Senate Blocks Repeal of Health Care Provision

Yesterday, the Senate blocked an effort to repeal part of Obama's health care reform package. The tax provision would require nearly 40 million businesses to start filing tax forms for every vendor that sells them more than $600 in goods.

The Associated Press reports:

The provision was included in the new health care law passed last year, but even Democrats who supported the law now acknowledge that the filing requirement would be a paperwork nightmare for businesses.

Most senators support repealing the requirement, but they couldn't agree Monday on whether to make up the lost revenue. The filing requirement raises an estimated $19 billion over the next decade.

Read more here

Nickel and dimed by Obama's microtaxes

According to a Fortune magazine survey almost half of taxpayers feel they aren’t getting what expect with their tax dollars. To add to this, some taxpayers will be soon paying a lot more in taxes. The taxing nuggets President Obama has included within the health care reform act are being referred to as a “nickel and diming” tactic because of the variety of new taxes sprinkled throughout the bill that target high earners.

I started to talk about these proposed taxes back in April on my blog here. The reform act includes a 3.8% tax on interest and dividends. There will also be a .09% increase in the Medicare payroll tax. Currently the Medicare payroll tax is 2.9% on all wages, with the worker and his employer each paying 1.45%. Under the new 2013 Medicare payroll tax increase a high income individual will be paying 2.35% of their wages.

Please read more CNNMoney.com here.

Costly IRS Mandate Slipped into Health Bill

Since the health care reform package was signed into law, taxpayers everywhere have been warned about the health care mandate that will take affect in a few years. But as Chris Edwards of Cato @ Liberty explains, the bill contained another mandate that could be far more costly.

A few wording changes to the tax code’s section 6041 regarding 1099 reporting were slipped into the 2000-page health legislation. The changes will force millions of businesses to issue hundreds of millions, perhaps billions, of additional IRS Form 1099s every year. It appears to be a costly, anti-business nightmare.

Under current law, businesses are required to issue 1099s in a limited set of situations, such as when paying outside consultants. The health care bill includes a vast expansion in this information reporting requirement in an attempt to raise revenue for an increasingly rapacious Congress.

In a recent summary, tax information firm RIA notes the types of transactions covered by the new 1099 rules:

The 2010 Health Care Act adds “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2)) to the pre-2010 Health Care Act categories of payments for which an information return to IRS will be required if the $600 aggregate payment threshold is met in a tax year for any one payee. Thus, Congress says that for payments made after 2011, the term “payments” includes gross proceeds paid in consideration for property or services.

Basically, businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s. When a business buys a $1,000 used car, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small shop owner pays her rent, she will have to send a 1099 to the landlord and IRS. Recipients of the vast flood of these forms will have to match them with existing accounting records. There will be huge numbers of errors and mismatches, which will probably generate many costly battles with the IRS.

Continue reading at Cato @ Liberty…

Health Care Reform’s Tax Change Creating Headaches

The media might be putting the news to the extreme in the article, Health care law's massive, hidden tax change from CNNMoney.com, but yes, it looks as though a provision of the health reform law is creating some extra paperwork for business owners.

Section 9006 of the health care bill states that beginning in 2012 all companies will have to issue a 1099 tax form to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

IRS Form 1099s are currently used to document income for contract workers (meaning non-employees). The change in how 1099s will be used is twofold: it expands their scope by using them to track payments not only for services but also for tangible goods, and it requires that 1099s are issued to corporations, not just individuals. Yes, expanding the definition of person to include corporation means more reporting requirements, not to mention the enormous amount of paper and postage involved, and that can be fairly burdensome especially for small businesses.

People are also concerned, however, that this will mean any retail purchase a freelancer does at a major store or every routine purchase a business makes, they will need to send a 1099 to that supplier at the end of the year tallying up their purchases. However, Tax Girl, in her blog today feels like I do: when the IRS regulations come out routine purchases and large retailer corporations may be excluded.

