Wednesday, December 23, 2009

The Latest Tax Changes in the Senate's Health Care Bill

The Senate is expected to vote on their health care bill (the Patient Protection and Affordable Care Act) this Christmas Eve. They are also going to vote on legislation that will raise the federal government’s debt limit. Since no Republican Senators are likely to vote in favor of either measure, Congress is attempting to use the holiday vote to help avoid negative publicity. However, in order to get the sixty votes needed to pass the measure, Democratic leaders have made quite a few changes to the legislation. To help my readers stay updated on the massive health care overhaul, I have put together this article explaining the tax changes in the Senate’s bill.

No Public Option

First of all, I think it is important to note that the most recent legislation – which will be voted on tomorrow – does not contain a public option. Although President Obama had pushed for a government run health insurance option, in order to get the necessary votes it was removed. Instead the federal government will contract with insurers for two national health plans that will be offered through a new insurance exchange. The plan will be handled by the U.S. Office of Personnel Management, which already oversees the health policies of over eight million federal government employees.

The Costs

After all the recent changes, the Congressional Budget Office estimates that the legislation would cost $871 billion over the next ten years. It is reported that the plan will be paid for by $483 billion in spending cuts, as well as $498 billion in new revenue. The budget office asserts that it will reduce the federal deficit by around $130 billion over the next decade.

Expanded Coverage

Current estimates show that 83 percent of Americans under the age of 65 have health insurance coverage. If enacted, the Senate’s plan would expand coverage to an estimated 94 percent of Americans under the age of 65. This would leave about 24 million people in this country without insurance, a third of which are thought to be immigrants living in the country without proper documentation.

Individual Mandate Tax

One of the first tactics the Senate is using to fund the legislation is through an individual mandate tax. Beginning in 2014, anyone who does not have a “qualifying” health insurance plan must pay an income surtax. The tax is expected to generate over $15 billion in federal revenue, and will begin as a 0.5% tax in 2014. However, it will increase to 1% in 2015, then 2% in 2016.

Employer Mandate Tax

In addition to levying taxes on individuals, the new bill will create an employer mandate tax that is expected to generate $28 billion over the next decade. It will force all employers with 50 or more employees to either provide health care coverage, or pay a non-deductible tax of $750 for each full time employee.

Cadillac Health Care Plans

Just like the initial bill the Senate proposed, the final legislation will include a new 40% tax on “Cadillac” health insurance plans beginning in 2013. According to the legislation, this will include plans valued at $8,500 for individuals, and $23,000 for families. However, there are a few exceptions, such as Longshoremen who lobbied heavily to have members of their union excluded from this new tax.

Cosmetic Tax No, Tanning Tax Yes

After immense pressure from the cosmetic surgery industry, the 5% tax on elective cosmetic procedures was removed from the Senate’s bill. However, in its place Democratic leaders added a 10% tax on tanning salons.

Small Business Credits

Starting in 2010 – a year sooner than originally proposed – tax credits will become available to small businesses with less than 25 employees, and an average salary of $50,000 to encourage them to offer health insurance benefits. Businesses with 10 or less employees and an average wage of $25,000 will be able to take advantage of an even larger federal credit.

Increased Medicare Payroll Tax

The original Senate bill had called for a 0.5% Medicare payroll tax increase for individuals earning more than $200,000 and married couples earning over $250,000. However, the recent amendments have raised the tax to 0.9%.

Taxes on Insurers and Medical Device Manufacturers

A whole new set of taxes will get levied on health insurance companies and medical device manufacturers. The federal government is expecting to generate over $60 billion in additional revenue over the next decade by imposing taxes on firms with $50 million or more in profit. Additionally, they also plan to levy a $2 billion per year tax on the medical device industry starting in 2011 that will increase to $3 billion in 2017.

Increased Medical Deduction Limit

Currently, if a taxpayer spends more than 7.5% of their adjusted gross income on medical expenses they can deduct the amount from their taxable income. However, the Senate’s bill will raise this to 10% but provide an exception for taxpayers over the age of 65 until the year 2016.

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