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Obama’s Health Plan - Taxes, Taxes Everywhere

Posted By Curtis Dubay On February 24, 2010 @ 12:59 pm In Obamacare | Comments Disabled

The White House recently released President Obama’s health care reform proposal. The plan incorporates a mixture of the many tax increases [1]passed by the House and Senate, hiking taxes by almost $750 billion over ten years [2]. This is on top of $1.3 trillion in other tax increases [3]the President recently proposed in his 2011 budget. Not that there is ever a good time to raise taxes, but doing so as the economy is still emerging from a deep recession is particularly ill-advised and will likely prolong full recovery. Moreover, the President’s proposal deviates from his stated goal to address the soaring spending and debt problem the nation faces by piling on massive new spending and taxes.

Payroll tax hikes: Obama accepted the Senate’s plan to break long-held policy [4] by raising the Hospital Insurance (HI) portion of the payroll tax on high-income earners to pay for a new and unrelated health care entitlement. He then doubled-down on this dangerous new precedent by separately applying the HI tax to investment income [4]for the first time. The tax code already taxes investment too much. Higher taxes still on dividends, interest and business income increases the cost of capital which will further depress investment and thus job creation. Ironic to propose this at the very time the President wants employers to create jobs.

Medicare payroll tax would hit seniors: His proposed tax hike on investment will hammer seniors particularly hard because their investment income is a major supplement to their pension and Social Security checks. Seniors also sell assets to raise income, so raising the tax on capital gains further reduces their resources. Lastly, raising the taxes on capital income and capital gains will lower asset values. Nearly 30 percent of all stocks are held in retirement savings plans. Most of the seniors that rely on the income from these plans for their livelihood are not “fat cat” investors that have been the target of other populist tax hikes. They are people that spent their working years saving money for their own retirement in mutual funds, 401(k)s, IRAs, and other savings vehicles. This would just punish them for a lifetime of careful planning and saving.

Cadillac tax: The President also adopted an excise tax on “Cadillac” health insurance plans similar to that in the Senate plan. Obama’s proposal would levy a 40% tax on plans that cost over $10,200 a year for individuals and $27,500 for families, but wouldn’t be effective until 2018. The delay will no doubt give unions and other favored groups time to negotiate their way out of the tax through collective bargaining or gain a complete legislative exemption at some point in the future before the tax kicks in. It also means delaying political pain. All the same criticisms of the excise tax [5]apply as before. For example, insurers will embed the tax in the price of their plans. This will hide its cost from their customers. The tax will also fall heavily on middle and low-income workers whose taxes President Obama pledged not to increase. The President would have been better off capping the value of health insurance employers can provide their employees tax free. This is something that has wide support among policy experts on the right and the left and would be a real show towards openness to the bipartisan ideas he is purporting.

Still more taxes: Just like the Senate and the House, his plan incorporates a multitude of other tax hikes and fees that will go towards paying for the monstrously expensive bill. Some will raise taxes on people making less than $250,000 a year, breaking a key campaign pledge. Prime examples include:

• Excise tax on medical device manufacturers;
• Fee on brand name pharmaceuticals;
• 10 percent tax on tanning services;
• Reduce the amount families can place in Flexible Spending Accounts (FSA) and increase the penalties for non-medical deductions from Health Savings Accounts (HSA); and
• Higher taxes on health insurance companies and producers of medicine.

Each of these taxes will fall explicitly on those making less than $250,000 or will be passed down to them. And this is just a sample of the taxes that will hit those making less than $250,000 in the President’s plan. There are many more. In fact, the mandate on all individuals to purchase health insurance could also be considered another steep tax hike on those making less than $250,000.

Bottom Line: There is never a good time to raise taxes, but even the talk of doing so now continues to cause uncertainty in the economy. Sadly, the President’s plan is no better than those of the House or Senate: massive new benefits paid for by a myriad of harmful new taxes. Better to drop this plan and start over. Without crushing new taxes.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2010/02/24/obama%e2%80%99s-health-plan-taxes-taxes-everywhere/

URLs in this post:

[1] the many tax increases : http://www.heritage.org/Research/HealthCare/wm2706.cfm

[2] almost $750 billion over ten years: http://www.atr.org/updated-obamacare-raises-taxes-bybr-billion-a4560

[3] $1.3 trillion in other tax increases : http://www.heritage.org/Research/Taxes/wm2790.cfm

[4] break long-held policy: http://www.foundry.org/2010/02/23/obama%e2%80%99s-health-plan-has-dangerous-new-taxes/

[5] criticisms of the excise tax : http://www.heritage.org/Research/HealthCare/wm2654.cfm

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