The phrase in the new law that’s likely to ease the potential reporting chaos:

“The Secretary may prescribe such regulations and other guidance as may be appropriate or necessary to carry out the purposes of this section, including rules to prevent duplicative reporting of transactions.”

The IRS will hold public hearings on any proposed regulations and give you, as a taxpayer, the right to put in your two cents. They usually accept public comment via US mail and email. Take advantage of the opportunity to make your voice heard if you feel the added paper work is too much or you are not happy with the regulations. Since the new law is effective January 1, 2012, you will likely see proposed regulations and public hearings in 2011.

Read more here.

Answers on Health Care Reform and Taxes

An article in USA TODAY answers questions posed by readers about the new health care law. Take a look at two of the questions and their answers:

Q: How will the new health care bill affect the amount I am taxed from each pay check?

A: It depends on how much you earn. In 2013, the Medicare payroll tax, which is now 1.45%, will increase to 2.35% for individuals who earn more than $200,000 and married couples filing jointly who earn more than $250,000. The additional tax is applied only to the amounts above those threshold levels. That means a single taxpayer with an annual income of $250,000 will pay an additional $450 per year in Medicare taxes, while someone earning $500,000 will pay $2,700 more a year.

Q: My wife and I are self-employed, own and operate a mom-and-pop retail/service business. (Our health care) premiums just went up $100 per month. We simply cannot afford this, but have no other choice. Most insurance companies only want group policies. Will this new bill do anything to help us?

A: Maybe, but not immediately. Beginning in 2014, small companies and individuals who don't have insurance through work will be able to purchase insurance through newly created marketplaces, known as insurance exchanges, created and regulated by the states.
Think of it as an Orbitz or Travelocity for health care insurance. The idea is to lower costs by applying the same market principles as the purchasing power of group plans.

The Congressional Budget Office (CBO) estimates that about 26 million Americans will purchase their policies through the exchanges. The CBO also estimates, however, that four in 10 people who buy insurance independently of a large employer could wind up paying 10% to 13% more. Others would receive federal subsidies to significantly lower those costs, so it depends how much you and your wife earn. Those earning up to 400% of the poverty level, or up to $88,200 for a family of four, will get some assistance.

Also, small businesses with fewer than 25 employees will be eligible for tax credits to help pay for health care costs for employees, as explained in a question above.

See more Q&A’s in the full article.

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10 Things you Should Know About the Tax Implications of Health Care Reform

Yesterday morning President Barack Obama signed the historic health care reform bill into law. Many experts are citing the legislation as the largest social package to pass through Congress in over forty years, and it will obviously have a significant impact on all American taxpayers. There have been dozens of stories published regarding health care reform, and it can be hard to comprehend everything. Therefore, I have gathered a list of the 10 most important things you should know about the tax implications of the legislation.

1. Mandatory Coverage Penalties in 2014

As you have probably already heard, beginning in 2014 you will be required to have health insurance. If you do not, then you will be forced to pay a $95 per person (or 1% of your income) fee. In 2016 this amount will increase to $695 or 2.5% of your income.

2. IRS Enforcement / Additional Costs

Unfortunately, the IRS is slated to take care of handling the mandatory coverage penalties that take effect in 2014. However, as Professor James Maule explains in this blog entry the thought of the IRS reviewing and approving every single American’s health insurance plan, when they can barely handle processing tax returns will be interesting to see. Additionally, the Congressional Budget Office has estimated they would need at least $10 billion dollars in additional funding to meet this new responsibility.

3. Low Income Subsidies

To help offset the cost of purchasing health insurance for your family, the federal government will provide taxpayers who cannot afford coverage with significant subsidies. It has been estimated that all families making under about $88,000 per year will qualify for some type of tax incentive.

4. Fees on Employers

You probably already know that under the package large businesses will be required to provide coverage for employees or pay a per worker fine. However, under the compromise package this fee was raised from $750 to a staggering $2,000. Employers will be able to qualify for a temporary tax credit of up to 35% of their contributions towards health insurance premiums.

