ATR rates Obama's draft healthcare plan

Many of the Tax Hikes Fall on Families Making Less Than $250,000

Today, the White House released President Obama's draft healthcare plan. Below is a comprehensive analysis of all the tax provisions.  Where possible, scores have been assigned based on earlier versions of the legislation passed by the Senate, the President's budget, and (in the case of applying the Medicare tax to unearned income) ATR staff estimates based on IRS data (all scores are 10-year estimates):

*** Overall proposal is a net tax hike of $629 billion over 10 years ***

Title I (Net tax hike of $85 billion)

• Same individual credit as Senate bill (-$102 billion)
• Same small business credit as Senate bill (-$38 billion)
• Reinsurance program ($121 billion)
• Individual and employer insurance mandate penalties ($43 billion)
• Associated effects on coverage provisions ($61 billion)

Title IX (Net tax hike of $544 billion)

• Corporate 1099-MISC information reporting ($17 billion): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers
• Black liquor credit repeal ($24 billion): This is an excise tax hike which is contained in the President's budget
• Economic substance doctrine ($4 billion): This would require taxpayers to prove to the IRS that a perfectly-legal tax deduction or strategy is "economically substantial," and not simply a way to pay less in taxes
• Medicare payroll tax hike ($87 billion): Increases Medicare payroll tax rate from 2.9 percent to 3.8 percent on wages and self-employment income which exceeds $200,000 ($250,000 married)
• Apply Medicare tax to unearned income ($150 billion): Would apply this new, higher Medicare tax rate to unearned income (interest, dividends, rent, royalties, and passive investment in pass-throughs like S-corporations and partnerships--capital gains not mentioned)
• Cadillac plan excise tax ($125 billion): 40 percent excise tax on health insurance plans to the extent they exceed $27,500 in cost for family plans, and $10,200 for single plans
• Innovator medicine company tax ($22 billion): $2.3 billion annual tax on the industry imposed relative to share of sales made that year
• Medical device manufacturer tax ($19 billion): $2 billion annual tax on the industry imposed relative to shares of sales made that year.  Exempts items retailing for <$100.  Rises to $3 billion annually in 2017
• Health insurance company tax ($60 billion): $10 billion annual tax on the industry imposed relative to health insurance premiums collected that year.  Phases in gradually until 2017.  Fully-imposed on firms with $50 million in profits
• Tanning tax ($3 billion): New 10% excise tax on indoor tanning salons
• Increase HSA distribution penalty by 10 percentage points ($1 billion): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent
• $2500 FSA cap a.k.a. special needs kiddie tax ($13 billion): Imposes cap on FSAs of $2500 (now unlimited).  Indexed to inflation after 2011
• Employer-provided retiree Rx deduction repeal ($5 billion)
• Medical itemized deduction "haircut" raised from 7.5 to 10 percent of AGI ($15 billion)
• $500,000 executive compensation limit for health insurance companies ($1 billion)
• Miscellaneous tax relief (-$2 billion)

Interestingly, the draft release from the White House seemingly lacks the following tax hikes which were contained in the Senate bill:

• Employer reporting of insurance costs on W-2 (no revenue effect)
• Excise tax on charitable hospitals (no revenue effect)
• Blue Cross/Blue Shield tax hike ($400 million)
• "Medicine cabinet tax" (limiting the purchase of non-Rx, over-the-counter medicines from HSAs, FSAs, and HRAs, $5 billion)