Tax, Spending, and Health Care Reform
- Published: 09/30/2011
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There has been much debate recently about increasing taxes to help balance the budget. The debate centers on the fact that even though annual federal, state and local tax revenues have increased by 18% over the last decade, this increase has only offset a mere quarter of the same period’s 71% rise in government spending.
Taxes are certainly a topic for serious discussion. When government spending exceeds tax revenues, the difference must be borrowed – borrowing a free society can only repay through additional taxes generated by an expansion of private enterprise and/or the contraction of the government itself. Regardless of the fiscal path ultimately chosen, tax-debaters should keep two facts in mind as they seek a solution: 1) tax revenues must increase by at least 50% simply to match current government spending, and 2) tax revenues must increase by substantially more than 50% BEFORE the U.S. can begin to repay the $14.8 Trillion (over $47,000 for each man, woman, and child in the US) it has borrowed so far.
Those who desire higher taxes, however, needn’t fret for long – they’re on the way! Health Care Reform (via The Patient Protection and Affordable Care Act of 2010) will raise $450 billion in new tax revenues, partially offsetting its estimated $900 billion cost. In this article I’ll help you prepare for the future by briefly reviewing tax changes scheduled to occur through 2013.
- $50,000 tax on nonprofit hospitals who fail to conduct financial needs analysis and create financial assistance policies for those in need.
- A 10% tax on indoor tanning services provided after June 30th 2010.
- Owners of Health Savings (HSA), Medical Savings (MSA), Flexible Spending, and Health Reimbursement Accounts can no longer use them to buy over-the-counter medications without paying income tax and additional penalties.
- Penalty for distributions from an HSA or MSA that are not used for qualified medical expenses increased from 10% to 20%.
- A $2.5 billion tax will be divided among manufacturers of “branded” prescription drugs based on market share. The tax increases to $4.1 billion by 2019, then decreases to $2.8 for following years.
- Medical expense itemized deduction threshold will increase from 7.5% of Adjusted Gross Income (AGI) to 10% of AGI. For those 65 years or older the percent will remain 7.5% until 2017.
- The annual contribution to Flexible Spending Accounts for medical expenses will be limited to $2,500.
- A 2.3% tax on medical devices used by physicians or implanted in patients (from tongue depressors, to bedpans, to replacement knees). Tax is paid by manufacturers and does not apply to items purchased directly by the general public such as eyeglasses, hearing aids, or devices.
- A 0.9% Medicare surtax on individuals earning wages of over $200,000 per year and couples with combined wages exceeding $250,000 per year. Tax will be calculated on the taxpayer’s personal income tax return.
- Employers will lose the deduction for the subsidy given to who provide retiree’s with drug benefits that equal those of Medicare Part D.
- A 3.8% Medicare surtax on those with net investment income over certain amounts. For individuals, the tax will be imposed on “investment income” that causes their income to exceed $200,000 or $250,000 for those married filing jointly. Investment income includes interest, rents, annuity income, capital gains, dividends, and royalties. Although the tax may not impact the sale of most primary residences, it may affect those selling second homes, rental, and investment properties.
This article has discussed some of the tax changes brought about by health care reform through 2013. Those not directly impacted by the taxes themselves will probably experience them in the form of higher prices. I did not discuss the complex employer tax rules that will go into effect in 2014. If you need assistance with a particular tax issue or have a tax question you would like addressed personally or in this column, please feel free to contact our office to consult with a tax professional.