5. Medicare Tax Changes

One of the largest tax increases in the new health care reform legislation is the additional Medicare tax on high-income taxpayers. Single workers making over $200,000 and married couples filing a joint return that make over $250,000 will be required to pay an additional 0.9% Medicare payroll tax. However, this is not the only Medicare related tax increase. A new 3.8% Medicare tax will be imposed on net investment income.

6. Doughnut Hole Rebates

In order to fill the hole in prescription drug coverage, all senior taxpayers in the country will receive a $250 “doughnut” hole rebate this year.

7. Medical Expense Deduction Increase

Another component of the new law increases the minimum for qualifying for the medical expense deduction. Currently, in order to claim the deduction your medical expenses need to total 7.5% of your adjusted gross income, but in 2013 it will be raised to 10%. However, seniors will be exempt from this increase until 2017.

8. Cadillac Taxes

Another tax implication of health care reform that I have discussed many times over the past few months, are the “Cadillac taxes” that will be imposed on high-cost employer provided health care plans. This tax will be 40%. However, the qualifying amounts were raised in the compromise package to $10,200 for single taxpayers or $27,500 per family.

9. The Tanning Tax

Starting July 1, 2010 a 10% tax will be levied on all payments made for indoor tanning services. This new “vanity tax” could raise up to $2.7 billion over the next decade, but it has been estimated that the tax could result in a lost of nearly 9,000 jobs in the tanning industry.

10. Adoption Tax Incentives

On a seemingly unrelated note, the health care reform bill also extends and expands the tax credits for adopting a child. The refundable credit has been extended through 2011, and the value was increased by $1,000.

Timeline of Tax Provisions in the House Health Care Bill

As many of you have probably heard, yesterday the House of Representatives passed President Obama’s health care reform package in a 219 – 212 majority vote. It now heads to the Senate where it is widely expected to pass after the required 20 hours of debate time.

The complicated legislation includes dozens of tax provisions; some that will take effect immediately while others will not take effect until up to eight years from now. Listed below are all of the tax law changes included in the bill, organized by when they will go into effect courtesy of The Tax Foundation.

Retroactive provisions:

• Exclusion for assistance provided to participants in State student loan repayment programs for certain health professionals (retroactive to January 1, 2009)
• Qualifying therapeutic discovery project credit (retroactive to January 1, 2009) – provision expires at end of 2010
• Modification of section 833 treatment of certain health organizations (retroactive to January 1, 2010)
• Make the adoption credit refundable; increase qualifying expenses threshold, and extend the adoption credit through 2011 (retroactive to January 1, 2010)
• Small Business Tax Credit for certain small businesses (those meeting certain criteria) providing health insurance to employees (retroactive to January 1, 2010). In 2013, restricted only to insurance purchased through an exchange and only available for two consecutive years
• Exclusion of unprocessed fuels from the cellulosic biofuel producer credit (retroactive to January 1, 2010)

Provisions that will go into effect on the date bill is signed into law:

• Additional requirements for section 501(c)(3) hospitals
• Study and report of effect on veterans’ health care
• Provide income exclusion for specified Indian tribe health benefits
• Codify economic substance doctrine and impose penalties for underpayments
• Provision specifying that subsidies or tax credits received through health care reform will not affect individual's qualifications for other federal programs
• Tax Exemption for Certain Member-Run Health Insurance Issuers
• Tax Exemption for Entities Established Pursuant to Transitional Reinsurance Program for Individual Market in Each State
• Rules pertaining to how the IRS is involved in income-verification and individual status for the purposes of participation in the exchanges and subsidies received

Other provisions going into effect before the end of 2010

• July 1, 2010: Impose 10% excise tax on indoor tanning services

Continue reading at Tax Foundation.org…

Obama's Proposal to Limit Itemized Deductions to 28% Rate

From the Tax Professor Blog:

President Obama proposes to fund his health care bill in part by limiting the tax rate at which itemized deductions reduce tax liability to 28%:

The Administration proposes to limit the tax rate at which high-income taxpayers can take itemized deductions to a maximum of 28 percent, affecting only single taxpayers with income over $200,000 and married taxpayers filing a joint return with income over $250,000 (at 2009 levels). The proposed limitation would be effective for taxable years beginning after December 31, 2010.

