Unless you were shipwrecked on a deserted island you know that the Supreme Court ruled that the Affordable Care Act, aka ObamaCare, is a legal “tax.” Back in February 2010 I wrote about the taxes in ObamaCare. Let’s run down the entire list (now that we know what’s in the bill) and see how this impacts you. The italicized text is from February 2010 (the proposal). Numbers refer to [individuals]/[families].
1. Individual Mandate Tax. For those who don’t purchase health insurance, this income tax surcharge continues to exist in this plan.
I couldn’t determine the exact rate. This begins on January 1, 2014. The penalty is $95 (at first) but increases to the greater of $695 or 2.5% of modified adjusted gross income (MAGI) in 2016. (Families pay three times the individual number for the minimum tax.) The tax is indexed to the Consumer Price Index (CPI) for future years.
Something to realize is that most of the taxes in the measure are based on MAGI. This means your income before itemized deductions. For individuals who are, say, amateur gamblers who have $100,000 of wins and $100,000 or losses, you will pay taxes based on your winnings but not your losses. This is not a good thing (unless you like paying lots of taxes).
2. Employer Mandate Tax. On businesses with 50+ employees that do not offer health care, and at least one employee qualifies for a tax credit,
$750/employee. This will cause many small businesses to stop growing once they reach 49 employees. Those figures come from the prior version.
In the final version of the law, the Employer Mandate Tax is $2,000/employee with it going into effect on January 1, 2014. There is also a $3,000/employee penalty if the government finds they provide workers with “unaffordable” health insurance. There ‘s an obvious solution to small employers: Don’t hire employee #50. And for those who have 51 or 52 employees, let those “excess” employees go. And that’s exactly what is guaranteed to happen.
This tax is guaranteed to hurt the economy in numerous ways. It will cause employers to cut employees. It will cost employees health insurance; if the $3,000/employee penalty applies to health insurance that’s unaffordable and you have just 30 employees, the solution is simple–don’t offer health insurance. The title of my previous post was, “It’s unpopular, unworkable, and insane, so naturally they’re in a hurry to pass it.” It remains an insane plan.
3. Excise Tax on Health Insurance Plans. Beginning in 2018, 40% tax (the percentage may be wrong) on plans costing $10,200/$27,500. Is indexed to CPI. This is in the law at the percentages and dollar amounts noted; it goes into effect in 2018.
4. Health Insurance would be reported on W-2s. Another mandate that increases costs for business. It’s unclear whether this mandate survived. However, the White House release states that loopholes will be closed which implies this remains. It survived and is in the law.
5. “Medicine Cabinet Tax.” Limitation on HSAs, FSAs, and MSAs to purchase non-prescription medication except insulin. This is in the law and is already in effect (as of 2011).
6. HSA Withdrawal Tax Increased. The tax would increase to 20% from 10%. It’s in the law and went into effect in 2011.
7. FSAs capped at a maximum of $2500. They are now uncapped. This goes into effect in 2013 (it is indexed to CPI after 2013). This will especially hurt parents of special needs children who have utilized FSA dollars for special needs education. That kind of education can easily run over $10,000 per year.
8. 1099 Reporting for corporations. Requires businesses to send 1099-MISCs to corporations. This is another cost for businesses. This will begin in 2011 and will definitely increase my income. This is definitely in the proposal, but it’s unclear if this starts in 2011. While this was in the law, Congress repealed this section of the law after outcries from almost every business in the country.
8. Tax on Charitable Hospitals. This excise tax of $50,000 per hospital impacts hospitals that don’t meet new Department of Health and Human Services regulations. It’s unclear whether this is in the proposal. This went into law in 2010 and impacts hopspitals that do not meet “community health assessment needs,” “financial assistance,” and “billing and collection rules” set by the Department of Health and Human Services (HHS).
9. Tax on Drug Companies. There’s definitely a tax on drug companies, but the size and timing of the tax is unclear. This went into effect in 2010 as a $2.3 billion annual tax based on the share of sales made in a year.
10. Tax on Medical Device Manufacturers. This tax is in the bill, but the size and timing of the tax is not clear. This goes into effect in 2013, and is a 2.3% excise tax. How many medical device manufacturers will now establish overseas subsidiaries not subject to US taxation? I’d expect many to do so. Given that there are 360,000 people employed in the US in this industry, there will be layoffs in this industry caused by this tax.
11. Tax on Health Insurers. This tax is definitely in the bill, but the size and timing of the tax is unclear. This tax goes into effect in 2014, and phases in gradually until 2018. The tax immediately hits firms with $50 million in profits (or more) and is based on premiums collected.
