Yes, Actually, Obamacare Is the Biggest Tax Increase in History

Just because a headline or an idea is repeated over and over again doesn't make it true.

No sooner had Chief Justice Roberts issued his ruling that ObamaCare's individual mandate to purchase health insurance ObamaCare was a tax than the law's defenders in the press were racing to rebut the idea that the law, overall, is the largest tax increase in American history.

"No, ObamaCare Isn't the Biggest Tax Increase in History," was the headline over Kevin Drum's piece in Mother Jones, published July 1.

"No, 'Obamacare' isn't 'the largest tax increase in the history of the world' (in one chart)" was the headline over a July 2 postby the Washington Post's Ezra Klein, which hyperlinked back to Kevin Drum.

Bloomberg Businessweek's Elizabeth Dwoskin weighed in on July 3. Her article was headlined, "Why ObamaCare's Tax Increase Isn't the Biggest Ever," and it linked back to Ezra Klein.

On July 5, The New Republic's Jonathan Cohn, a college pal of mine, joined the fray with an article whose web headline is "The Affordable Care Act Is Not The Biggest Tax Hike." He linked back to both Ezra Klein and Kevin Drum.

Critics would call this herd journalism, or pack journalism, or groupthink. Defenders would say it is just giving credit where credit is due, and that it happens routinely among right-leaning journalists as well as among left-leaning ones. The important thing for a reader to remember, though, is just because a headline or an idea is repeated over and over again doesn't make it true.

In this case, the left-wing claim that ObamaCare "Isn't the Biggest Tax Increase in History" is based on exceedingly flimsy evidence, and there's an entirely plausible case that it is the biggest tax increase in history.

In this case, when one gets into the matter, Drum's article, which is the basis for all the others, is flawed. It relies itself on two sources: a June 6, 2011 Treasury Department paper and an analysis by Politifact.

Let's take the Treasury Department paper first.

First, it comes from Obama's own Treasury Department, which has a political reason to minimize the size of the tax increase.

Second, it comes from June 6, 2011, when the Obama administration was still taking the position that the mandate wasn't a tax at all. 

Third, Drum and the other journalists just cite its figures on revenue as a percent of GDP, not its numbers on the size of the tax increases, either in inflation adjusted terms or in nominal dollars. When defenders of Republican presidents try to do that to make deficits look smaller, the left cries foul. 

Fourth, the Treasury paper looks at the overall "revenue effects" of legislation. That's a bit different from what many Americans normally think of as a tax cut or a tax increase. To make this concrete while oversimplifying slightly, according to the Congressional Budget Office's analysis, the ObamaCare legislation raises taxes by $420 billion between 2010 and 2019 and spends $788 billion to increase health coverage. If $100 billion of that $788 billion is tax reductions or tax credits for uninsured people to help them buy their own health insurance, is the total tax increase $420 billion? Or is it $320 billion, because the $420 billion in tax increases is offset by $100 billion in tax cuts? When subsidies are disguised as tax credits or tax expenditures, just looking at the "revenue effects" doesn't always tell the full story. To the person whose taxes are being increased, it's a tax increase, and the fact that his taxes are being used to give some other person a tax break doesn't make it any less of a tax increase, no matter what either Kevin Drum, Ezra Klein, or the Obama Treasury department says. 

Fifth, the Treasury paper looks at the effect of legislation two or four years after enactment. This method doesn't do a good job of capturing the effects of the ObamaCare legislation because so many of its provisions were written to go into effect only several years after the law's implementation. The 3.8% tax on capital gains and dividend income, for example, is scheduled to go into effect in January 2013, even though ObamaCare was passed back in 2010.

The Politifact analysis tries to adjust for this by looking at the year 2019: "We used 2019 as our baseline because that's when all of the tax provisions of the law will be in effect. In 2019, the CBO estimates, the government will see increased revenues of $104 billion." One problem with that is that 2019 is so far off that it's difficult to predict with much accuracy what will happen then. And despite Politifact's profession of certainty about the CBO, the CBO itself says it is taking another look at the whole thing following the Supreme Court decision: "CBO is still assessing the effects of the Supreme Court's decision related to the Affordable Care Act (ACA) on the agency's projections of federal spending and revenue under current law. We expect to complete that assessment and release updated projections of the budgetary effects of the ACA's coverage provisions during the week of July 23rd."

So if there isn't much behind the claim that ObamaCare isn't the largest tax increase in history, what about the claim that it is? On page 19 of the 36-page PDF of the CBO's analysis of the ObamaCare law from when it was passed is a line that says "total revenues" from 2010 to 2019 and lists the number 525, which is the way people in government write $525,000,000,000 when they are trying to pass a $525,000,000,000 tax increase.

In current dollars, that makes it even on the first-four-year-basis of the Obama Treasury department the largest tax increase of the 27 pieces of legislation since 1968 that were analyzed in the paper. In 1945, at the peak of World War II, the entire federal budget was only about $92.7 billion.

The erosion of the value of the dollar because of the Federal Reserve and Congress's failure to uphold their responsibilities makes these comparisons harder. And plenty of Americans are still hoping that ObamaCare is repealed or replaced, making Kevin Drum and Ezra Klein retroactively correct that it wasn't the greatest tax increase in the history of the world.

Barring such corrective legislative action (or a bigger tax increase if President Obama is re-elected), however, a $525 billion tax increase would indeed be the largest in American history, at least in nominal dollars. All of which makes President Obama's latest campaign-season pose as a tax cutter seem even phonier than usual.

Ira Stoll is editor of FutureOfCapitalism.com and author of Samuel Adams: A Life.