Comparing and Contrasting the Two Health Care Bills in Congress

As we wait for Congress to decide the fate of health care reform, I think it is important to remember that the House of Representatives and U.S. Senate each passed different bills addressing the issue. Therefore, when debating health care reform, it is important to understand the similarities and differences between each bill.

Affordable Health Care for America Act

Back in November, the House of Representatives passed the Affordable Health Care for America Act of 2009. As I explained in this blog entry, the legislation included a public option that would take affect in 2013. If passed it would extend coverage to 96 percent of legal residents under the age of 65. In order to pay for the legislation, the House included a slew of tax increases including a 2.5% penalty tax for Americans who did not have establish health care coverage, an 8% penalty on businesses that do not provide their employees coverage, and a 5.4% surtax on couples making over a million dollars per year.

Patient Protection and Affordable Care Act

The Senate’s health care legislation (the Patient Protection and Affordable Care Act) has been making headlines more recently as it was voted on just a few weeks ago. It aims to extend coverage to 94% of legal residents, but does so without a public option. The legislation is expected to cost over $870 billion over the next ten years, but would actually reduce the federal deficit because of the tax increases it includes.

The Senate’s bill also includes a penalty for not buying into a qualifying insurance plan, but it would begin as only a 0.5% tax in 2014. It would gradually increase until reaching 2% in 2016. There would also be a mandate on employers, as well as a 40% tax on “Cadillac” health care plans, and a 10% tax on tanning services.

The Similarities

When looking at the tax implications of each bill, it is easy to see their similarities. Both include taxes on employers who do not provide health care coverage, as well as penalties on taxpayers who do not purchase a qualifying plan. They also both include new taxes on medical device manufacturers. Additionally, both health care reform bills ensure that anyone living in the country illegally would be barred from receiving government subsidies.

The Differences

Although they have a few similar tax implications, the two bills are significantly different. The House of Representative’s bill would cost nearly $1.2 trillion, and includes more aggressive tax increases to pay for the expensive legislation. The penalty on taxpayers without coverage is higher than the Senate’s and would take effect a full year earlier. The House’s bill also includes the massive 5.4% surtax on the wealthiest Americans, which is absent from the Senate’s legislation.

The bill passed by the Senate would only cost $871 billion over 10 years, which is significantly less than the House’s. Although their bill also includes penalties on taxpayers without insurance, it would only start at 1% in 2014, and then gradually increase to 2% in 2016. Even once the penalty reaches its full amount, it will still be less than the House’s penalty. Additionally, the Senate’s bill calls for a non-deductible fee of $750, per employee, for employers that do not offer coverage; this is higher than the 8% tax proposed the House’s bill. Finally, the Senate’s bill also creates two new taxes that were not even considered by the House, including a tax on “Cadillac” health plans, and a tanning tax that has actually gained support by the medical community.

Future of Health Care Reform

In order to present a bill to the President for his signature, the Senate and House will need to reconcile their legislation to come up with one unified bill that both chambers can agree on. However, it does not appear that this will be Congress’ first priority upon returning from their Winter break. According to reports, the Obama Administration is going to focus the first few months of the year on job creation, especially in the energy sector. However, Congress is expected to decide on health care reform in February, and experts predict that the House will likely accept all the compromises worked out in the Senate’s legislation.

Senate Bill Removes ‘Botax,’ Adds Tanning Tax

The Democratic leadership decided to remove the 5% plastic surgery tax from the latest draft of their health care reform bill. The tax was expected to generate $5 billion in federal revenue, and to make up for the loss they have replaced it with a 10% tax on indoor tanning services.

According to the Wall Street Journal, the change is a victory for the American Medical Association, which urged lawmakers to remove the cosmetic-surgery tax after Sen. Reid included it in a draft of the bill he unveiled in November. The medical industry argued that the tax effectively discriminated against women, since they’re more likely to undergo such procedures.

