Obamacare: Seven New Taxes on Citizens Earning Less than $250,000
Robert Allen Bonelli
29 Jun 2012
While we were all debating the cost to our liberty due to the Patient
Protection and Affordable Care Act (Obamacare), we were ignoring the
cost to our pockets. There are twenty - yes, twenty - hidden new
taxes of this law. Making matters even more relevant is that seven of
these taxes are levied on all citizens regardless of income.
The first, and best known, of these seven taxes that will hit all
Americans as a result of Obamacare is the Individual Mandate Tax (no
longer concealed as a penalty). This provision will require a couple
to pay the higher of a base tax of $1,360 per year, or 2.5% of
adjusted growth income starting with lower base tax and rising to this
level by 2016. Individuals will see a base tax of $695 and families a
base tax of $2,085 per year by 2016. Next up is the Medicine Cabinet Tax that took effect in 2011. This tax
prohibits reimbursement of expenses for over-the-counter medicine, with the lone exception of insulin, from an employee’s pre-tax dollar
funded Health Saving Account (HSA), Flexible Spending Account (FSA) or
Health Reimbursement Account (HRA). This provision hurts middle class
earners particularly hard since they earn enough to actually pay
federal taxes, but not enough to make this restriction negligible.
The Flexible Spending Account (FSA) Cap, which will begin in 2013, is
perhaps the most hurtful provision to the middle class.. This part of
the law imposes a cap of $2,500 per year (which is now unlimited) on
the amount of pre-tax dollars that could be deposited into these
accounts. Why is this particularly hurtful to the middle class? It is
because funds in these accounts may be used to pay for special needs
education for special needs children in the United States. Tuition
rates for this type of special education can easily exceed $14,000 per
year and the use of pre-tax dollars has helped many middle income
families.
Another direct hit to the middle class is the Medical Itemized
Deduction Hurdle which is currently 7.5% of adjusted gross income.
This is the hurdle that must be met before medical expenses over that
hurdle can be taken as a deduction on federal income taxes. Obamacare
raises this hurdle to 10% of adjusted gross income beginning in 2013.
Consider the middle class family with $80,000 of adjusted gross income
and $8,000 of medical expenses. Currently, that family can get some
relief from being able to take a $2,000 deduction (7.5% X $80,000 =
$6,000; $8,000 –$6,000 = $2,000). An increase to 10% would eliminate
the deduction in this example and if that family was paying a 25%
federal tax rate, the real cost of that lost deduction would be $500. The fifth new tax on the middle class, and all Americans, is the
Health Savings Account (HSA) Withdrawal Tax Hike. This provision increases the additional tax on non-medical early withdrawals from an
HSA from 10% currently to 20% beginning in 2013. This provision
actually sets these accounts apart from Investment Retirement Accounts
(IRAs) and other tax advantaged accounts, all of which remain with a
10% early withdrawal tax.
Another regressive tax that is part of this law began in 2010 and that
is the Indoor Tanning Services Tax, which places a 10% excise tax on
people using tanning salons. While some may regard this as
insignificant, the broader implication is that this act of taxation is
a blatant move by the federal government to control the behavior of
citizens.. This provision, as does the Individual Mandate and as
Justice Kennedy said during the oral arguments on the
constitutionality of the law said, “….fundamentally changes the
relationship between the federal government and the citizen.” The seventh new tax that directly impacts the middle class, along with
all citizens, is the Excise Tax on Comprehensive Health Insurance
Plans or the “Cadillac” Health Insurance Plan Tax. These are plans
that provide extensive coverage and that are generally fully paid for, or largely paid for, by employers. This provision imposes a 40% excise
tax on the employer-paid premium on taxpayers who are covered by such
plans, beginning in 2018. The reason it begins in 2018 is because most unionized workers are covered by plans that fall under this definition and a deferral was made to spare union members from this tax for at
least a period of time.
There are thirteen other taxes that apply to businesses and that apply
to high income (over $250,000 per year) households. While these
additional provisions will not impact the middle class directly, they
can have serious indirect consequences for middle and low income
earners. Beginning in 2014, the Employer Mandate Tax will impose an
annual non-deductible tax on employers with more than 50 employees who
do not provide health insurance for their employees. The impact of this provision on low and middle income earners, and
really all working Americans, is that employers will be confronted
with three choices. The first is provide some level of health insurance, as many do today, and there would be no impact on
employees. The second choice is to pay the penalty, which would most
likely be less expensive than providing health insurance, and force
employees to seek their own health insurance or purchase it through
federal government controlled state exchanges. Studies have estimated
that 20 million Americans will lose their employee funded health
insurance as a result of this provision and employers electing this
option. The third choice is for employers to lay off employees, or not
hire additional employees, because Obamacare forces them to either
provide health insurance or pay the new tax.
Another new tax, the Tax on Medical Device Manufacturers that begins
in 2013, places a 2.3% excise tax on all items retailing for more than
$100. This provision will not only drive up the cost of various
medical devices ranging from mobility assistance devices to personal
testing supplies, but will also impact an industry that employs
360,000 people in 6,000 plants across our country. This tax, while not
a direct tax, would have significant negative impact on the middle
class.
The Surtax on Investment Income for households earning $250,000 and
more, beginning in 2013, will raise the Capital Gains Tax from 15% to
23.8% on investment income for these households and will raise Taxes
on Dividends from 15% to 43.4% for the same households. Aside from the
impact on retired citizens dependent on dividends, this provision will
pull income from the private economy. In addition, the tax rate on
Other Investment Income earned by Subchapter S Corporation (which many
small business are organized as, allowing the owners to claim all
business income as personal income) will rise from 35% to 43.4%. This
part of the provision would place additional pressure on small
businesses resulting in more layoffs and less hiring, impacting all
American workers. All but one of the remaining new taxes in Obamacare are directed at
health industry businesses and while they will not impact middle
income families directly, the additional costs will most likely be
passed on to the public. The last new tax is really interesting, it is
a tax on certain biofuels! These are the facts. It does not matter if you support Mr. Obama and
his new law or if you oppose it, the new taxes on the middle class or
real and all Americans should understand their impact on their
families and the economy.
