Signing the health care law.

Heard the one about how much our taxes are going to go up with Obamacare, how it’s the “biggest tax increase in history”? It’s right up there with how there will be 16,000 new IRS agents and death panels. We have been told there will be no new IRS agents and the section that is cited as “death panels” actually was intended to allow doctors to be paid for end-of-life counseling. The taxes, however, have not been properly addressed until now….

First off, approximately 20 million people will receive tax credits starting in 2014 to help them pay for their insurance premiums. That’s the strenuously dumb part of the law. You pay for your insurance premium in 2014, and in 2015 you get to deduct the premium from your taxable income? How does that help pay for the premiums? Tax credits are great for big businesses and rich people who don’t have to worry about how to make the payments in the first place, but they are pointless for the rest of us. The Child Care Credit doesn’t help pay for day care, it just might give you a tax refund the following year, which won’t help you pay for day care because it’s one check, or it means you don’t owe more taxes, and you need to pay that day care bill every week.

If someone opts out of buying insurance, they will be assessed a penalty, but there are no provisions for collecting it, so it’s sort of moot. And employers who don’t comply can also be assessed penalties. But those things really should not be counted in the analysis of the impacts of the law because they are uncertain. For all we know, no person or company is going to be dumb enough not to comply with the law.

The actual taxes are concentrated on the top 2% of incomes in America, approximately 2.5 million households. Individuals earning more than $200,000 per year and couples earning over $250,000 will pay an additional 0.9% on earnings above those thresholds. A person would pay 1.45% up to $200,000 , and 2.35% on everything over $200,000. Investment income, the capital gains tax will increase from 15% to 18.8%. Or, if Congress continues to sit on their butts about the fiscal cliff we’re set to go over, the capital gains tax will rise from 20% to 23.8%. Very few people get hit with capital gains tax on their home sales because there are so many factors built in that reduce the profit made on a house, and capital gains is only on profit and the first $500,000 of home sale profit is exempt. The threshold for paying these taxes is not adjusted for inflation, so over time, these taxes could hit more people. But, like all our laws, this one isn’t cast in stone, and it can be corrected in the future, if it survives the next Congress that is. These tax increases take effect in 2013.

There is a 10% tax on using tanning booths and tanning beds. This tax was imposed for the same reason there are exorbitant cigarette taxes – they are taxing something that makes people sick. Just as cigarettes increase the likelihood of COPD and lung cancer, tanning beds increase the risk of skin cancer. This tax took effect in 2010, prompting Snooki of Jersey Shore to join forces with John McCain, a skin cancer victim, in opposing the tax.

There is a type of health insurance called “Cadillac” benefits. These are insurance plans with premiums in excess of $10,200 per person or $27,500 per family per year, not including dental or vision care. There will be a 40% excise tax on the amount of premium above those amounts. This will either raise $111 billion over the five years, or force companies to scale back their health insurance policies. Employer-based health insurance averages about $15,000 a year, including the portion paid by the employer, so most people won’t be effected by this. This tax goes into effect in 2018.

Health insurance companies, the folks who are going to rake it in hand over fist with this law, will be paying new fees in 2014. Companies that make or import brand name drugs were hit with new fees, and paid $2.5 billion in 2011, the first year they were in effect. In 2013, there will be new fees for companies that make medical equipment that is “sold” through physicians or hospitals, things like pacemakers, artificial joints, coronary stents. The industry is lobbying to have this part of the law overturned, saying that smaller manufacturers will have to lay off workers and reduce research, but that doesn’t seem logical. It would seem that the end user would be the one paying the higher price, not the manufacturer.

There are some complicated tax convolutions with those tax-free health savings plans, the ones where people put money in special savings accounts to pay for their medical expenses. The law limits contributions to these accounts to $2,500 a year, down from the $5,000 many employers permitted, but the average contribution is only $1,400. About 40% of employees have an opportunity to enroll in these plans. The law now does not permit using them for over the counter drugs, and the penalty for withdrawing the money for non-medical use has been raised from 10% to 20%. The contribution limit starts in 2013.

Currently, to write off medical bills on one’s taxes, one needs to spend more than 7.5% of adjusted gross income. That threshold will be raised to 10%, so a family with a gross adjusted income of $50,000 would have to spend $5,000 to start taking the deduction. Very few taxpayers hit the current threshold because of insurance. The new threshold will take effect in 2013, or 2017 for those over 65.

That’s it. Those are the taxes and fees that are supposed to pay for the subsidies for people who can’t afford to pay full price for health insurance.

The Congressional Budget Office says that repealing Obamacare will cost Americans more over time than these taxes and fees. They are looking at increases in Medicaid and Medicare funding and the manner in which those of us who have health insurance pay for those who don’t. Health care providers do not just absorb unpaid bills. They add their unpaid accounts receivable to what they charge for their services, meaning that those of us who have insurance get hit with higher bills. Those who have co-pays figured in percentages will pay those increased costs out of pocket. We will all pay in higher premiums.

America waited too long to address this problem of providing health care to all citizens. We should have done it when other countries did, after World War II. Now, we have an insurance industry that is worth billions of dollars and tens of thousands of employees and cannot just pull the rug out from under it. But the fact remains that Americans pay twice as much for health care as the next most expensive nation, and are ranked 37^th in health care delivery. In sticking with the private insurance system, we ended up with for-profit health care. Every layer of our health care delivery adds a little bit to the cost to make a profit, and one little bit at a time, it doubles the cost. When the Clintons tried to reform health care, it was claimed that most Americans wanted the same kind of health insurance system that the Federal employees have. Feds use an insurance exchange to choose their insurance provider and plans, and the government collects the premiums from the employees and distributes them to the insurance companies. The insurance exchanges in the ACA will provide half of that system, allowing people to choose the type of insurance they want and the premiums they are willing to pay. It’s not a perfect fix for what is wrong with our health care system, but it’s the best we can hope for at this time.

And that “biggest tax increase in history” thing?  I’ve lost track of how many times I’ve heard that accusation laid against a Democratic president, but the fact is the biggest increase in American history was done by Woodrow Wilson when our income tax rate rose 60% to pay for World War I.

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