Of what significance is the Internal Revenue Service’s (IRS) recent change to the Obama administration’s instruction that the IRS reject tax returns of people who don’t indicate whether they have insurance? Although mostly symbolic, the change of instruction is worth appreciating as a source of relief for people burdened by Obamacare.
Under the Obama administration, the IRS had scheduled a rule to take effect rejecting “silent” tax returns for the year 2016; i.e., returns whose filers failed to check a box on their return indicating whether they complied with the Affordable Care Act’s (ACA) individual mandate last year.
President Donald Trump’s IRS has suspended implementation of the Obama IRS rule, complying with Trump’s executive order minimizing the regulatory and fiscal burden ACA imposes on individuals and states.
Simply by allowing Americans to file their taxes, Trump’s IRS has protected the American people against efforts by the desperate Obama administration to enforce ACA. Former Secretary of State Hillary Clinton would likely have used the IRS that way as well, had Trump not defeated her in the 2016 presidential election.
The IRS rejection of silent returns would have been a small imposition, to be sure, considering tax filers would (and do) have to pay the tax penalty imposed by ACA’s individual mandate until Congress repeals it. But even small burdens can hurt, as Obamacare’s walking wounded can attest.
Obamacare’s walking wounded include five million Americans who lost their insurance plans when Obamacare went into effect, even though Obama had promised they could keep their plans. Also included are people whom the law would have allowed to keep their insurance plans, but whose employers cancelled them because they had grown too expensive.
Other Obamacare walking wounded include people who were denied full-time jobs at companies hovering at the threshold created by the expensive mandate requiring employers of 50 or more full-time employees to provide health insurance benefits. There is no carrot like a stick. This mandate gave employers a disincentive to hire employees. Companies that could not reduce their payroll below 50 people were suddenly required to compensate their employees more with benefits—often unwanted benefits.
Imposing health care benefits expenses on businesses created another category of Obamacare’s walking wounded: those who appeared to absorb the law without consequence, but who saw lower wages than they might have because the employer mandate requires businesses to pay employees more in benefits.
Obamacare has cost families by appearing to help them. A Stanford and Harvard University study found the Obamacare requirement that insurers allow individuals to stay on their parents’ insurance through age 26 costs families $1,200 per year, Patient Daily reported in March 2016. “The mandate is not just expensive for families. It’s intrusive,” I told Patient Daily at the time:
“The dependent care mandate has the appearance of supporting families by raising the age children can remain on their parents’ insurance plans from 19 to 25. Instead it essentially charges families $7,200 over six years without telling them. Most families would have no trouble finding ways to spend that amount for the benefit of all family members, including their young adults. The mandate silently robs families of their right and ability to make those financial decisions. And not only families. The study found that wage earners who are not supporting dependents are absorbing some of the wage reductions.”
For Obamacare’s walking wounded, every bit of protection from ACA’s tax penalties is welcome, even if the effects are slight.
Because the IRS has no power to alter the individual mandate tax penalty, which fines people the greater of $695 or 2.5 percent of their 2016 income, the IRS move won’t save anyone much money in the long run. Most reasonable people realize the negative consequences of failing to file a tax return are high. One disincentive is not receiving a tax refund. Another is racking up a tax bill payable to the IRS. So, even without the rule change, most people would have eventually corrected and resubmitted a previously rejected return.
Ironically, the slightness of actual relief promised by the IRS instruction change adds to its symbolic importance. If even the IRS, perhaps the most universally loathed domestic agency, grasps the toxicity of using tax penalties to enforce ACA, what does that say about members of Congress dragging their feet on repealing and replacing Obamacare?