The tanning tax is part of a last-minute package of amendments that are expected to be included in the final bill. It grants an exception for “phototherapy” services that are performed by licensed medical professionals.

Obama Seeks to Rally Senate Democrats on Final Health-Care Plan

From Bloomberg.com:

President Barack Obama plans to head to the U.S. Capitol to press Senate Democrats to agree on health legislation as lawmakers struggle to resolve disputes over issues including a proposed government-run insurance plan.

Democrats met throughout yesterday to seek an alternative to Senate Majority Harry Reid’s plan to create the new national program to cover the uninsured. Opposition within his party leaves Reid at risk of falling four votes short of the 60 he needs to pass the legislation, the most sweeping overhaul of the nation’s health-care system in more than four decades.

Obama’s scheduled visit comes as the bill’s backers need a jolt to come together, said Massachusetts Democrat John Kerry.

“We have to talk about how to put the final pieces together,” Kerry said. “It’s good to hear from the president now, because it’s getting to that stage where you have to come to a decision with your heart as well as your head.”

Reid called the rare weekend session to meet his deadline of getting a bill by year-end. Republicans, unified in opposition, forced the Democrats yesterday to reiterate their support for cutting more than $40 billion in home health-care services funding under Medicare. It was the latest Republican effort to highlight the bill’s potential impact on the elderly.

Comparison of Democratic Health Care Bills

The United States Senate voted last week to debate their health care bill, the Patient Protection and Affordable Care Act. However, their legislation is significantly different than the bill passed by the House of Representatives a few weeks ago. To help anyone curious about the differences between the two Democratic bills, ABC News has put together this informative article. I’ve included a few sections about each bill, but be sure to checkout the full text here.

The Senate Democratic bill (Patient Protection and Affordable Care Act):

WHO'S COVERED: About 94 percent of legal residents under age 65 — compared with 83 percent now. Government subsidies to help buy coverage start in 2014. Illegal immigrants would not receive assistance.

COST: Coverage provisions cost $848 billion over 10 years.

HOW IT'S PAID FOR: Fees on insurance companies, drugmakers, medical device manufacturers. Medicare payroll tax increased to 1.95 percent on income over $200,000 a year for individuals; $250,000 for couples. New 5 percent tax on elective cosmetic surgery. Cuts to Medicare and Medicaid. Excise tax on insurance companies, keyed to premiums paid on health care plans costing more than $8,500 annually for individuals and $23,000 for families. Fees on employers whose workers receive government subsidies to help them pay premiums. Fines on people who fail to purchase coverage.

The House bill (Affordable Health Care for America Act):

WHO'S COVERED: About 96 percent of legal residents under age 65 — compared with 83 percent now. Government subsidies to help buy coverage start in 2013. About one-third of the remaining 18 million people under age 65 left uninsured would be illegal immigrants.

COST: The Congressional Budget Office says the bill's cost of expanding insurance coverage over 10 years is $1.055 trillion. The net cost is $894 billion, factoring in penalties on individuals and employers who don't comply with new requirements. That's under President Barack Obama's $900 billion goal. However, those figures leave out a variety of new costs in the bill, including increased prescription drug coverage for seniors under Medicare, so the measure may be around $1.2 trillion.

HOW IT'S PAID FOR: $460 billion over the next decade from new income taxes on single people making more than $500,000 a year and couples making more than $1 million. The original House bill taxed individuals making $280,000 a year and couples making more than $350,000, but the threshold was increased in response to lawmakers' concerns that the taxes would hit too many people and small businesses.

Patient Protection and Affordable Care Act

Last Wednesday, the Senate Majority Leader Harry Reid and key Democratic leaders announced their highly anticipated health care reform bill, which has already been voted to the debate floor. For those of you who do not remember, the House of Representatives unveiled their plan a few weeks ago. The Senate's bill is supposedly the result of a handful of different bills, and has been named the “Patient Protection and Affordable Care Act” (PPACA). Similarly to the House’s bill the Senate’s act seeks to increase taxes to provide coverage to millions of Americans that are currently without health insurance.

