While the Senate Republicans’ bill to repeal and replace the Affordable Care Act has been shrouded in secrecy, at least one thing is all but certain: The final bill will include hundreds of billions of dollars in tax cuts, mostly for the richest Americans. It might seem unsurprising that Republicans are proposing tax cuts, except for one fact: The cuts would go disproportionately to Democratic-leaning states.
To fund the insurance expansion, the Affordable Care Act created a variety of new taxes. Some, like those on medical devices, pharmaceuticals and health insurers (and let’s not forget tanning salons), were levied on consumers via the health care industry. But a hefty portion were charged directly to the wealthiest taxpayers. One such tax is a 0.9 percent payroll tax on individuals earning more than $200,000 a year, often referred to as the Medicare surcharge. The other is a 3.8 percent tax on net investment income, also for people who earn more than $200,000.1 These taxes largely affect the top 5 percent of earners, with the majority of the money collected coming from the top 1 percent of earners.
A look at who is paying these taxes, based on Statistics of Income data from the Internal Revenue Service, reveals that of the eight states that paid the most in 2014, six voted for Hillary Clinton in last year’s presidential election.2 Those six states collectively accounted for 47 percent of all the money raised by the taxes in 2014.
That pattern holds when we look at all states and the District of Columbia, too: These taxes as a whole — both in terms of dollar amounts paid and the share of people paying them — are largely coming from states that leaned Democratic in the 2016 election. That doesn’t necessarily mean the specific people paying the taxes voted for Clinton, of course, but it is revealing in terms of the decisions legislators are making in supporting or rejecting the current health care reform efforts. People in states that backed Clinton in 2016 filed just 44.6 percent of all 2014 tax returns. But residents of those states accounted for 56.3 percent of all taxpayers who paid the investment tax and 59.0 percent of those who paid the Medicare surcharge.3 In all, states that voted for Clinton paid $17.3 billion, which is 59.9 percent of the combined ACA-related taxes. In short, in repealing these taxes, Republican senators would be giving tax breaks predominantly to states that favor their Democratic opponents.
States paying more Obamacare taxes tended to back Clinton
|SHARE OF 2014 TAXPAYERS PAYING …|
||NET INVESTMENT TAX▲▼
||2016 DEM. VOTE MARGIN▲▼
Of course, these taxes fund specific benefits, including the expansion of Medicaid and the tax credit that helps lower-income Americans buy insurance via the private health insurance marketplace. In the table below, we show the difference between the share of people in each state who receive the tax credits to buy insurance and the margin of voters the Democratic party won in the 2016 presidential election. Almost all the states where more residents pay the tax than receive the credit are blue, while most of the states where more people receive the credit than pay the tax are red.
States with more Obamacare tax credits tended to back Trump
||SHARE OF 2014 TAXPAYERS RECEIVING OBAMACARE CREDIT▲▼
||2016 DEM. VOTE MARGIN▲▼
The story is a bit different when it comes to the ACA’s other major mechanism for increasing insurance coverage: the Medicaid expansion. The ACA intended to open Medicaid eligibility up to essentially all low-income Americans, not just children, the disabled, and other groups historically covered by the program. In 2012, however, the Supreme Court ruled that states didn’t have to accept the expansion, and 19 states have chosen not to do so. Those states, unsurprisingly, lean red and tend to have Republican senators; 17 have Republican governors,4 and 17 voted for President Trump in 2016.5 Nonetheless, several red states, including Kentucky and Arkansas, did accept the expansion, and a large share of their populations are receiving coverage as a result.6
One way to think about the tradeoffs of the ACA is to look at how many of a state’s residents directly benefited from the law (via tax credits or the Medicaid expansion) relative to how many paid the investment tax. That ratio shows that in certain red states, many more people are receiving financial support from the law than paying for it. In 2014, the three states with the highest ratio of beneficiaries to investment-tax payers were all won by Trump: West Virginia, Kentucky and Arkansas. In those three states, for every person who paid the investment tax, more than 16 people benefited directly from either the Medicaid expansion or the tax credit that subsidizes premiums on private plans.7 To be clear, while the ratio of ACA taxpayers to beneficiaries may favor red states, that doesn’t mean that residents of blue states haven’t received benefits under the law, and in far greater numbers than in those that paid additional taxes. In California, for example, 2.5 million people were newly enrolled in Medicaid in 2014 as a result of the expansion, whereas fewer than 600,000 households paid the investment tax.
Not all the ACA’s taxes fall disproportionately on the wealthy. For example, the law also imposes a tax on people who don’t have insurance, which affects far more people than the investment tax. (In fact, in 2014, more than twice as many people paid that tax as received tax credits for coverage.) In dollar terms, however, that tax is relatively small: It generates less than 6 percent of the amount raised by the investment tax and Medicare surcharge. Overall, 40 percent of the total cuts proposed by the House’s health care bill would go to people with the highest 1 percent of incomes, according to an analysis by the left-leaning Tax Policy Center.8 Again, these are people who are disproportionately likely to live in states that voted for Clinton.
The text of the Senate bill hasn’t yet been released, so it is impossible to calculate the exact impact it would have on each state. It is possible that Republican leaders could sweeten the deal for specific states in order to pass the bill, a tactic Democrats also used to get Nebraska’s then-Senator Ben Nelson to cast the 60th Obamacare vote in the Senate. (This “cornhusker kickback” was removed from the final version of the law.) But focus on state-level interests is certainly not the reason that Republicans are within striking distance of repealing the ACA.
Since our analysis suggests that Obamacare taxes are disproportionately paid by blue states and disproportionately benefit red states, in an important sense, Republican senators are lining up to vote against their states’ interests. Of course, the ACA taxes were originally enacted by Democrats, so prioritizing ideological and partisan commitments over the state-level costs and benefits is by no means unique to the GOP. But this trend does highlight a key fact about contemporary policymaking: Senators evaluating big-ticket bills like the ACA and the House’s American Health Care Act are looking at them through the lenses of partisanship and ideology much more than through the lens of how the bills will affect their states.
Tiger Brown, Saleel Huprikar, and Louis Lin provided research assistance. A Russell Sage Foundation Presidential Authority Award supports Dan Hopkins’ ACA-related research.