Why you should care
Because Obamacare affected everyone.
First in a series of six essays on just what a Trump presidency will mean for America, by the founder and president of Americans for Tax Reform.
Among the central promises of then candidate Donald Trump’s campaign were, first, to reform and reduce federal taxation on individuals and businesses and, second, to repeal and replace Obamacare.
A “yuge” tax cut bringing corporate tax rates to 15 percent or 20 percent will be a major piece of his administration’s tax reform. But often overlooked is that merely repealing Obamacare will yield massive tax cuts of more than $1 trillion over the next decade. How so? Obamacare was paid for by 20 new taxes and tax increases borne heavily by middle-income Americans. Among them were:
1. A tax that punished anyone who refused to buy a government-designed insurance. It hit single Americans with a minimum tax of $695. A family of two adults and two children who didn’t buy the insurance, meanwhile, paid a tax of at least $2,085. The penalties were expected to cost citizens $43.3 billion between 2016 and 2025. For that money, they got nothing. It is designed to force citizens to buy into Obamacare.
Mind you, the Obama administration first claimed that this penalty was a mandate, not a tax — only to argue otherwise before the Supreme Court. Indeed, Chief Justice John Roberts ruled that it was indeed a tax to allow Obamacare to pass constitutional muster. Trump has already signed an executive order urging the Department of Health and Human Services to stop imposing this tax.
2. Limits on health savings accounts and flexible spending accounts. By ending your ability to purchase over-the-counter medicines using pretax dollars in HSAs and FSAs, Obamacare raised another $6.7 billion in taxes. It also imposed a $2,500 cap on the FSAs of 30 million to 35 million Americans. This tax increase costs $32 billion over 10 years.
3. Taxing private health insurance. Obamacare imposed a tax on your private health insurance, designed to net $130 billion between 2016 and 2025. Douglas Holtz-Eakin, a former member of the Council of Economic Advisers and former director of the Congressional Budget Office, estimated insurance premiums would increase by up to $5,000 over the decade.
4. Limits on deductions. Obamacare made it more difficult to deduct catastrophic medical costs for 11 million Americans. This income-tax hike costs $35.7 billion over a decade by increasing the threshold beyond which you can deduct extreme medical costs from the previous 7.5 percent to today’s 10 percent. The average household income of people hit with this tax? $53,000. This income-tax hike on the very sick and lower middle class will not be missed.
5. The “Cadillac Tax.” It imposed a 40 percent tax on plans costing more than $10,200 for individuals or $27,000 for families. This tax was delayed until 2020 due to pressure from union leaders whose members tend to have such plans. Republicans plan at a minimum to cut it in half by imposing a cap on the deductibility of corporate sponsored health insurance (and the new corporate rate will be 20 percent).
6. Penalties on withdrawals from HSAs. Obamacare doubled the penalty on such withdrawals, from 10 percent to 20 percent. The increase would raise $100 million over 10 years.
7. Taxing indoor tanning. By levying a 10 percent tax on indoor tanning costs, Obamacare would cost consumers $800 million over 10 years. The left laughs about this tax, but it has wiped out thousands of tanning salons and affects 30 million American consumers. And more than half of tanning salon owners are women entrepreneurs. They are keenly aware of this Obamacare tax burden.
Expect Trump to highlight that the above taxes directly hit middle-income Americans, in violation of Barack Obama’s famous commitment repeated on Sept. 12, 2008, in Dover, New Hampshire: “I can make a firm pledge. 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.”
Other tax hikes inside Obamacare are nominally on businesses or higher-income Americans. Slated for abolition are an employment mandate tax, which forces employers to pay $2,000 per full-time employee if they do not offer “qualifying” — as defined by the government — health coverage and at least one employee qualifies for a health care credit. This is a $166 billion tax hike over 10 years. There’s also the surtax on investment income of 3.8 percent for households earning more than $200,000 (singles) or $250,000 (couples). This tax drove the capital gains tax from 20 percent to 23.8 percent and would cost $222.8 billion over 10 years. A payroll tax hike on individuals making $200,000 or couples earning more than $250,000 was scheduled to cost Americans another $123 billion over 10 years. The 2.3 percent tax on medical devices hits firms whether they earn a profit or not. The cost, of course, goes straight to consumers, costing $20 billion over 10 years.
And what of the spending in Obamacare? All that money went somewhere.
Congress is expected to block-grant Medicare — just as Bill Clinton did with Aid to Families with Dependent Children (AFDC). This will give states much greater flexibility and, as with the AFDC reform, save both federal and state taxpayers a great deal of money while covering those truly in need.
High-risk pools will be subsidized by the national government so that those with expensive preexisting conditions can buy subsidized insurance and not have their costs paid by healthy purchasers of insurance. And tax credits will target those on the margin to allow them to buy health insurance.
These reforms to replace Obamacare are being debated right now in the House, Senate and White House. The death sentence for the tax increases has already been passed.