12. Elimination of tax deduction for employer provided retirement prescription drug coverage. It is unclear whether this tax is in the measure. It’s in the law and goes into effect in 2013.
13. Increase of percentage of AGI required to deduct medical expenses from 7.5% to 10%. Few can deduct medical expenses today; fewer will be able to deduct them tomorrow. This goes into effect in 2013. However, for those 65 or older the AGI percentage will remain at 7.5% through 2016 (seniors will join everyone else at 10% in 2017).
14. Compensation Limitation for Health Insurance Executives. If you work in that industry, you will be limited to a salary of $500,000. There’s no mention of this in the measure. However, given the Obama Administration’s stance on various pay-related measures, it’s likely included. It goes into effect in 2013.
15. Medicare Payroll Tax Hikes. Once your income exceeds $200,000/$250,000 (MFJ), you will pay an additional 0.9% tax. Note that the employer will only collect (and be responsible for this tax) if you earn $200,000/$250,000 or more. This also impacts the self-employed. And the law is written so that the self-employed cannot deduct half of the new tax as a deduction to income tax. It appears this provision is dead. However, it’s been replaced with something worse (see below). Unfortunately, this tax is in the final version of the law and takes effect in 2013.
16. New Hospital Insurance Tax. “The Act will include an additional 0.9 percentage point Hospital Insurance tax for households with incomes exceeding $200,000 for singles and $250,000 for married couples filing jointly.” I remember then-candidate Obama stating that if you made under $250,000, he wouldn’t increase your taxes. Yeah, right. This tax is not in the final version of the law.
16. New Unearned Income Tax. “[The Act] would add a 2.9 percent tax for households with incomes exceeding $200,000 for singles and $250,000 for married couples filing jointly to unearned income including interest, dividends, annuities, royalties and rents (excluding income from active participation in S corporations).” This is yet another measure which will stifle the economy in the United States. For my amateur gambling clients, this is particularly bad—it means your taxes will go up based on your gambling winnings, not your gambling net income. This goes into effect in 2013. While it’s called a “Surtax on Investment Income,” it will include dividends, capital gains, interest (the things you think about), passive income (partnerships, S-Corps, and trusts), royalties, rents, and Other Income (including gambling income). It does not include active business income, distributions from retirement plans, and sales of ownership interests in pass-through entities. It also does not apply to non-resident aliens.
17. Blue Cross Tax. There is a tax deduction available today for Blue Cross and Blue Shield companies; this tax deduction will vanish if they don’t spend 85% (or more) of premiums on clinical services. There’s no mention of this in the proposal. However, it was in both the House and Senate Democratic proposals and I expect it’s in this one, too. This went into effect in 2010.
18. Tax on Indoor Tanning. A new 10% excise tax on indoor tanning salons. This one made the cut. This went into effect in 2010.
19. Paper Production and Cellulosic Biofuels. “[Close] the loophole that allows certain byproducts of paper production to be eligible for the cellulosic biofuels producer credit.” This new tax provision is in the measure. This went into effect in 2010.
20. Strengthen Economic Substance Rules. “[Help] prevent tax shelters by clarifying the definition of when activities have true “economic substance” beyond evading taxes.” While the details aren’t listed, it’s clear that this provision will strengthen the economic substance rules. This will increase costs for complex transactions, and will likely depress economic activity. This went into effect in 2010.
President Obama and his surrogates have stated that the ACA (ObamaCare) is not a tax. White House Press Secretary Jay Carney stated the following:
“It’s a penalty, because you have a choice. You don’t have a choice to pay your taxes, right?” Carney said.
Carney was initially reluctant to assign a label to the fine when pressed repeatedly by reporters Friday. “Call it what you want,” he said…“You can call it what you want,” he said. “If you read the opinion, it is not a broad-based tax. It affects one percent, by CBO estimates, of the population. It is not something that you assess like an income tax.” It was unclear which Congressional Budget Office estimate Carney was referring to. Despite being pressed on the issue, though, the spokesman would not relent.
Bluntly, this is B.S. There are twenty tax increases in ObamaCare. You can parse words any way you like, but many of these measures are labeled as “taxes” and “surtaxes”. If you can read what I wrote above about the twenty tax increases in ObamaCare and still state that it’s not a tax, well, I suggest you apply for a job at the White House. The Supreme Court said it’s a tax. It contains twenty tax increases. President Obama’s argument that it’s not a tax is clearly wrong.
For the rest of us, this gives a clear choice in the election this November. Mitt Romney has pledged that his first job if he takes office will be the repeal of ObamaCare. President Obama and his administration have pledged the full implementation of ObamaCare (and the rescinding of the Bush Tax Cuts). You can’t get a much clearer choice than that.