The Basics of the Bill

According to estimates the PPACA is expected to cost $848 billion, and will include a public option that has an opt-out clause for individual states. There will be a federal mandate to purchase insurance, as well as fines for businesses that do not offer insurance. It is expected to provide coverage to over 30 million Americans, but will include a ban preventing illegal immigrants from taking advantage of the program.

Housing Credits for Veterans?

Technically, the PPACA has been presented as an amendment to a House of Representatives bill about housing credits for Veterans. This is a pretty controversial move, and a very strategic way to handle the issue. When debating and voting on a massive health care overhaul, Senators will also be forced to decide the fate of housing benefits for veterans – which is a very sensitive issue for many.

Fixing the Budget

It has been suggested that over the next 10 years, the PPACA will actually reduce the federal budget deficit by an estimated $130 billion. This is because the cost of the bill would be more than offset by tax increases, fees, and a reduction in the growth of Medicare. Additionally, the tax increases will take effect immediately, while the benefits will not begin until 2014.

The "Cadillac" Penalty

One of the ways the reform will be funded is through a new excise tax on high valued, “Cadillac” health insurance plans. If passed into law, a 40% tax would be levied on health coverage in excess of $8,500 for individuals $23,000 for families.

Half Percent Tax for High Earners

Unlike the House’s 1% tax increase, the PPACA will only increase taxes on high earning Americans by 1/2%. According to the bill, Medicare payroll taxes would be increased from 1.45% to 1.95% for individual taxpayers making over $200,000 or families making $250,000 per year.

Fines on Businesses

Any business employing more than 50 employees will be subject to serious fines if they do not provide insurance coverage. They will be forced to pay the Federal government $750 per year per employee that is not insured. However, since the taxes and fines are intended to take effect immediately many experts are worried that these fees will make the country’s unemployment problem even worse.

Cosmetic Surgery Tax

Lookout Hollywood, the health care reform bill also includes a 5% tax on elective cosmetic surgeries. This may not seem like that big of a deal to most of us, however it opens a dangerous door by allowing the government to tax a procedure directly.

Paying for the Affordable Health Care for America Act

Over the weekend, the U.S. House of Representatives passed HR3962: the Affordable Health Care for America Act of 2009. The legislation is thousands of pages long, making it difficult for regular taxpayers to understand how the bill will affect them. To help all the readers of my blog, I have analyzed the bill and put together the following explanation of how it will be funded.

The Public Option

Although it was rumored that reform legislation would not include a public option, HR3962 does set the groundwork for a public option that will take full affect in 2013. Supporters of the legislation assert that it will target those who have been uninsured for several months or were denied because of pre-existing conditions. The Health Insurance Exchange will setup to offer four different plans (basic, enhanced, premium, and premium-plus), and will limit out of pocket spending to $5,000 for an individual and $10,000 for a family. This new program will not replace Medicare, which will still be available to those who qualify. Instead, the Health Insurance Exchange will aim to provide coverage to those caught in loopholes for insurance companies. Such as low waged workers employed by small businesses that cannot afford to provide benefits.

Tax Penalties

The new legislation is very expensive, and Congress has come up with a number of ways to pay for it. First of all, there will be a shared responsibility provision that basically forces taxpayers who cannot establish acceptable health care coverage to pay an additional 2.5% tax. There will be a hardship exception though, for taxpayers who cannot afford to pay the tax.

Payroll Penalty

In addition to a penalty on taxpayers who cannot afford coverage, the government will also assess an 8% payroll tax on businesses that do not offer health insurance to their employees. However, it is widely expected that the penalty will be reduced to 5% when the Senate revises the bill.

Millionaire Surtax

One of the largest sources of funding for the reform bill is a new surtax on individuals making more than $500,000 per year, of couples making over $1 million. In the House’s bill, beginning in 2010 all taxpayers making a qualifying amount will be subject to a massive 5.4% tax increase.

