Weekly Standard Online

104 Billion Reasons to Confront Obamacare's Hidden Spending

(Rubberball/Mike Kemp/Getty Images)
(Rubberball/Mike Kemp/Getty Images)

With Obamacare unraveling in almost all ways, it's time to unravel the phony accounting practices that have allowed it to hide some $104 billion in federal spending. Under Obamacare, this money has been paid directly to insurance companies as outlays, yet it has gone into the books as "tax cuts." To put $104 billion into perspective, that's about as much as the Apollo program cost (in today's dollars) from its inception until it succeeded in putting a man on the moon. If only someone had thought of a way to score Apollo as a "tax cut."

As I have previously noted, when Obamacare is not dumping people into Medicaid, it functions by having the federal government send billions of dollars in direct payments to insurance companies. Taxpayers pay this money to the federal government, and the government then pays it to insurers. By any normal definition of terms, the money coming in constitutes revenues, and the money going out constitutes outlays.

Under Obamacare, however, these direct subsidies to insurance companies are labeled as "tax credits." To the degree that those who ultimately benefit from these subsidies actually pay income taxes, these "tax credits" are then scored as "tax cuts." In this manner, Obamacare is masking some $104 billion in federal spending over a decade (the rough portion of Obamacare's direct payments to insurers that the Congressional Budget Office is counting as tax cuts (see table 2).

The Government Accountability Office defines a "tax credit" as an "amount that offsets or reduces tax liability." But Obamacare's payments to insurers don't offset or reduce anyone's taxes. The GAO also says a tax credit is a "tax expenditure," and it defines the workings of a tax expenditure as follows: "Rather than transferring funds from the government to the private sector, the U.S. government forgoes some of the receipts that it would have collected, and the beneficiary taxpayers pay lower taxes than they would have had to pay." But when an insurer receives a direct subsidy under Obamacare, the government does transfer funds to the private sector, it doesn't forgo receipts it would have collected, and the "beneficiary taxpayers" don't pay lower taxes than they would have had to pay.

A graphic released by the Hudson Institute visually depicts this false accounting. (Here's the full-sized graphic.)

In "Hidden Spending" (The Weekly Standard editorial, June 6, 2016), I noted,

"Democrats and some Republicans argue that Obamacare's subsidies are legitimate tax credits because one could choose to take them as such—that is, one could choose to pay full freight to an insurer and then take a tax credit at the end of the year. Let's allow that when that happens—which is almost never—the recipient truly is receiving a tax credit, and this is correctly scored as such. But what if someone chooses, as almost everyone in the program does, to have his subsidy sent directly to an insurance company? Some argue it remains a tax cut. But how? You can't direct a tax cut to someone else; you can merely direct an amount of the same value to be paid to someone else. The insurance company isn't getting a tax cut, it's getting a government payment. Nor are most Obamacare consumers getting tax cuts. They're just having money spent on their behalf."

This dangerous false accounting stands to create a notorious precedent. It's a novel way to mask federal spending that's tied to a particular taxpaying individual. By this rationale, for example, outlays under Medicare, up to the amount that a given senior pays in income taxes, could be re-labeled as "tax credits"—and hence "tax cuts"—rather than spending. (This would be especially true under "premium support"-style Medicare reform.) Likewise, there's no reason why the government couldn't provide "free" college via direct payments to universities, falsely label those payments "tax credits," and disguise much of the spending in the process.

Hopefully a Republican alternative to Obamacare will have legitimate tax credits, which go directly to individuals and families, not direct payments to insurance companies ‎that masquerade as "tax credits"/"tax cuts".