Healthcare Is a Tax Plague
Like many of you, the passage of the healthcare bill wasn’t met with the popping of champagne in my house. I found myself chanting “Uncle Sam, Uncle Sham” as the day wore on. Higher taxes and other major changes are headed our way. And yet, I think there’s something in the bill that’s even more dastardly.
If you’re a supporter of the bill, you’d point to its benefits: Poor adults will get Medicaid. Low-income families will get federal subsidies to buy insurance. Small businesses may get tax credits. Kids will be able to stay on the parents’ policy until they turn 26. Seniors get additional prescription drug coverage. People with pre-existing medical conditions can’t be denied or dropped.
While no one is really against any of those things, the elephant in the room (or boa constrictor in the bed) is how those things are going to be paid for. Here’s how: the “wealthy” will pay higher taxes; businesses with 50 or more employees will have to insure them or pay a penalty; individuals will have to pay a fine if they don’t buy insurance; premiums will rise for many who already have insurance; and seniors with Medicare Advantage policies could lose those plans or pay more to keep them.
Regardless of how you feel about the bill, the fact is that taxes are going up, and not necessarily just on the “wealthy.” The healthcare plan will cost $940 billion over the next decade, almost $100 billion a year.
I haven’t read the 2,407-page bill (almost twice as long as the Gutenberg Bible), but there are plenty now who have. Here’s a summary I compiled, from various sources, that outlines the tax ramifications of what is now the law of the land.
Assuming the Senate passes the package of changes, the biggest tax increases will be in Medicare payroll taxes. Those take two forms, both starting in 2013:
- Singles earning more than $200,000 and couples earning $250,000 will pay 0.9% more on wages and self-employment income.
- All investment earnings will be taxed an additional 3.8%. This includes capital gains, dividends, and interest, the first time in history the Medicare tax is applied to them.
But keep in mind that the Bush tax cuts expire at the end of this year, which will push the Medicare tax on capital gains to 23.8% in 2013 on these earners. Dividends, currently taxed at the top rate of 15%, will be taxed as ordinary income, with the top rate scheduled to rise to 39.6% (from 35%).
This means that the tax on dividends could go as high as 43.4% when the new Medicare tax goes into effect in 2013. (Obama has proposed a top dividend tax rate of 20%, so if Congress enacts his proposal, the top tax rate for dividends would “only” rise to the 23.8% level in 2013.)
You may think you’ll escape this tax if you’re not “rich.” But it’s those darn Unintended Consequences politicians never seem to think about that could still sting you. For example, the 3.8% Medicare surtax could snag you if you happen to sell some real estate for a big gain.
The other major tax increase is the one imposed on health insurance plans that are more generous, the so-called “Cadillac” health plans. And this tax increase doesn’t just apply to high-income earners; those state and union workers that lobbied for better health coverage instead of big pay increases are going to find they’re included with the “rich” in a new excise tax. Starting in 2018, family insurance plans valued at more than $27,500 ($10,200 for individuals) would pay a 40% tax above that level.
Ouch.
And there’s other ways you’ll be taxed, particularly through the magic of “passing it on to the consumer.”
For example, pharmaceutical manufacturers will pay an annual fee based on their market share starting in 2011; same for health insurers, starting in 2014. A 2.3% excise tax on the sale of medical devices will start in 2013. A 10% excise tax on indoor tanning services goes into effect this July.
How will all these businesses afford the additional tax? They won’t. You’ll pay it, through higher prices.
Further, were you one of those who incurred medical expenses above 7.5% of your income, thus allowing you to deduct them? That ceiling will be 10% starting in 2013. (It remains 7.5% for those over 65.)
There’s more, most of it in the form of greater restrictions, increased penalties, and higher fines on various entities, businesses, health plans, or individuals. But what I especially cringed at was this: the bill vastly expands the responsibilities of, and gives greater strength to, the IRS. The agency will hire as many as 16,500 additional auditors, agents, and other employees just to enforce all the new taxes and penalties.
Specifically, the bill will empower the IRS to do the following: verify citizens have “acceptable” health care coverage; impose fines up to $2,085 or 2% of income (whichever is greater) for failure to purchase “minimum essential coverage”; confiscate tax refunds; and increase audits.
