Obamacare's New Taxes, And How You May Be Affected

July 05, 2012

A week ago today, the Supreme Court ruled that Obamacare’s individual mandate is a legitimate use of Congress’ power to tax (see our response here). In the wake of the ruling, the House Committee on Ways and Means produced this useful chart (reproduced below), which outlines this and 20 other taxes comprised in the law. Collectively, these new revenue measures are expected to increase taxes/penalties by at least $800 billion over the next 10 years, according to the Joint Committee on Taxation (JCT). 

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 increase.  Combined with the fact that the individual mandate, employer mandate and other revenue effects have not yet been re-estimated since 2010, it means that fully phased-in Obamacare likely amounts to a tax increase of more than a $1 trillion over 10 years.

 

Provision 

March 2010 Estimate, 2010-2019, $US billion

June 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

Annual tax on health insurance providers *

60.1

101.7

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

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

Negligible

Negligible

Employer W-2 reporting of value of health benefits

Negligible

Negligible

Employer mandate *

52

Pending

Individual mandate *

17

Pending

Other Revenue Effects

60.3

Pending

Total Gross Tax Increase:

569.2

804.6**

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

** Based on 2010 estimates for the individual mandate, employer mandate and other revenue effects.

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, Tax Foundation 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. For the complete distributional breakdown, click here.

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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