Obamacare Taxes Now Estimated to Cost $1 Trillion Over 10 Years

July 26, 2012

This week the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) updated their estimates of the tax increases embedded in Obamacare, i.e. the Patient Protection and Affordable Care Act.  Turns out it’s not so affordable.  Over ten years Obamacare represents over a $1 trillion in new taxes.  The chart below, reproduced from the House Committee on Ways and Means, outlines the more than 20 new taxes comprised in the law.

This estimate has increased dramatically since the law was passed in 2010 because now more of the taxes fall within the 10 year budget window.  For instance, the “Cadillac tax” doesn’t go into effect until 2018, meaning even the current estimate understates the fully phased-in tax increases. 

 

Provision 

March 2010 Estimate, 2010-2019, $US billion

June/July 2012 Re-Estimate, 2013-2022, $US billion

Additional 0.9 percent payroll tax on wages and self-employment income and new 3.8 percent tax on dividends, capital gains, and other investment income for taxpayers earning over $200,000 (singles) / $250,000 (married)

210.2

317.7

“Cadillac tax” on high-cost plans *

32

111

Employer mandate *

52

106

Annual tax on health insurance providers *

60.1

101.7

Individual mandate *

17

55

Annual tax on drug manufacturers/importers *

27

34.2

2.3 percent excise tax on medical device manufacturers/importers* 

20

29.1

Limit FSAs in cafeteria plans *

13

24

Raise 7.5 percent AGI floor on medical expense deduction to 10 percent *

15.2

18.7

Deny eligibility of “black liquor” for cellulosic biofuel producer credit 

23.6

15.5

Codify economic substance doctrine

4.5

5.3

Increase penalty for nonqualified HSA distributions *

1.4

4.5

Impose limitations on the use of HSAs, FSAs, HRAs, and Archer MSAs to purchase over-the-counter medicines *

5.0 

4

Impose fee on insured and self-insured health plans; patient-centered outcomes research trust fund *

2.6

3.8

Eliminate deduction for expenses allocable to Medicare Part D subsidy

4.5

3.1

Impose 10 percent tax on tanning services *

2.7

1.5

Limit deduction for compensation to officers, employees, directors, and service providers of certain health insurance providers

0.6 

0.8

Modify section 833 treatment of certain health organizations

0.4

0.4

Other Revenue Effects

60.3

222**

Additional requirements for section 501(c)(3) hospitals

Negligible

Negligible

Employer W-2 reporting of value of health benefits

Negligible

Negligible

Total Gross Tax Increase:

569.2

1,058.3

* Provision targets households earning less than $250,000.

** Includes CBO’s $216.0 billion estimate for “Associated Effects of Coverage Provisions on Tax Revenues” and $6.0 billion within CBO’s “Other Revenue Provisions” category that is not otherwise accounted for in the CBO or JCT estimates.

Source: Joint Committee on Taxation Estimates, prepared by Ways and Means Committee Staff

 

Though Obama vowed not to raise taxes on low-to-middle income Americans, various provisions will most certainly fall on lower income groups. For example, new annual taxes on health insurance providers, drug manufacturers, and the medical device industry will be passed on to all consumers in the form of higher prices and premiums. More direct are new taxes on high-cost “Cadillac” health plans, the tax on tanning services that is already in effect, and the individual mandate tax/penalty.

Regarding the tax/penalty for not purchasing health insurance, my analysis indicates that many low and middle-income households will experience tax increases of substantial magnitude. For example, starting in 2016, an uninsured family of four with income of $50,000 will owe $2,085—or 4.17 percent of income.  As shown in the table above, the individual mandate represents a $55 billion tax increase over 10 years, and this is before it is fully phased in. 

The employer mandate, which is ultimately borne by employers and employees as well as consumers in the form of higher prices, represents a $106 billion tax increase.  Lastly, the “other revenue effects” is the second largest tax increase at $222 billion.  It is not clear as of yet what is contained in that category beyond “associated effects of coverage provisions”.   Most likely, a large part of it is increased corporate tax revenues from the healthcare industry, which stands to grow to about 20 percent of the economy, partly as a result of this law.

To further see how you may expect to be affected by the law, see our interactive healthcare calculator.

Follow William McBride on Twitter @EconoWill

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