The upshot is that this will force many taxpayers to be more conscientious of monitoring their income and tax withholding.
Perhaps most damaging to the government’s plans is if the bill leads some to ask the Ayn Rand/Atlas Shrugged questions: What if I just stop being productive? What if I stop working once my income approaches the threshold? What if I invest less so that I stay under the limits? [Your editor has already started asking these very questions and wonders why anyone with the means doesn’t prepare a potentially permanent residence outside of the U.S.—ed.]
And last, here’s the time bomb that could trump the tax concerns: none of these taxes are indexed to inflation. Since the bill fails to index to inflation the exemption threshold for the Medicare taxes on both earned and unearned income, it’s almost certain many taxpayers will get to these tax levels a whole lot quicker than they think.
What this essentially means is there is now more incentive on the part of the government that we have inflation. If inflation reaches 10% at some point, which is below the 14%+ rate it hit in 1980 and far below any hyperinflationary level that’s possible, the $100,000 earner gets to the magical $200,000 level in seven-and-a-half years. From the government’s perspective, it makes the printing of money a lucrative affair.
Regards,
Jeff Clark, Casey’s Gold & Resource Report
for Whiskey & Gunpowder
March 25, 2010
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I think we need to start Galts Gulch soon or we will all be tax slaves for life in a failing goverment as in Atlas Shrugged. Dont you hate it when fiction becomes fact?
I am a 42 year old single man with no children. I have been doing construction work since I was 15, specifically carpentry. When I earn $1000 in a week, I usually have around $400 stolen from me. I rarely get health insurance and don’t use it other than for chiropractic which usually isn’t covered anyway so I pay cash and keep a catastropy policy. The government / fed reserve housing bubble has totally destroyed my abliity to earn a living in my chosen trade that I actually enjoy doing. I used to enjoy working 50-60 hours a week, with no overtime and no real benefits but I could always earn a decent ammount of money to easily support myself with a small condo and decent pick-up truck and a gym membership at my local YMCA. At this point I see no real reason to kill myself working any longer. I live in Taxachusetts but used to be able to survive by earning a decent wage. No longer. I am not working anymore to pay half of what I make to have it pissed away paying for other peoples problems. I used to be a productive member of society but I am totally overwhelmed at this point. I have a small piece of property in Vermont with a small cabin. I sold my condo and barely made a profit after paying for it for over ten years and making some decent improvements in my spare time. I cashed in $115,000 retirement account and got just over $70,000. I bought $50,000 in digital gold and bought some commodity shares. I closed my bank accounts, stocked my cabin to the hilt and kept what I had left in cash. I am heading for the woods and hope to be able to live on the cheap for a long time by living on free healthcare and food stamps. I can not in my right mind reason to myself to keep working and killing myself to support other people so I am joining the ranks tax leaches. I am highly skilled and hope to be able to work on the cheap for cash only or in trade. Fuck It, I quit, I ain’t workin here no more. James
Unfortunately, we choose to live in a society, so anarchy is not a viable option and taxes are inevitable. The Health Care reform cost that you are speculating on is still less than the Iraq war. We like to complain and blame instead of focusing on getting things done. I’d like to know how much we spend as a country on fighting against things instead of making progress. How can any civilized person not have compassion for those who cannot afford health insurance or those who are denied for pre-existing conditions? Shouldn’t we focus our energy on helping those less fortunate? Isn’t that a basic foundation of the United States? Isn’t that a basic foundation of the major religions that are represented in the US? Let’s not be hypocrites and think just of ourselves.
Dear James M: Your language makes me blink, but your passion and good sense have my admiration. I “quit” long ago, but it never occurred to me to go see if I could benefit from government largesse myself. “Good on you,” as the Aussies say. I hope you have stocked my idea of the amenities…a lot of books (fiction and practical), a dog, a few chickens, and a dairy goat. Enjoy your “protest retirement,” and use the leisure to master new skills and broaden your interests. You’ve earned it. Vermont has a secessionist movement that might interest you. Make all of this an adventure! Plant a garden, learn how maple syrup is made, have a try at making cheese…I envy you what can be a grand and fulfilling adventure. Ah, to be 42 again instead of almost 70! Cordial regards, Linda
TN James, dear: You find the gulch, and I’ll go, too. Now, if only we can see the same end as Atlas Shrugged, or some of my favorite fiction…
Dear James M: I wrote “Hurrah for you!” but the Spam Filter ate it. Have a great “retirement.” You earned it.
