(CNSNews.com) – Seven provisions in the Senate Democrats’ health bill would break President Obama’s promise not to raise taxes on any American making less than $250,000 a year, says Americans for Tax Reform (ATR), a fiscally conservative group.
Ryan Ellis, ATR’s tax policy director, told CNSNews.com that the Senate bill – which has no Republican support -- would break the president’s pledge by creating new some new taxes and raising some old ones.
“I can make a firm pledge,” Obama said on February 4, 2009. “Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”
But there are seven provisions in the bill that violate that $250,000 pledge,” Ellis said. “The first one is the individual mandate tax. This says that if you do not have qualifying health insurance, you have to pay an income surtax on your [IRS Form] 1040 equal to the dollar amounts [specified in the bill].
“That doesn’t exempt people making less than $250,000 dollars [per year] at all,” Ellis said.
The second new tax, on employers who do not offer government-approved health insurance, also would affect individuals because many small business owners file their taxes as private citizens, not as corporations.
“If you’re a small business, you don’t usually pay taxes on a separate tax form. The profits flow through the owner’s [IRS Form 1040]. If that small business is not incorporated – as most of them are not – you could find yourself having to pay these taxes for not providing health insurance to your employees while being a business owner who makes well under $250,000 a year.”
Three other provisions would break Obama’s pledge by limiting how much money Americans can contribute to their Health Savings Accounts (HSA), Flexible Spending Accounts (FSA), and Health Reimbursement Accounts (HRA). Limiting the tax-free contributions to these accounts is effectively a tax increase because it means that more of a person’s income gets taxed, Ellis said.
Under the Senate plan, if a person wants to take their money out of a HSA and spend it on non-health related expenses – paying a mortgage, for instance – they would have to pay taxes on that money at 20 percent, double the previous rate. Congress expects to raise $1.3 billion in additional tax revenues from this new tax.
Under the Senate bill, contributions to a person’s FSA will be capped at $2,500 a year. Right now, there are no limits. Congress expects to collect $14.6 billion in new taxes through the new FSA cap.
Also under the Senate bill, people will no longer be allowed to buy non-prescription medication, except for insulin, with money they have put in either an FSA, HSA, or HRA. Currently, money from those accounts can be used to purchase any medication. Congress expects to collect $5 billion in new tax revenue from this “medicine cabinet tax,” Ellis said.
“If you put money into any of these accounts, you are doing so on a pre-tax basis,” Ellis explained. “And when you limit the way that the account can be used, when you say, ‘Okay, money that’s gone in there on a pre-tax basis can’t be used for that purpose anymore’ -- then you’re limiting the pre-tax use of these accounts going forward.
“You’re basically saying a tax deduction – namely the amount you put into these accounts – a tax deduction is going to be limited. You’ve just taken away a tax deduction from that person.”
According to America’s Health Insurance Plans (AHIP) – a national association of health insurers – there are 8-10 million Americans with HSA accounts and 20-30 million with FSAs, plus their dependants (spouses and children) who also benefit from the pre-tax dollars in those accounts.
Another controversial tax that would break Obama’s pledge is a proposal to raise the threshold for deducting costly medical expenses. This tax provision, used by cancer patients and others with costly, chronic diseases, allows a person to deduct medical expenses if those expenses total more than 7.5 percent of their taxable income.
If passed, the Senate health care bill would raise this limit to 10 percent, forcing a portion of the 10.5 million American families to pay for their entire treatment costs as well as higher taxes, due to their inability to deduct their expenses.
The final tax provision that would fall on people making less than $250,000 a year is a new, 10-percent surtax on indoor tanning services. This tax, like the individual mandate penalty, does not exempt people making less than $250,000 a year and would therefore hit anyone who patronizes and indoor tanning facility, regardless of their income.