Tax Increases, Not Only on Wealthy

Daily News Article   —   Posted on March 24, 2010

(by David M. Dickson, WashingtonTimes.com) – …the historic overhaul of the nation’s health care system that President Obama signed Tuesday, when combined with the fixes making their way through Congress, will raise taxes over the next 10 years by more than a half-trillion dollars.

The tax increases range from hundreds of billions of dollars in new Medicare levies, including one that taxes investment income such as capital gains and dividends for the first time, to a 10 percent excise tax on indoor tanning services that will raise less than $3 billion over the next decade.

Imposing a Medicare tax on investment income “would reduce demand for investment, which is the last thing that the economy needs right now. It would slow [economic] recovery, reduce employment opportunities and hinder wage growth,” said Karen Campbell of the conservative Heritage Foundation. “Less investment, lower investment values and lower wages hinder the ability of households to build wealth.” ……

By far the biggest tax increase – more than $210 billion from 2012 through 2019 involves Medicare, the $500 billion federal health care program for the elderly and disabled. Medicare taxes would be raised in two ways.

First, the new law increases the Medicare payroll tax on employee wages and salaries from 1.45 percent to 2.35 percent on earnings above a certain amount – $200,000 for individuals and $250,000 for couples who file jointly. The employer’s share would remain at 1.45 percent for all wages and salaries….

Second, for the first time ever, the bill would apply Medicare taxes to several forms of “unearned income” – capital gains, dividends, interest, royalties and other sources besides wages and salaries – above the $200,000 and $250,000 thresholds. The individual or couple must pay the whole 3.8 percent Medicare tax because there is no employer with whom to split the bill on “unearned income.”

Consider a married couple who earn $300,000, divided evenly between salaries and capital gains. Their total salary income of $150,000 would be subject to the combined 2.9 percent Medicare tax – split evenly between employee and employer. The first $100,000 in capital gains would not be subject to any Medicare tax, but the couple would have to pay a 3.8 percent Medicare tax on the last $50,000 in capital gains.

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Although only high-income households will pay the new Medicare levies, Republicans say, billions of dollars in other new taxes will be paid by individuals earning less than $200,000 per year and married couples earning less than $250,000. That would violate a 2008 campaign pledge by President Obama, Republicans say.

Portions of a multitude of new taxes totaling nearly $250 billion over 10 years would be paid, either directly or indirectly, by workers with incomes below those levels, Republicans on the House Ways and Means Committee said.

For example, both the law signed by Mr. Obama and the reconciliation bill raise money by taxing generous health-insurance policies, though the numbers differ.

But even the proposal sitting before the Senate, which taxes these “Cadillac plans” less than the bill signed into law, expects to raise $32 billion during the 2018-19 period. The “fix” heavily penalizes health-insurance plans costing more than $10,200 for individuals and $27,500 for families – imposing a 40 percent excise tax on the value above those amounts.

Many of these “Cadillac plans” are held by union workers in the private sector and by state and local government workers. Most families of both groups earn well below $250,000.

While the excise tax will be directly paid by the insurance company, economists of all persuasions expect the costs to be passed along to policyholders.

Middle- and working-class Americans, Republicans say, also can expect to pay a big portion of the numerous fees that the health care bill will impose on the pharmaceutical industry ($27 billion from 2011 through 2019), on medical-device manufacturers ($20 billion from 2013 through 2019) and on health insurance providers ($60.1 billion from 2014 through 2019), and on indoor tanning services (a 10 percent excise tax).

The new law also limits deductions for medical care, requiring people, including middle-income households and seniors, to have spent more of their own money on health care expenses before they become tax-deductible. Currently, expenses above 7.5 percent of adjusted gross income can be deducted for tax purposes; the bill Mr. Obama signed raises that threshold to 10 percent of income.

The legislation imposes mandates on employers with more than 50 workers to provide health insurance to their workers and on individuals and families to carry health insurance. The bill would impose penalties on those employers ($52 billion from 2014 through 2019) and households ($17 billion from 2014 through 2019) who do not comply with the mandates.

In part because these penalties would be administered and enforced by the Internal Revenue Service, Republicans consider them taxes and violations of Mr. Obama’s campaign pledge.

The White House declined to respond to a request for comment on the charge that the president broke his promise not to raise taxes on middle-income households.

Copyright 2010 News World Communications, Inc.  Reprinted with permission of the Washington Times.  For educational purposes only.  This reprint does not constitute or imply any endorsement or sponsorship of any product, service, company or organization.  Visit the website at washingtontimes.com.

Questions

NOTE TO STUDENTS: Many adults do not understand the new health care law. If you begin to gain an understanding of the issue, you are doing great! We suggest that you ask a parent to read this article, and review your answers.

1. Where will Congress get the $500,000 billion needed to pay for the new health care legislation over the next ten years?

2. Define the following as used in the article:
-Medicare
-levies
-capital gains
-dividends
-excise tax

3. By how much will some people’s Medicare taxes on their salaries be raised?

4. Until now, the government has been paying for Medicare from taxes taken from salaries people earn at their jobs. On what other income will Medicare taxes be taken from for the first time? (CHALLENGE: What taxes have previously been taken out of this income?)

5. “Cadillac” plans have low or no co-payments, low or no deductibles, few limits on how much you can spend, and no need for prior authorization, i.e., to get special permission before you get treated by a specialist.
a) As a presidential candidate, Barack Obama said that he would raise taxes on Americans earning over $200,000 a year individually, or over $250,000 as a couple (“rich” Americans). How will the new tax on “Cadillac health insurance plans” affect Americans who make under $200,000, many of whom are union workers (truck drivers, construction workers, teachers, etc.) who hold these plans?
b) Do you consider these taxes to be tax increases on the affected individuals?

6. How will new taxes on the pharmaceutical industry, medical-device manufacturers and health insurance providers affect the average American?

7. How does the Democrats’ new health care law change medical deductions on income taxes?

8. a) In addition to employers with more than 50 workers, who else will be required to purchase health insurance?
b) What will happen to people who do not comply with the government mandates on health insurance (people who do not do what the law now requires)?


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Background

The health care bill signed into law by President Obama will exempt the President, his cabinet secretaries and special congressional staff members from participation in the new government-run health care “exchanges.”

The bill was amended behind closed doors by Senate Majority Leader Harry Reid (D-Nev.) back in December to exclude all congressional committee and leadership staff from the health care “exchange.” The President, Vice-President, cabinet members, thousands of Obama administration staff and an unknown number of czars will all remain in the FEHBP – Federal Employees Health Benefit Plan.