Given President Obama’s penchant for blaming all of the nation’s misfortune on former President George W. Bush, we couldn’t help but note the irony of Obama’s signature “Affordable Care Act” (Obamacare) being pulled from the River Styx by none other than Bush appointee, Chief Justice John Roberts. Roberts was on perfectly sound ground in calling Obama’s stealth tax a tax, and, therefore, within the constitutional authority of Congress, notwithstanding all of the President’s very clumsy verbal gymnastics to camouflage this enormous tax on the middle-class as a penalty or a banana or anything but a tax.
We were not happy with the Supreme’s ruling because it, in effect, required the court to reconstruct the Administration’s own insistence that it had the authority to impose a penalty on those who opted not to buy medical insurance. We recognize that (when things were going badly in court), Obama’s Solicitor General, with a wink and a nod, made a parenthetical case that the court could hang its hat on Congress’ taxing authority. Roberts, for reasons about which talking heads will speculate for years to come, took (or welcomed) the bait, opining that “…the Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax (and) because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.” Roberts was, of course, silent on “the wisdom or fairness” of his decision to reasonably characterize Obama’s penalty that way. He, in effect, placed a limit on the government’s ability to overreach under the Commerce Clause, and, simultaneously, gave the government a green light to overreach through its taxing authority.
So now that the debate is over and George Stephanopoulos has been declared the winner of his debate with the President over whether or not the Obamacare banana provision was really a tax masquerading as a penalty, let’s take a closer look at what is one of the largest tax increases in American history. First, let’s deal with individuals or families who, for whatever reason, choose not to purchase health insurance. By 2016 (but phasing in beginning next year) such individuals will be taxed either $1,360 a year or 2.5% of adjusted gross income, whichever is higher, and such families will be taxed $2,085 or 2.5% of adjusted gross income.
Next, we have a poorly hidden tax that will hit many middle-income families every time they open (or restock) their medicine cabinet. Up until Obamacare, IRS allowed families to be reimbursed for a wide range of doctor-recommended, over-the-counter medications from their Flexible Spending Accounts (FSA’s). Not any more (except for insulin).
Now comes what will be another particularly brutal tax on many middle-income families. At the present time there is no limit on the pre-tax dollars a family can place in FSA’s for healthcare expenses. Beginning next year, however, Obamacare imposes a $2500 per year limit on what may be deposited into these accounts. This will be particularly onerous to families with children who require special needs education, which FSA funds do cover. The problem is that tuition for special needs children can run in excess of $14,000 a year.
Another often-overlooked grab by the government under Obamacare is the increase in the Medical Itemized Deduction threshold from 7.5% to 10%. As an example, a family earning $80,000 with medical expenses of $8,000 could, in the past, deduct $2,000 from their federal income tax (7.5% X $80,000 = $6,000. Thus, $8,000 – $6,000 = $2,000). Obamacare wipes out that deduction. According to the Kaiser Family Foundation the average annual cost of family health insurance before the 2012 increases in premiums was $15,073. According to ehealthinsurance.com the average deductible for individuals last year was $2935 and for families $3879. With or without insurance, the increased threshold for medical deductions will be very costly for many middle-income families.
Then there’s the doubling of the tax on early withdrawals from Health Savings Accounts (HSA’s) from 10% to 20% beginning next year.
And, of course, there’s the whopper of a new excise tax on individuals who have expensive, comprehensive, high-quality, employer-paid health insurance plans. The government will impose, in five years, a 40% clunker of a tax on taxpayers who are insured under these so-called Cadillac plans. These plans are particularly common in employer-paid union plans, which is why Obamacare provides a five-year delay before imposing this particular tax.
The so-called Employer Mandate Tax which goes into effect in a year will have, we believe, serious unintended consequences as it imposes an annual, non-deductible tax on employers with more than 50 employees who do not provide health insurance for their workers. While some of these small businesses may opt to provide some level of insurance to escape the new tax, many will simply pay the tax and avoid the cost of providing insurance. Many other small businesses, it is reasonably feared will, when practical, either let people go to get under the 50-person threshold or refuse to hire more than 50 employees. This, we believe, may prove to be a dubious policy for a country desperate to create jobs.
Then there’s a new hidden or indirect 2.3% excise tax on all medical devices retailing for over $100 (think mobility assistance devices, personal testing supplies, etc.) that covers a whole host of materials and implements that millions of people need and use every day. This tax will be buried in the cost of every medical implement and device people buy throughout the country. Of course those who need these devices might be able to avoid the hidden tax by buying foreign-made and sold products and supplies. Then again, given that the medical device industry in the United States operates over 6,000 plants and employs over 360,000 people, that might have unintended consequences we might soon come to regret.
Perhaps the most absurd taxes Obamacare imposes are the new taxes on those he deems to be wealthy, and who he feels “are not paying their fair share,” (paying 90% of the income taxes not being enough). These taxes are part of his reelection class-warfare strategy that hammers, in the name of healthcare, those who have invested in the growth of the American economy. First, there’s the surtax of 0.9% on wages in excess of $200,000 ($250,000 for families) and an additional surtax of 3.8% on any so-called unearned income (investment income) for these same households. These increased taxes are in addition to the tax rate increases that will kick in when (and if) the Bush tax cuts expire on December 31st, and, of course, in addition to the tax rates Obama proposed in his 2013 budget submission. The combination of these tax increases will raise the capital gains tax from 15% to 23.8%, and will raise taxes on dividends from 15% to nearly 45% for the same households. Aside from the well-documented historical decline in capital gains transactions and the corresponding decline in tax revenue that results from higher capital-gain tax rates, and the impact these new taxes will have on retired citizens who depend on dividends (income that has already been taxed once at the corporate level), these provisions will draw income from the private economy at the very time the economy desperately needs investment.
Obama’s other bitter pill, also known as “Other Investment Income earned by Subchapter S Corporations” (which includes about 5 million small businesses), will raise Sub-Chapter S tax rates from 35% to 43.4%. This added cost to small business, which many business analysts feel may result in layoffs and less hiring, is testament to Obama’s tone deafness on the nation’s paramount need for economic growth.
And speaking of tone deafness, Administration Press Secretary Jay Carney, apparently dismissive of the Supreme Court’s decision upholding Obamacare because the mandate is, in fact, a tax, lectured to the White House Press Corps as we went to press, that the Supreme Court had it all wrong. “It’s a penalty because you have a choice. You don’t have a choice to pay your taxes, right? You have a choice to buy — if you can afford health insurance.” Good grief!