Inflation Increases

In addition to adding heft tax increases, the bill also partially repeals tax indexing for inflation. This will result in more money for the Federal government as the years go by. According to the Joint Tax Committee the surcharge is only expected to generate $30.9 billion in 2011, but nearly $70 billion in 2019.

Passage into Law?

The present version of this bill is not likely to get passed into law. Despite President Obama’s optimistic stance, some Senators are already pronouncing the bill dead on arrival. Although there has been a lot of discussion about this health care reform bill, it could be months before even a highly amended version of it becomes law. The Senate is not going to vote on the bill until at least 2010, and since they are expected to make numerous modifications it will likely need to return to the House for another vote. It could be six months from now before a health care bill goes to President Obama’s desk for a signature.

The Return of the Inflation Tax

From the Wall Street Journal:

All of those twentysomethings who voted for Barack Obama last year are about to experience the change they haven't been waiting for: the return of income tax bracket creep. Buried in Nancy Pelosi's health-care bill is a provision that will partially repeal tax indexing for inflation, meaning that as their earnings rise over a lifetime these youngsters can look forward to paying higher rates even if their income gains aren't real.

In order to raise enough money to make their plan look like it won't add to the deficit, House Democrats have deliberately not indexed two main tax features of their plan: the $500,000 threshold for the 5.4-percentage-point income tax surcharge; and the payroll level at which small businesses must pay a new 8% tax penalty for not offering health insurance.

This is a sneaky way for politicians to pry more money out of workers every year without having to legislate tax increases. The negative effects of failing to index compound over time, yielding a revenue windfall for government as the years go on. The House tax surcharge is estimated to raise $460.5 billion over 10 years, but only $30.9 billion in 2011, rising to $68.4 billion in 2019, according to the Joint Tax Committee.

Americans of a certain age have seen this movie before. In 1960, only 3% of tax filers paid a 30% or higher marginal tax rate. By 1980, after the inflation of the 1970s, the share was closer to 33%, according to a Heritage Foundation analysis of tax returns.

These stealth tax increases—forcing ever more Americans to pay higher tax rates on phantom gains in income—were widely seen to be unjust. And in 1981 as part of the Reagan tax cuts, a bipartisan coalition voted to index the tax brackets for inflation.

Bio-fuel in the Health Care Bill?

Many of us in the tax industry are confused this morning, because of a $24 billion bio-fuel tax credit that was added to a health care bill making it’s way through Congress. The modification was made recently, but there already dozens of bloggers who have spoken out about this fishy addition to the health care reform bill. You can read coverage on this developing story from The New York Times here and here, or checkout a segment below.

A measure that could save the federal government $24 billion in bio-fuel tax credits over 10 years by restricting the eligibility of a controversial fuel was attached last night to health care reform legislation making its way to the House floor this week.

Language included in the manager's amendment would restrict the paper industry from claiming a lucrative incentive for use of a fuel known as "black liquor."

Rep. Chris Van Hollen (D-Md.), a member of the House Democratic leadership, introduced the measure as a stand-alone bill (H.R. 3985) this week that would formally restrict the paper industry from eligibility for the $1.01-per-gallon cellulosic bio-fuel tax credit included in the 2008 farm bill.

The estimated $24 billion in tax credit savings could be used to offset costs of the health care bill, Van Hollen said.

"In addition to supporting homegrown renewable energy, it is my hope that this legislation will be added to the manager's amendment for the House health care reform package making its way to the floor this week so that the savings generated by these improvements can help pay for health care for all Americans," Van Hollen said in a statement yesterday before the amendment was released.

Obama's Tax on Work

The Wall Street Journal recently posted an interesting article on how Obama’s healthcare bill could affect marginal tax rates, and in turn, the taxation of work. Many claim that these changes could result in higher taxes for middle-income American families. I’ve included a clip of the article below.

None of the new distortions that the Senate health-care bill will layer onto the already-distorted tax code have received the attention they deserve, but in particular its effects on marginal tax rates could use scrutiny. Incredibly, for those with lower incomes, ObamaCare will impose a penalty as high as 34% on . . . work.

