Washington residents to see ObamaCare Taxes Now, Services Later
Paul Guppy, Vice President for Research, April, 2010
This op-ed first appeared in Spokane's daily newspaper, the Spokesman Review, on Sunday, March 28, 2010. WPC now has a regular column in the Spokesman Review that will appear in the last weekend of each month
ObamaCare sweeps away a host of state regulations and permanently alters our state’s insurance market. From now on, the federal government will manage the health care of all Washingtonians. The 2,700-page law contains a complex web of mandates, directives, price controls, tax increases and subsidies.
Federal officials will now decide what kind of insurance people in Washington must have, what medicines will be covered, what treatments are allowed and which are not. Early reports indicate, however, that President Obama, Vice-President Biden, the cabinet, senior members of Congress and leadership staff are exempt.
The new law falls well short of universal coverage. ObamaCare will leave about 6% of Washington residents without coverage. The measure is conservatively expected to cost $2.4 trillion in its first full decade. Thousands of older Washingtonians will lose their Medicare Advantage coverage, and the state’s 120,000 Health Savings Account holders may need to buy new policies or face stiff penalties.
Washington residents will begin paying ObamaCare taxes this year, while most benefits don’t start until 2014. The law includes some 19 new taxes - here’s a rundown of what Washingtonians can expect in the coming years.
Penalties on individuals. Individuals will pay a yearly penalty of $695, or up to 2.5% of their annual income, if they cannot show they have purchased a government-approved health policy.
Penalties on families. Families will pay a yearly penalty of $347 per child, up to $2,250 per family, if parents cannot show they have purchased a government-approved policy.
Penalties on employers. Business owners with more than 50 employees must buy government-acceptable health coverage, or pay a yearly penalty of $2,000 per employee if at least one employee receives a tax credit.
Tax on investment income. ObamaCare imposes a 3.8% annual tax on investment income of individuals making $200,000 or more and on families making $250,000 or more. The new tax is not indexed to inflation, so more people will fall under it each year. Seniors on fixed incomes and people with IRAs and 401(k) plans will be hit particularly hard.
Tax on “Cadillac” health plans. Starting in 2018, imposes a 40% annual tax on health care plans valued at $10,200 for individuals and $27,500 for families.
Medicare tax increase. Requires single people earning $200,000 or more and couples earning $250,000 or more to pay an additional 0.9% in Medicare taxes.
Tax on Home Sales. Imposes a 3.8% tax on home sales and other real estate transactions. Middle-income people must pay the full tax even if they are “rich” for only one day – the day they sell their house and buy a new one, if the profits push their adjusted gross income above the yearly limits.
Tax on medical aid devices. Creates a new 2.9% tax on medical aid devices. Certain items intended for personal use are exempt.
Tax on tanning. Imposes a 10% tax on services at tanning salons. Business owners will collect the tax from customers and send it to the federal government. This appears to be the first federal sales tax in the United States.
ObamaCare will be enforced by the IRS. The tax agency plans to hire 16,500 new auditors, agents and investigators, and to increase enforcement audits. The IRS can confiscate tax refunds, place liens on property and seek jail time if health-related penalties and taxes are not paid.
President Obama had said people could keep their coverage if they want, yet the Congressional Budget Office estimates that under ObamaCare eight to nine million people will lose their employer-provided coverage.
The ObamaCare law passed over bi-partisan opposition in Congress. Republicans say they will run on a “repeal and replace” platform this fall, and Washington has joined 12 other states in a lawsuit challenging the federal government’s power to force state residents to buy a product – insurance – from private companies. The long-term prospects of ObamaCare are unclear. In the meantime, Washingtonians should prepare for major changes in their tax burden.
Correction: The phrase “tax on homes sales” in this column refers to the health care law’s new 3.8% Medicare tax on unearned income; it applies to the profits from a real estate sale, not the total selling price. It is located in Section 1411, “Imposition of Tax,” in H.R. 4872, Health Care and Education Reconciliation Act of 2010. The tax applies to individuals with adjusted gross incomes (AGI) of $200,000 or more and to families with adjusted gross incomes of $250,000 or more. The existing $500,000 capital gains exemption for selling a primary residence, but not rental, investment or vacation properties, applies. The tax is scheduled to begin on January 1, 2013.