Health-Care Tax Hikes Shred President’s Pledges

Published January 17, 2010

President Obama is on a collision course with his central campaign promise, a “firm pledge” not to raise “any form” of taxes on families making less than $250,000 per year.

The Senate health-care bill is loaded with 18 tax increases, seven of which break the President’s pledge. He heartily endorses the bill nonetheless.

Obama reiterated his campaign promise in his nationally televised speech to a joint session of Congress in February 2009: “If your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime.”

No Caveats
Asked afterward if the promise applied to healthcare reform, White House spokesman Robert Gibbs replied, “The statement didn’t come with caveats.”

As House Speaker Nancy Pelosi (D-CA) cloisters with Senate Majority Leader Harry Reid (D-NV) to work out the differences between the House and Senate versions of the health-care bills, the White House has largely escaped national media scrutiny of the tax implications about to befall Americans if the legislation becomes law.

Let’s take a look at the seven pledge-breaking tax hikes:

  •  Individual Mandate Excise Tax: For the first time in American history, the federal government would compel you, as a condition of merely existing, to enter into a private contract. Starting in 2014, anyone not purchasing “qualifying” health insurance—as defined by the government—would pay an excise tax of $495 to $1,485 a year.
  •  Employer Mandate Tax: Under this provision of the bill, if an employer does not offer health coverage and at least one employee qualifies for a health care tax credit, the employer must pay an additional nondeductible tax of $750 for all full-time employees. This would apply to all employers with 50 or more employees. If the employer requires a waiting period to enroll in coverage of 30 to 60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer). There is no exemption for employers making less than $250,000 per year.
  • Medicine Cabinet Tax: Americans would no longer be allowed to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pretax dollars to purchase nonprescription, over-the-counter medicines (except insulin).
  • HSA Withdrawal Tax Hike: This provision—further evidence of a desire to kill HSAs—raises the tax on nonmedical 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.
  •  FSA Cap: Thirty million American families use flexible spending accounts at present. This provision imposes a cap of $2,500 on these accounts, which are currently unlimited under federal law. Most people use their FSA for expenses such as insurance deductibles, copayments, and eyeglasses, but families with special needs children would be especially hard hit by the new cap. These families often rely on FSA dollars for special needs education, which can cost thousands of dollars per year.
  •  “Haircut” for Medical Itemized Deductions: Under current law, if you want to deduct medical expenses on your tax form you must reduce their total by 7.5 percent of your income. The Senate bill raises this “haircut” from 7.5 percent to 10 percent of your income.
  •  Tax on Indoor Tanning Services: After being rightly mocked on late night television for the “Bo-Tax” in the previous version of their bill, Senate Democrats have replaced it with a “Tanning Tax.” Those using indoor tanning salons will have to pony up a 10 percent excise tax on the price of their bronzing.

Middle Class Not Exempt
None of the above tax hikes include exemptions for those making less than $250,000 per year.

When challenged on his tax promise in a face-to-face interview last September with George Stephanopoulos, then the host of ABC-TV’s This Week, Obama denied the individual mandate excise tax was really a tax. Stephanopoulos then read aloud the dictionary definition of “tax” to Obama. The President laughed it off and accused the host of “stretching a little bit.”

Then on January 14 came word the administration and top Democrat leaders had agreed “Cadillac” health insurance plans – those costing more than $23,000 for family coverage or $8,500 for single coverage – would not be taxed until 2018 if the policyholder belongs to a union. Such plans for persons not in unions would be taxed beginning in 2013. Unions have overwhelmingly supported Obama and Democrats.

Eroding Support
With numerous polls showing most citizens oppose the healthcare overhaul and opposition continues to grow, the President broke still another promise, this one to have healthcare negotiations in public and for all to see on C-SPAN.

White House and legislative leaders walked away from the usual conference committee procedure used to reconcile differing versions of House and Senate bills. Instead of a conference televised and covered by reporters, a handful of lawmakers have met in secret to reconcile the two bills.

Americans for Tax Reform President Grover Norquist suggests the broken tax and transparency promises are linked.

“If Obama had kept his promise of having an open and transparent process, he would not now be in a position to break his promise on not raising taxes on most Americans,” said Norquist.

John Kartch ([email protected]) is director of communications at Americans for Tax Reform in Washington, DC.