Creates a special deal for union members. Starting in 2018, a single union worker in a multiemployer health plan would be completely exempt from the “Cadillac tax” (a 40% tax on high-cost plans) unless the price of that plan exceeds $27,500. In contrast, a single, non-union worker living right next door would start paying that Cadillac tax as soon as the value of her health plan exceeds $10,200.
Makes a bad surtax worse. Twenty-two House Democrats opposed a surtax contained in an earlier version of the Democrats’ health care bill. That surtax would have started at a rate of 2% and would have applied to Americans earning over $280,000 for singles and $350,000 for couples. Under the current version of the bill, however, the Medicare surtaxes on both earned income (imposed at a rate of 0.9%) and investment income (imposed at a higher rate of 3.8%) feature far lower thresholds – $200,000 for singles and $250,000 for couples.
Increases taxes on real estate investments. The 3.8% Medicare surtax would hit average, middle-class investors in real estate. A middle-class taxpayer who happens to sell real estate for a significant gain in a particular year would be liable for this new tax, regardless of how low her income might be in other, more typical years. The National Association of Realtors wrote to Speaker Pelosi and Ways and Means Chairman Levin urging that Congress reject this unfair tax increase, especially given the flagging economy.
Vastly expands IRS powers. According to a new report, the Democrats’ health care bill vastly expands the responsibilities of the Internal Revenue Service and would strengthen the IRS’s heavy hand in dealing with ordinary taxpayers who play by the rules. If this bill becomes law, the IRS may have to hire up to 16,500 additional auditors, agents, and other employees just to enforce all the new taxes and penalties. The bill would empower the IRS to: (1) verify that Americans have “acceptable” health care coverage; (2) fine Americans up to $2,085 or 2 percent of income (whichever is greater) for the failure to purchase “minimum essential coverage”; (3) confiscate tax refunds; and (4) increase audits.
Imposes new marriage penalties. Because the Democrats’ subsidies for health insurance are solely based on the federal poverty level, if two people make $32,000 per year, they would pay between $6,000 and $10,000 more for health insurance than before they said “I do.” This is because as singles they were poor enough to receive health care subsidies, but as a married couple, these Americans are too rich for federal assistance. A discussion of how a prior version of the bill would have imposed these marriage penalties can be accessed here.
Breaks the President’s pledge on not taxing the middle class in at least a dozen ways. The Democrats’ health care bill contains at least a dozen direct and indirect tax increases that would break President Obama’s pledge not to raise taxes on those making less than $200,000 for singles and $250,000 for couples. These include: (1) a “Cadillac tax” on high-cost plans, (2) an individual mandate tax on Americans who do not purchase government-approved health insurance, (3) an increase in the 7.5% AGI floor for medical expense deductions to 10%, (4) limits on Flexible Spending Accounts in cafeteria plans, (5) increased penalties for nonqualified HSA distributions, (6) other restrictions on Health Savings Accounts, Health Reimbursement Accounts, and Flexible Spending Accounts, (7) a tax on tanning services, (8) an employer mandate tax, (9) a sales tax on medical devices, (10) a tax on health insurance premiums, (11) a tax on prescription drugs, and (12) a tax on insured and self-insured health plans.
Ensnares a growing number of people in the Cadillac tax. The Cadillac tax in the Democrats’ health care bill would not keep pace with medical inflation after it comes into effect in 2018, meaning a larger and larger tax hit over time. Beginning in 2020, this tax would be indexed by only the consumer price index. Given that health insurance premiums will likely increase faster than CPI, the Cadillac tax would hit more and more plans each year and take a bigger bite from those already covered
Repeats the mistakes of the AMT. Instead of learning the lesson of the Alternative Minimum Tax, which hits more and more Americans every year because the exemption level is not indexed for inflation, the Democrats’ bill repeats this mistake by failing to index the exemption threshold for the Medicare surtaxes on both earned and unearned income.
Forces those with catastrophic costs to pay even more. Current law provides important tax relief to Americans who suffer catastrophic out-of-pocket medical expenses, permitting a deduction for costs above 7.5% of income. The Democrats’ bill would raise that threshold to 10% of income in 2012 (2016 for seniors and the disabled). This is a particularly hard hit on those with the highest medical costs who can least afford to pay more taxes. And, according to the non-partisan Joint Committee on Taxation, more than 95% of the revenue generated from this tax increase would come from taxpayers earning less than $200,000.
Punishes investment in our economy. Under the Democrats’ bill, the Medicare tax would, for the very first time, apply to capital gains, dividends, interest, rents, royalties, and other investment income of singles earning over $200,000 and couples earning over $250,000. Currently, capital gains and dividends are taxed at a top rate of 15%, but those rates are already scheduled to rise in 2011 to 20% and 39.6%, respectively. When the expansion of the Medicare tax is coupled with the already scheduled rate increase, capital gains rates on these types of investment income, long-term capital gains rates would rise by almost 60% next year – from 15% to 23.8% – and the top tax rate on dividends would nearly triple – from 15% to 43.4%.
Robs Peter and leaves Paul broke. The Senate-passed Tax Extenders bill (H.R. 4213, as amended) includes one-year extensions of important tax relief policies for both individuals and businesses that expired on December 31, 2009. These include the deduction for state and local sales taxes, the R&D tax credit, and numerous energy-related incentives. Just weeks ago, the Senate decided to “pay for” those provisions by making “black liquor” ineligible for the cellulosic biofuel producer credit and by codifying the economic substance doctrine into law. Yet Democrats have now chosen to steal those very same revenue offsets – totaling $28.1 billion – to help finance their trillion dollar health bill instead. This begs the question: To the extent Democratic Leaders decide to adhere to PAYGO on Tax Extenders, what new taxes will they raise to replace all that lost revenue?