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1 Patrick Fleenor & Gerald Prante, Health Care Reform: How Much Does It Redistribute Income 1 (2010)

handle is hein.taxfoundation/ffcccxz0001 and id is 1 raw text is: UFISCAL
April 15, 2010                   AC
No. 222                 FACT
Health Care Reform: How Much Does It
Redistribute Income?
by Patrick Fleenor and Gerald Prante
The health care bill passed by Congress and signed by President Obama is arguably the most
significant piece of domestic policy legislation since the 1960s. The law will transform the
financing of U.S. health care as government mandates coverage for individuals and becomes
more involved in the pricing and terms of the policies they buy. Also, the bill expands Medicaid
so that more people above the poverty line will now be eligible (up to 138 percent of poverty
But expanding subsidized access to health care is no free lunch. Somebody must pay for it.
Because of this reality, in this Tax Foundation Fiscal Fact, we estimate the distributional effects
of the health care reform law, the Patient Protection and Affordable Care Act.- That is, we
quantify the transfer of money from higher-income groups that will be used to fund benefits for
lower-income and middle-income groups.
This is part of the Tax Foundation's ongoingfiscal incidence project that is designed to gauge the
income redistribution of U.S. fiscal policies. Previously, we have used the fiscal incidence model
to estimate the redistributive effects of President Obama's FY 2011 budget.m
Overall, the health care bill increases the amount of income redistribution from high-income
families. That is largely due to the bill's targeted Medicare tax hike on those earning more than
$200,000 (singles) and $250,000 (couples). The Medicare tax hike would for the first time
incorporate filing status into each person's Medicare tax liability, and also for the first time, the
Medicare tax will not apply just to wages but also to investment income such as income from
capital gains, dividends, interest and rental property. In its first year of application, 2013, the new
Medicare tax will hit approximately the top-earning two percent of families. That percentage will
grow as the years go by because the income thresholds are not indexed for inflation. On the other
hand, we may see a repeat of the annual patch ritual that prevailed for several years for the AMT.
We estimate that the health reform law will take an additional $52,000 on average from the
families in the top one percent of the income distribution. That is on top of the redistribution in
Patrick Fleenor is Chief Economist and Gerald Prante is Senior Economist at the Tax

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