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The Health Care Bill's Tax Increases

August 28, 2009 - by Donny Shaw

I’ve been focusing on this blog a lot on the misinformation about the health care bill that’s been mucking up a rational, informed debate. A couple weeks ago, I posted about some of the most common lies that are being spread about the bill and cited the actual legislative text to back up my analysis.

Today, I’m taking a look at some elements of the bill that most conservatives probably won’t like: tax increases. Like I did with the post debunking lies about the bill, I’m providing links directly to the actual legislative text where the tax increases are spelled out in the bill. At OpenCongress, we have the official text of the House health care bill online for anyone to read and get the facts: H.R. 3200 – America’s Affordable Health Choices Act of 2009. Anyone can easily permalink and comment on any individual section of the full bill text.

The three tax increases described below are important parts of the bill’s larger mechanisms for covering the 40 million or so Americans that are currently uninsured. We welcome your feedback in the comments and encourage you to share this information with anyone who is looking for a fact-based analysis of these provisions. The more we all get to know the facts about H.R. 3200, the better we’ll be as a nation at having a healthy debate about reforming health care.

Tax #1: Individuals Without Acceptable Health Care Coverage

Under the House health care bill, all Americans would be required to get health insurance. For people that are currently uninsured, that would mean getting insurance with the help of new government-provided affordability credits, if eligible, buying it without government assistance, or paying a new tax.

Read the provision taxing individuals without insurance in the official bill text >>

Here’s the specifics on how this would work. First off, for people who don’t get insurance through their job and aren’t eligible for Medicare or Medicaid, the government would subsidize, on a sliding scale, the cost of buying insurance. The subsidies will be most generous for people with annual incomes around the new cut-off for Medicaid – $14,400 – and will be entirely phased out for people making $43,320 or more.

People who don’t get insurance will be charged a tax based on the lesser amount of (a) the national average cost of a basic healthcare plan, or (b) two percent of their adjusted gross income. If a person is uninsured for only part of the year, the tax penalty will be based on a ratio of the above rate proportional to the number of months they were uninsured. The only way out of the individual requirement to buy health insurance would be with a religious exemption. The bill uses language based on an existing “religious conscience” exemption to laws relating to Social Security and Medicare. The language was originally designed to apply to older Amish and Mennonite groups, and it’s unclear whether other groups, like Christian Scientists, will be eligible for the exemption.

Former Bush Administration economist Keith Hennesey thinks that if this provision were to become law, it would be a violation of President Obama’s campaign pledge to not raise taxes on people who make less than $250,000. He explains that for middle-income people it would be cheaper to pay the tax than to buy an insurance plan, so some people with tight finance might opt, rationally, for the tax. Hennesey says that, according to the Congressional Budget Office, this conundrum would be faced by about 8 million people. It should be mentioned that the House health care bill with this tax provision is not a plan of Obama’s. It has been created ground-up by Congress. If he signs it into law, it becomes his. But until then, this doesn’t constitute a violation of the campaign pledge any more than any other bill in Congress that proposes a tax increase.

Tax #2: Employers Who Choose Not to Provide Health Insurance for Their Employees

All but the smallest businesses would be required to provide health insurance for their employees or be subject to a payroll tax equal to 8 percent of total wages.

Read the provision taxing businesses that don’t provide insurance in the official bill text >>

Businesses with annual payrolls less than $250,000 would not have to pay the tax if they choose not to provide insurance for their employees. Businesses with payrolls between $250,000 and $400,000 that don’t provide insurance would be subject to the tax at the following rates: two percent if their payroll is less than $300,000; four percent if it’s between $300,000 and $350,000; and six percent if it’s between $350,000 and $400,000. All businesses with payrolls above $400,000 that don’t provide insurance for their employees would have to pay the full eight percent rate.

Businesses could still decide to provide insurance for some employees – for example, in a specific department – and not for others. In those cases, the tax would apply only to the payroll amount for employees that are not given insurance.

The conservative Heritage Foundation argues that the new taxes for business that don’t provide insurance would causes fewer small businesses to be started and would discourage existing ones from expanding. “The mandate increases the marginal cost of each additional worker, making it less likely that small businesses will hire new employees or give raises to existing ones in a weak economy,” they write

Tax #3: Surcharge on the Rich

The biggest revenue raising provision in the bill is a new income tax that would be levied on wealthy individuals.

Read the provision taxing wealthy individuals in the official bill text >>

In general, the bill would impose a tax at the rates of 1 percent, 1.5 percent, and 5.4 percent on the income of high-income individuals. Specifically, for joint filers, the 1 percent rate would apply to the amount of a taxpayer’s modified adjusted gross income that is between $350,000 and half a million. The 1.5 percent rate would apply to the portion of modified adjusted gross income between half a million and one million. And the 5.4 percent rate would apply to all modified adjusted gross income above one million. For married individual filers, the dollars amounts of the brackets above would be reduced by 50 percent. FOr unmarried individual filers, the dollar amounts would be reduced by 20 percent. Over ten years, the congressional Joint Committee on Taxation estimates that this provision would raise $543 billion over 10 years. Generally, this new surtax would target many of the same people that benefited most from the Bush tax cuts.