Central to Max Baucus's plan—assuming the public option stays dead—is an insurance "exchange," through which individuals and families could choose from a menu of standardized policies offered at heavily subsidized rates, provided that their employers do not offer coverage. The subsidies are distributed on a sliding scale based on income, and according to the Congressional Budget Office, 23 million people will participate a decade from now, at a cost to taxpayers of some $461 billion.

Think about a family of four earning $42,000 in 2016, which is between 150% and 200% of the federal poverty level. CBO says a mid-level "silver" plan will cost about $14,700 in premiums, of which the family will pay $2,600—since the government would pay the other $12,100. If the family breadwinner (or breadwinners, because the subsidies are based on combined gross income) then gets a raise or works overtime and wages rise to $54,000, the subsidy drops to $9,900. That amounts to an implicit 34% tax on each additional dollar of income.

Or consider a single worker earning $20,600 and buying an individual "silver" policy with a premium at $5,000. Again according to CBO, if his income rises to $26,500, his subsidy plummets to $2,700 from $4,400 (including a cost-sharing subsidy that goes away). This is a 29% marginal tax; moving to other income levels yields increases in the neighborhood of 20% to 23% for both individuals and families. Jim Capretta, a fellow at the Ethics and Public Policy Center, calculates that when combined with other policies like the Earned Income Tax Credit that also phase out, the effective marginal rate would rise to nearly 70% at twice the poverty level.

Dem Senator Warns of 'Big, Big Tax' on Middle Class

With the several myths and rumors going around about the health care reform package, it is getting difficult for taxpayers to understand how the bill is going to get paid for. As such, Democratic Senator Jay Rockefeller (W.VA) has warned that another bill that is being worked on by the Senate that is full of tax hikes on the American middle class. ABCNews.com has posted this interesting article on the Senator’s warnings, which you can find a snippet of below.

It's not every day that you hear a Democratic senator charge that a fellow Democrat is proposing to raise taxes on the middle class, but that is what happened on Tuesday when Sen. Jay Rockefeller, D-W.Va., ripped into the health-care bill developed by Sen. Max Baucus, D-Mt., the chairman of the Senate Finance Committee.

The Baucus proposal would impose, starting in 2013, a 35 percent excise tax on insurance companies for "high-cost plans" -- defined as those above $8,000 for individuals and $21,000 for family plans.

Health economists believe a tax on high-priced benefits could help slow the growth of health costs by making consumers more sensitive to prices.

The tax contemplated by Baucus is also a big revenue raiser. It is expected to raise $200 billion, money that Baucus is hoping to use to pay for subsidies for the uninsured.

Given how much money this kind of tax can raise, Rockefeller says he understands why it is "tempting."

March on US Capitol to Protest Spending

Over the weekend, thousands of Americans marched to the U.S. Capitol to protest the Federal government’s heath care plan, and “out-of-control” spending habits. According to the Associated Press, “the line of protesters spread across Pennsylvania Avenue for blocks, all the way to the capitol, according to the D.C. Homeland Security and Emergency Management Agency.”

People were chanting "enough, enough" and "We the People." Others yelled "You lie, you lie!" and "Pelosi has to go," referring to California congresswoman Nancy Pelosi.

Demonstrators waved U.S. flags and held signs reading "Go Green Recycle Congress" and "I'm Not Your ATM." Men wore colonial costumes as they listened to speakers who warned of "judgment day" - Election Day 2010.

Richard Brigle, 57, a Vietnam War veteran and former Teamster, came from Paw Paw, Mich. He said health care needs to be reformed - but not according to President Barack Obama's plan.

"My grandkids are going to be paying for this. It's going to cost too much money that we don't have," he said while marching, bracing himself with a wooden cane as he walked.

FreedomWorks Foundation, a conservative organization led by former House Majority Leader Dick Armey, organized several groups from across the country for what they billed as a "March on Washington."