Valdosta Daily Times

National, International News

December 26, 2012

Health care tax hikes for 2013 may be just a start

WASHINGTON — New taxes are coming Jan. 1 to help finance President Barack Obama’s health care overhaul. Most people may not notice. But they will pay attention if Congress decides to start taxing employer-sponsored health insurance, one option in play if lawmakers can ever agree on a budget deal to reduce federal deficits.

The tax hikes already on the books, taking effect in 2013, fall mainly on people who make lots of money and on the health care industry. But about half of Americans benefit from the tax-free status of employer health insurance. Workers pay no income or payroll taxes on what their employer contributes for health insurance, and in most cases on their own share of premiums as well.

It’s the single biggest tax break the government allows, outstripping the mortgage interest deduction, the deduction for charitable giving and other better-known benefits. If the value of job-based health insurance were taxed like regular income, it would raise nearly $150 billion in 2013, according to congressional estimates. By comparison, wiping away the mortgage interest deduction would bring in only about $90 billion.

“If you are looking to raise revenue to pay for tax reform, that is the biggest pot of money of all,” said Martin Sullivan, chief economist with Tax Analysts, a nonpartisan publisher of tax information.

It’s hard to see how lawmakers can avoid touching health insurance if they want to eliminate loopholes and curtail deductions so as to raise revenue and lower tax rates. Congress probably wouldn’t do away with the health care tax break, but limit it in some form. Such limits could be keyed to the cost of a particular health insurance plan, the income level of taxpayers or a combination.

Many economists think some kind of limit would be a good thing because it would force consumers to watch costs, and that could help keep health care spending in check. Obama’s health law took a tentative step toward limits by imposing a tax on high-value health insurance plans. But that doesn’t start until 2018.

Next spring will be three years since Congress passed the health care overhaul but, because of a long phase-in, many of the taxes to finance the plan are only now coming into effect. Medicare spending cuts that help pay for covering the uninsured have started to take effect, but they also are staggered. The law’s main benefit, coverage for 30 million uninsured people, will take a little longer. It doesn’t start until Jan. 1, 2014.

The biggest tax hike from the health care law has a bit of mystery to it. The legislation calls it a “Medicare contribution,” but none of the revenue will go to the Medicare trust fund. Instead, it’s funneled into the government’s general fund, which does pay the lion’s share of Medicare outpatient and prescription costs, but also covers most other things the government does.

The new tax is a 3.8 percent levy on investment income that applies to individuals making more than $200,000 or married couples above $250,000. Projected to raise $123 billion from 2013-2019, it comes on top of other taxes on investment income. While it does apply to profits from home sales, the vast majority of sellers will not have to worry since another law allows individuals to shield up to $250,000 in gains on their home from taxation. (Married couples can exclude up to $500,000 in home sale gains.)

Investors have already been taking steps to avoid the tax, selling assets this year before it takes effect. The impact of the investment tax will be compounded if Obama and Republicans can’t stave off the automatic tax increases coming next year if there’s no budget agreement.

High earners will face another new tax under the health care law Jan. 1.  It’s an additional Medicare payroll tax of 0.9 percent on wage income above $200,000 for an individual or $250,000 for couples. This one does go to the Medicare trust fund.

Donald Marron, director of the nonpartisan Tax Policy Center, says the health care law’s tax increases are medium-sized by historical standards. The center, a joint project of the Brookings Institution and the Urban Institute, provides in-depth analyses on tax issues.

They also foreshadow the current debate about raising taxes on people with high incomes. “These were an example of the president winning, and raising taxes on upper-income people,” said Marron. “They are going to happen.”

Other health care law tax increases taking effect Jan. 1:

— A 2.3 percent sales tax on medical devices used by hospitals and doctors. Industry is trying to delay or repeal the tax, saying it will lead to a loss of jobs. Several economists say manufacturers should be able to pass on most of the cost.

— A limit on the amount employees can contribute to tax-free flexible spending accounts for medical expenses. It’s set at $2,500 for 2013, and indexed thereafter for inflation.

 

1
Text Only
National, International News
  • Dollar Tree-Family Do_Rich copy.jpg Dollar Tree buys Family Dollar

    The fight for penny pinchers is intensifying.

    July 29, 2014 1 Photo

  • APTOPIX Mideast Israe_Rich copy.jpg Gaza war rages despite Hamas, Israel truce pledges

    Israel and Hamas launched new attacks Sunday in the raging Gaza war, despite going back and forth over proposals for a temporary halt to nearly three weeks of fighting ahead of a major Muslim holiday.
    The failure to reach even a brief humanitarian lull in the fighting illustrated the difficulties in securing a more permanent truce as the sides remain far apart on their terms.

    July 29, 2014 1 Photo

  • AP81072904918 copy.jpg Today in History for Tuesday, July 29, 2014

    Today is Tuesday, July 29, the 210th day of 2014. There are 155 days left in the year.

    July 29, 2014 1 Photo

  • AP4507280123 copy.jpg Today in History for Monday, July 28, 2014
    Today is Monday, July 28, the 209th day of 2014. There are 156 days left in the year. 
     

    July 28, 2014 1 Photo

  • Tentative deal reached on VA reform

    The chairmen of the House and Senate Veterans Affairs committees have reached a tentative agreement on a plan to fix a veterans’ health program scandalized by long patient wait times and falsified records covering up delays.

    July 27, 2014

  • United States-Libya_Rich.jpg US evacuates embassy in Libya amid clashes

    The United States shuttered its embassy in Libya on Saturday and evacuated its diplomats to neighboring Tunisia under U.S. military escort as fighting intensified between rival militias. Secretary of State John Kerry said “free-wheeling militia violence” prompted the move.

    July 27, 2014 1 Photo

  • AP9607270692 copy.jpg Today in History for Sunday, July 27, 2014

    Today is Sunday, July 27, the 208th day of 2014. There are 157 days left in the year.

    July 27, 2014 1 Photo

  • No ticket for Shrek over loud musical, chief says

    A musical being performed in a New Hampshire park has drawn some noise complaints, but the deputy police chief says he’s “not giving Shrek a ticket.”

    July 26, 2014

  • Arizona Execution Dru_Rich copy.jpg Arizona’s McCain: Execution was torture

    U.S. Sen. John McCain says the execution of an Arizona inmate that lasted two hours was torture.

    July 26, 2014 1 Photo

  • Ukraine Plane_Rich copy.jpg US: Russia firing into Ukraine

    Russia is launching artillery attacks from its soil on Ukrainian troops and preparing to move heavier weaponry across the border, the U.S. and Ukraine charged Friday in what appeared to be an ominous escalation of the crisis.
    Russia accused Washington of lying and charged Ukraine with firing across the border on a Russian village. It also toughened its economic measures against Ukraine by banning dairy imports.

    July 26, 2014 1 Photo

Top News
Poll

Do you agree with the millage rate increases?

Yes. We need to maintain services
No. Services should have been cut.
     View Results