subsidies for their “unaffordable” insurance costs, even as he insists such households can afford to pay higher taxes. And Democrats’ supposed $1.9 trillion spending package could easily cost double that if they can make their favored “temporary” policies, like the richer Obamacare subsidies and expanded child tax credit, permanent.

A final irony comes in the form of Biden himself. Even while proclaiming during his campaign that “Obamacare is personal to me,” Biden used a loophole that tax experts have questioned to avoid paying over $121,000 in payroll taxes imposed by the law. The president, it appears, supports Obamacare to the hilt—right up until he has to pay for it himself.

This post was originally published at The Federalist.