Linda, I’ve been thinking about this for a couple of day. I was reminded of another recent article about starving the tax beast. As a variation on that theme I looked up Open Secrets.org
http://www.opensecrets.org/orgs/list.php?type=L
Perhaps the TEA party folks should organize a boycott of all the corporate donors on this list. For the last 20 years they have poured money mostly at the Dems. The interests of the insurance industry (preserving their anti-trust exception) and big media, big pharma and big medicine were all protected in this mess. An economic blockade of these monopolists would at least give the TEA party folks something to do between now and Nov 2. I know probably just symbolic. I’ll keep collecting my silver bullion coins while I still can.
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Walt, what a great idea. I remember, long ago, when we did things like that. Keep the same thought in mind when they start discussing the Food “Safety” Act, which is for the safety of Con Agra, Archer Daniels Midland, Monsanto, Sanderson Farms, Oak Farms, and so on. The issue is being presented as “We haven’t upgraded the standards since the days of Teddy Roosevelt” (not true), and the goal is to make it illegal to produce our own food, from gardening with heirloom seeds (Monsanto only), to making it a crime to sell or transport raw milk, to not being able to pluck a chicken for dinner or eat fish you catch. The NAIS ploy won’t track “tainted” meat (contamination happens in factories, not on farms), but WILL allow the government to know where all the food is at any given time. This disturbs me, to put it mildly.
Linda, you will be the first person i call if i find a real Galts Gulch. And i think our country may end as in Atlas Shrugged or maybe even worse. Or the people of our country will wake up and turn it around. Maybe the future is unwritten. Take care and i’ll see you on the WG.
Dear W & G Friends,
There is a potent, unbreakable strength and superior spirit of like minded, unified humans.
Born and raised on a farm, with a univeristy degree in hard science, I can do almost any thing, repair and fix almost any kind of powered equipment, plant, harvest, nurture any Thing that grows and sustains life. After felling and sectioning into 16″ logs, 24″ oak trees, I can split them by hand with a Fiskar ergonomic axe faster than anyone else can using a gas powered log splitter. At 63, I can still outwork a man in his mid forties.
History proves the following TRUTH:
WHEN… those chosen (elected) to protect and keep secure by Sacred Oath, the Liberty and property of constituents who plant, grow, harvest, mill and bake their bread, exhibit the attitude of “You grow the bread and WE WILL EAT IT!”,
THEN…it is TIME for those who grow the bread to produce only enough for themselves.
History instructs us that The Cycle of All Things great and small in the Universe, Nature or Man Made, can never be reversed. All governments proceed inexorably forward upon the following course of The Grand Cycle: Birth, Growth, Decline and Death.
Earth is a graveyard for governments.
Even as these thoughts flow from my heart and mind onto this electronic “paper”, those who legislate in “Disney Land on the Potomic” continue to dig their own grave of destruction via consumption without production. With a public debt beyond the possibility of payment by any number of future generations, they have arrived at the depth of six feet.
At this point in history, I envision only two choices for all who make bread possible:
1. Attempt to confront and reverse the all powerful Grand Cycle by surgical, forceful removal of the “cancer” consuming the Life, Liberties and bread of the People.
OR
2. Starve the “cancer” to death.
History favors No. 2 as the most peaceable means to compel those who now only eat bread, to start stooping to plant and grow their own.
Rather than confrontation, my farm instincts compel me to counsel those of us who KNOW….to once again band together in that “…potent, unbreakable strength and superior Spirit of like minded, unified humans.”,
for the most Noble Objective of protecting the Life and Liberty of each other, and for the growing of the Staff of Life for ourselves only, as we did once before, less than two and one half centuries ago.
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A brilliant example of why I consider David one of my friends…and why he and TN James would be welcome additions to my Gully (that’s a gulch in Texas, formed by erosion) if they could get here. Hugs, guys.
Many people will trying to avoid taxes by just giving the lower income cirtificate to the authority.
Great share. It is sad but I agree with the comment above from Log Splitter .
Also @ David Franklin thanks for sharing your thoughts. It is true…
Amazing article and specification. I never thought of that..