When I last wrote about the healthcare legislation, I noted the 17 taxes which would be in the plan. Let’s see what’s new in the “Unified Health Care Legislation” proposed by President Obama.
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.
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. News reports indicate that this tax is still in the proposal.
It is unclear if a waiting period tax remains in the legislation.
3. Excise Tax on Health Insurance Plans. Beginning in 2013 2018, 40% tax (the percentage may be wrong) on plans costing $8500/$23,000 $10,200/$27,500. Is indexed to CPI. It is unclear whether exemptions in the Senate version have been continued in this proposal.
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.
5. “Medicine Cabinet Tax.” Limitation on HSAs, FSAs, and MSAs to purchase non-prescription medication except insulin. Note that this is also in the House healthcare bill. This is definitely in the new proposal.
6. HSA Withdrawal Tax Increased. The tax would increase to 20% from 10%. This is also in the House legislation. This is definitely in the proposal.
7. FSAs capped at a maximum of $2500. They are now uncapped. This is definitely in the proposal.
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.
9. 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.
10. Tax on Drug Companies. The tax would be $2.3 billion based on sales percentage. There’s definitely a tax on drug companies, but the size and timing of the tax is unclear.
11. Tax on Medical Device Manufacturers. The $2 billion tax is also based on sales percentage. It rises to $3 billion in 2017. This tax is in the bill, but the size and timing of the tax is not clear.
12. Tax on Health Insurers. A $6.7 $10 billion tax based on percentage of health insurance premiums collected. It now phases in gradually until 2017. This tax is definitely in the bill, but the size and timing of the tax is unclear.
13. Elimination of tax deduction for employer provided retirement prescription drug coverage. It is unclear whether this tax is in the measure.
14. 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. It is unclear whether this tax is in the proposal.
15. 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.
16. 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).
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.
17. 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.
18. 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.
19. Excise Tax on Cosmetic Medical Procedures. A new 5% excise tax on these procedures. This one is dead.
19. Tax on Indoor Tanning. A new 10% excise tax on indoor tanning salons. This one made the cut.
20. 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.
21. 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.
Obviously, the devil is in the details and all that’s been released is a framework. Unfortunately, the framework looks rotten to the core. The Congressional Budget Office can’t determine what the cost of the measure is. And until the actual legislation appears, line by line, who knows what’s in it. The House bill was a model of brevity at just under 2,000 pages. The Senate bill was just a wee bit longer, at around 2,800 pages. I suppose this measure (when we see it) will be about 3,500 pages. What appears certain is that there are more taxes in this measure.
The public doesn’t want this. They believe (rightly) it will add yet more bureaucracy to Washington, and that it reeks of socialized medicine. So who cares about the cost (estimated at just under $1 Trillion by the White House), public opinion, or that it will devastate the economy.