An important an overlooked detail in the bill regarding this new tax on the rich is that it gives the Office of Management and Budget the ability to double the 1 percent and 1.5 percent rates in 2013 if their estimates show that it is not producing the expected revenues.

All of the above information is based solely on H.R.3200; that is to say just one version of Congress’ various proposals to reform the healthcare system. H.R. 3200 is the only version to date that has been officially introduced and it is the one people refer to when talking about “the healthcare bill.” Other versions of the bill contain slightly different tax proposals. The House Energy and Commerce Committee version, for example, wouldn’t tax any businesses below $500,000 in payroll that don’t provide insurance for their employees. The Senate bill is expected not to include the surtax on the rich. The final bill that emerges from Congress – if one does – may look significantly different from the one containing the tax provisions above.

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  • need_to_comment 08/28/2009 9:45am

    Payroll of $440,000 = 11 employees at average of $40,000. 11 employees seems like a small company to me.
    Cost for heath insurance for a company with 11 employees considering average health insurance premiums of $13,000 and the company paying 70% = $100,100
    If the company doesn’t pay for the health insurance premiums and let’s the employees take part in the government run plan they would have to pay 8 tax.
    $440,000 X 8 = $35,200
    In today’s extremely tough economic times, what would a company choose, 100k or 35k?

  • Comm_reply
    Anonymous 09/03/2009 10:24pm

    In the event employers take the tax route because of tough economics time, the employee can rely on the fact that lower price premiums will be available (made possible by a public option) to them.

  • need_to_comment 08/28/2009 11:31am
    Link Reply
    + -1

    Donny Shaw
    I think my post again proves that it isn’t just conservatives that think this reform will lead to single payer as I proved in “What is Public Option” dated August 20. The democrat leadership has set the basic economics of taxes vs. employee purchased heath insurance to pursued, through costs, companies to push their employees to a public option. Thus, eventually, a single payer system. Do you agree?

  • Anonymous 08/28/2009 1:12pm
    I must be missing something. When did the government start determining which religions qualify for “religious exemptions”? There are some crazy beliefs out there but this is America and we don’t mix government and religion since we kicked God out.

    The small businesses are hanging on by a thread and this bill is going to put them into a difficult ethical position. They won’t be able to afford health insurance any longer.

  • Moderated Comment

  • abaratar 08/28/2009 5:30pm

    good blog donny one small error the tax rate is 2.5% not 2%

    and What does this mean
    “(f) Regulations- The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance”

    Would that mean the secretary could change the tax rate at anytime without congressional approval?

  • oderintdummetuant 08/29/2009 8:38am

    How far are we truthfully from the same violations listed in the document found at this link?
    This document preceded the Declaration of Independence and was a explanation for the rest of the world for the American revolt against the British Empire. So how far do you think we are?

  • Anonymous 09/02/2009 5:50am

    I cannot wait to be in the $500K/year and pay the tax…and much higher tax! Hard and smart work didn’t do it…yet.
    Constitution does not protect the rich and the privileged against taxes; it didn’t free the slaves nor protected the Indian tribes. Social reforms are moral and ethical when they provide value for all members of the society. Selfishness is hardly a value…not even in America.

  • Comm_reply
    Anonymous 09/06/2009 7:17am
    Link Reply
    + -1

    Your mentality is infuriating. If you want to live in a socialist country move to one. If you think that socialists are moral and ethical – LEAVE. Everyone in this country has opportunity. That’s why the masses continue to flock here. Life is not fair. Get over yourself. We all have hardship and you do with that hardship what you wish. But just because one family makes more then another does not mean they need to support you or anyone else for that matter.

  • oderintdummetuant 09/02/2009 6:29pm

    To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical-Thomas Jefferson.
    Hard and smart work got us this far. Constitution was designed to protect ALL and not delineate between socioeconomic classes. “I can only say that there is not a man living who wishes more sincerely than I do to see a plan adopted for the abolition of slavery.” George Washington
    We don’t have the same morality and to assume so is arrogant ignorance. Its is never right to do wrong in order to do right. The ethics of the situation are moot. To take from what a man has earned to give to another who has not is wrong. Its theft. If you want to pay the tax and more, feel free. I do not want to and will fight to ever have to do so. Laziness it seems, is becoming an American value, espoused by all handout seeking individuals.

  • Comm_reply
    joby325 09/10/2010 9:53am

    People without insurance are lazy? Interesting…..After reading the quotes above, one quickly rememebers that the Puritans came here for religous persecution, and the aforementioned were businessmen. George Washington, “In his will, he arranged for all of the slaves he owned to be freed after the death of his wife, Martha.”
    With taxation there is always someone paying for something they didn’t want or support. What benefits you, may not benefit me and vice versa. Simple solution, my taxes can go to health insurance, you can pay for the war. BTW, we’ll need more money from you…..

  • JoseSarasota 11/17/2009 6:49pm

    Once they are finished with the health care system, they need to do some about property tax! as a Sarasota Real Estate agent and property owner, I can tell you we are being raked over the coals.

  • online_doctor 12/28/2011 4:09am

    I think we should create and spread awareness of this online through as many channels as we can to clear up misinformation and guide the lost. Thanks for bringing clarity into my understanding of the bill!

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