by Mitch Kokai
Senior Political Analyst, John Locke Foundation
… [T]he majority of the uninsured won’t end up having to pay up. This year at least, the penalty’s bark is a lot worse than its bite. Here’s why:
1. The IRS has only two ways to collect the tax.
There are only two ways the IRS can get the penalty from the uninsured: By taking it from their tax refunds or receiving it voluntarily. The agency isn’t allowed to use other tools normally at its disposal, like garnishing wages or issuing liens, to collect the penalty for being uninsured.
“It certainly reduces the size of the stick the IRS has to prod people into getting coverage,” said Bob Williams, a senior fellow with the Tax Policy Center. …
… 2. The tax is bigger than most people think, but still relatively small this year.
Most taxpayers think the uninsured penalty is $95 this year, tax assisters say, since that’s been the number most often reported in the media. That’s far below the cost of insurance premiums, so in the minds of some it makes sense to pay the penalty instead.
But that’s only part of the story. The uninsured must pay either $95 or 1 percent of income above the filing threshold, whichever is greater. That means someone earning $50,000 would pay about $400. …
… 3. There are lots and lots of exemptions.
Do you have big medical debt? Was there a death in your family? Did you experience domestic violence?
These are some of the roughly 30 reasons an uninsured American could qualify for an exemption from the penalty. There are regular exemptions and hardship exemptions, some provided within the text of the law passed by Congress and others spelled out in rules by the Obama administration.
About 30 million Americans — roughly one-tenth of the population — remain uninsured, yet all but 7 million will qualify for exemptions from the penalty, according to projections last year by the Congressional Budget Office. Those estimates are for next year, but the exemptions are the same now.