One of the key issues the White House, House, and Senate will be negotiating behind closed doors, is how to pay for President Obama’s $2.5 trillion plan. Reconciling the differences between these two bills will remain a difficult task for legislators particularly as they rely on a different mix of revenue-generators. The following two lists include key revenue-generating mechanisms in both the House and Senate bills as reported by Tax Notes.
House-passed Affordable Health Care for America Act (H.R. 3962):
– $460.5 billion over 10 years from a 5.4 percent Surtax on individuals making more than $500,000 and families earning more than $1 million (begins 2011)
– $135 billion as part of an 8 percent tax of a firm’s payroll ($750,000 or more) and a lower rate if firm payroll is between $500,000 $749,999 (begins 2013)
– $33 billion as part of a 2.5 tax on modified adjusted gross income (AGI) for those individuals that do fail to secure “acceptable” health coverage (begins 2014)
– $20 billion from a 2.5 percent excise tax on medical devices (begins 2013)
– $17.1 billion in corporate information reporting requirements (applies to payments made after December 31, 2011)
– $13.3 billion from a cap on Flexible Spending Accounts (FSAs) at $2,500 and indexed forward to the CPI-U (begins 2011; currently there is no cap)
– $7.5 billion for the limitation of tax treaty benefits related to U.S. withholding tax imposed on deductible related-party payments
– $6 billion from a “worldwide interest allocation” repeal (begins 2011)
– $5.7 billion as a result of codifying the economic substance doctrine and imposing penalties on underpayments
– $5 billion for reforming the definition of medical expenses under FSAs, health savings accounts, Archer Medical Savings Accounts, and health reimbursement arrangements, including the exemption of over-the-counter medications prescribed by a doctor (begins 2011)
– $2.2 billion as part of an end to the Medicare Part D subsidy (begins 2013)
Senate-passed Patient Protection and Affordable Health Care Act (H.R. 3590):
– $148.9 billion as part of a 40 percent nondeductible excise tax on insurance plans of more than $8,500 for individuals and $23,000 for families and indexed to the CPI-U plus 1 percentage point (begins 2013)
– $101 billion in yearly nondeductible fees on manufacturers and importers of pharmaceuticals (begins 2010), on manufacturers and importers of medical devices (begins 2011), and health insurance providers (begins 2011)
– $86.8 billion as part of Medicare Payroll tax increase from 1.45 to 2.35 percent for individuals with wages of more than $200,000 and $250,000 for joint filers (begins 2013)
– $28 billion from employer penalties on full-time workers that receive subsidies to purchase coverage through new insurance exchanges
– $17.1 billion in corporate information reporting requirements (applies to payments made after December 31, 2011)
– $15.2 billion from an increase in the floor for deductible medical expenses from 7.5 percent of AGI to 10 percent of AGI and a “carve-out” for those older than 65
– $15 billion in tax penalties on individuals who fail to secure “qualified” health coverage (begins 2014)
– $13.3 billion from a cap on Flexible Spending Accounts (FSAs) at $2,500 and indexed forward to the CPI-U (begins 2011; currently there is no cap)
– $5.4 billion as part of an end to the Medicare Part D subsidy (begins 2011)
– $5 billion for reforming the definition of medical expenses under FSAs, health savings accounts, Archer Medical Savings Accounts, and health reimbursement arrangements, including the exemption of over-the-counter medications prescribed by a doctor (begins 2011)
The House- and Senate-passed bills clearly deviate from one another on the types of revenue-generating mechanisms included to maintain at least a “deficit-neutral” CBO score. The House bill relies punitively on both a surtax on high-income individuals as well as employers (even reaching small businesses). Alternatively, the Senate bill predominantly relies largely on a Medicare payroll tax on high-income individuals, fees on pharmaceutical medical device and health insurance providers, as well as an excise tax on high-value health insurance plans.
It is unclear, and will likely remain unclear until a final bill is passed, regarding the exact mix of revenue-generating mechanisms included to finance a final health care reform bill. What is clear, however, is that American individuals and businesses should begin bracing now for higher taxes—they are coming in one form or another!