The penalty will be fully phased in by 2016, when it will be $695 for each uninsured adult or 2.5 percent of family income, whichever is greater, up to $12,500. The nonpartisan Congressional Budget Office estimates that 4 million people will pay the penalty that year.
The law, however, severely limits the ability of the IRS to collect the penalties. There are no civil or criminal penalties for refusing to pay it and the IRS cannot seize bank accounts or dock wages to collect it. No interest accumulates for unpaid penalties.
So how can the IRS enforce the mandate? Scary letters and threats to withhold tax refunds.
The law allows the IRS to withhold tax refunds to collect the penalty, and most filers get refunds. This year, 77 percent of the 135 million individual income tax returns processed by the IRS qualified for a refund. The average refund: $2,707.
However, knowing that the law's penalties can be avoided will cause people to behave differently and they will make sure they aren't owed a refund if they haven't paid for insurance. This will further drive down federal revenue, because those refunds are an interest free loan to the U.S. Treasury. Seems like the insurance companies who wanted more "customers" as part of the law are about to get stiffed.
I think the Democrats knew this when they passed the bill, in spite of not reading it. For political reasons they didn't want increased IRS enforcement to be associated with the law. When significant numbers of people start to dodge the law in this predictable manner, which will be reported in the press as "surprising" or "unexpected," there will be calls to change the tax code to actually implement enforcement. This will be done by attaching a rider to a budget reconciliation bill passed on Christmas eve to take effect on January 1st. Happy New Year's, m*****-f*******s, will be the message of the Congress to American citizens, if we don't get this thing repealed.