Major New Tax Increases in the PPACA
Three major tax increases make up a majority of new revenue in the PPACA.
A new 40 percent excise tax on health insurance plans. This will apply to plans valued in excess of $10,200 for individuals and $27,500 for families. It will take effect in 2018 and is projected to raise $32 billion by 2019.
The PPACA could have fixed one of the health care system's most serious flaws: the inefficient tax treatment of employer-sponsored health insurance. Done rightly, a serious reform of the federal tax treatment of health insurance could have expanded opportunities for Americans to own and control their own health insurance, created true portability of coverage, stimulated intense competition within the health insurance market, and reduced overspending on health care by making workers more attuned to their health care costs.[2] Instead, the new excise tax will make health insurance more costly and complex, while leaving the perverse incentives and inequities of the existing system in place. In addition, this hidden tax will do nothing to make costs more transparent.
Many families that make far less than $250,000 a year have high-end health plans and will be subject to the excise tax when it goes into effect in 2018, breaking President Obama's pledge not to tax these families. The threshold above which an insurance plan will be hit by the tax is indexed to increase at inflation plus 1 percent, which is below the rate of medical cost inflation. This means that more and more health insurance plans that Congress never intended to tax will fall above the threshold in future years. Many of these plans will also belong to families making less than $250,000 a year, further shattering President Obama's pledge.[3]
An increase in the Hospital Insurance (HI) portion of the payroll tax. This will increase the employee's portion from 1.45 percent to 2.35 percent for families making more than $250,000 a year ($200,000 for singles). Combined with the employer's portion, the total rate will be 3.8 percent when the tax hike takes effect in 2013.
There is a long-standing tradition that the payroll tax should be used exclusively to fund Social Security and Medicare. The increased HI rate not only breaks this principle, but also, and for the first time, will fund a new, separate entitlement. With this precedent broken, future Congresses will be tempted to use payroll tax increases to pay for other new programs that the tax was never intended to fund.
The $250,000 threshold is not indexed for inflation, so in inflation-adjusted terms, families making less than $250,000 a year today will pay the tax when it takes effect in 2013. As inflation increases, more and more middle-income families will be hit by the tax. This tax hike also breaks President Obama's pledge not to raise taxes on these families.
Payroll taxes on investment. The PPACA applies the new higher 3.8 percent HI tax to investment income, including capital gains, dividends, rents, and royalties, effective in 2013.
For the first time, a portion of the payroll tax will apply to investment income--a sharp departure from the nature and history of social insurance programs and another dangerous precedent for future policy. This will discourage investment and lead to slower economic growth, fewer jobs, and lower wages.[4] Tax policy should work to reduce the growth-depleting tax on capital income, not to increase that burden.
Other PPACA Tax Increases
The health legislation includes a myriad of smaller tax hikes, many of which will also fall on middle- and lower-income Americans. Many of them will not take effect until after Obama's potential second term. These hikes include:
A reduction in the number of medical products that taxpayers can purchase using health savings accounts (HSAs) and flexible spending accounts (FSAs).
An increase in the penalty for purchasing disallowed products with HSAs to 20 percent.
A limit on the amount that taxpayers can deposit in FSAs to $2,500 a year after 2013.
A requirement that corporations report more information on their business activities, the theory being that if corporations must report more about their activities, they will be less likely to try to avoid taxation.
An annual fee on manufacturers and importers of branded drugs based on each individual company's share of the total market. The tax starts at $2.5 billion in 2011 and goes to $2.8 billion in 2012-2013, $3.0 billion in 2014-2016, $4.0 billion in 2017, $4.1 billion in 2018, and $2.8 billion per year thereafter.
A 2.3 percent excise tax on manufacturers and importers of certain medical devices.
An annual fee on health insurance providers based on each company's share of the total market. Since health insurance companies stand to get more customers because of the individual and employer mandates, Congress forced them to share some of the revenue increase with the federal government. The tax raises $8 billion in 2014, $11.3 billion in 2015-2016, $13.9 billion in 2017, and $14.3 billion in 2018. After 2018, it will raise $14.3 billion, indexed to medical cost growth.
Elimination of the corporate deduction for prescription expenses for retirees. This provision has caused many large companies to announce write-downs of their future earnings.
An increase in the floor on the deduction for medical expenses from 7.5 percent of adjusted gross income to 10 percent.
A limit on the amount that health insurance companies can deduct from their taxes to $500,000 of compensation paid to officers, employees, directors, and service providers.
Repeal of the special deduction for expenses related to claims adjustments and administrative expenses specifically for Blue Cross/Blue Shield organizations.
A 10 percent excise tax on indoor tanning services.
Exclusion of unprocessed fuels from the existing cellulosic biofuel producer credit. Some industries that do not make biofuels were able to claim the credit because of byproducts produced during their manufacturing process. This credit is an unjustified use of the tax code that encourages certain kinds of energy production at the cost of others. Congress might better have scrapped the credit altogether.
A change in the definition of which business activities are for economic purposes and which are strictly to avoid taxation--many of which were perfectly legal--along with penalties for underpayments due to the latter.
Broken Promises to the Middle Class
President Obama repeated again and again during the campaign that he would not raise taxes on any family making less than $250,000 a year. He broke that promise early in his presidency when he increased cigarette taxes, and he has done so in a far grander way with this health care legislation. Not only will the higher HI taxes cost middle-income families jobs and suppress their wages, but the excise tax on high-cost plans will hit them directly.
Several of the taxes listed above, while not targeting middle-income families, will ultimately be passed on to them through higher prices. These include the fees on medical device manufacturers, pharmaceutical companies, and health insurance companies and the new tax on tanning services.
http://www.heritage.org/resear.....re-taxes-on-the-way/
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