Econintersect: Whether the U.S. goes over the fiscal cliff or not, 2013 is a year when taxes will be rising. While everyone has been focusing on the pathetic Punch and Judy Show imitation over the "negotiations" to resolve tax and spending disagreements and a possible "Grand Bargain" to satisfy the interests of wealthy few, other tax increases have been simply waiting for the new year to arrive. Most of the new taxes are aimed at offsetting burgeoning healthcare costs that keep driving up what the government spends on Medicare, Medicaid and Veterans' care.
Taxes increases that have no relationship to the fiscal cliff include:
- There is a new 3.8% tax on investment income for individuals making more than $200,000 or couples above $250,000.
- An additional 0.9% Medicare payroll tax will come into effect for incomes over $200,000 (couples above $250,000).
- Medical device sales to doctors and hospitals will be subject to a new federal sales tax of 2.3%.
- An indirect tax increase because of lower limits ($2,500, indexed) for medical flexioble spending accounts. The former limit was $5,000.
Additional new taxes kick-in in 2014, again related to healthcare:
- Annual fees paid by insurance companies which will amount to $8 billion in the first year.
- Penalties of $2,000 per employee (above 30) for companies with 50 or more employees which do not offer healthcare insurance if just one of the employees receives government subsidized coverage.
Other changes in the tax code that may come up for consideration in 2013 include the tax free status of employer paid healthcare plans. From Ricardo Alonzo-Zaldivar, Associated Press:
...about half of Americans benefit from the tax-free status of employer health insurance. Workers pay no income or payroll taxes on what their employer contributes for health insurance, and in most cases on their own share of premiums as well.
It's the single biggest tax break the government allows, outstripping the mortgage interest deduction, the deduction for charitable giving and other better-known benefits. If the value of job-based health insurance were taxed like regular income, it would raise nearly $150 billion in 2013, according to congressional estimates. By comparison, wiping away the mortgage interest deduction would bring in only about $90 billion.
"If you are looking to raise revenue to pay for tax reform, that is the biggest pot of money of all," said Martin Sullivan, chief economist with Tax Analysts, a nonpartisan publisher of tax information.
It's hard to see how lawmakers can avoid touching health insurance if they want to eliminate loopholes and curtail deductions so as to raise revenue and lower tax rates. Congress probably wouldn't do away with the health care tax break, but limit it in some form. Such limits could be keyed to the cost of a particular health insurance plan, the income level of taxpayers or a combination.
Many economists think some kind of limit would be a good thing because it would force consumers to watch costs, and that could help keep health care spending in check. Obama's health law took a tentative step toward limits by imposing a tax on high-value health insurance plans. But that doesn't start until 2018.
In addition to tax increases to offset rising government expenditures for healthcare, retirees will be exposed to higher Medicare premiums. A change to the Medicare law under President G. W. Bush is ratcheting up premiums paid by higher income Medicare participants According to
- Health care tax hikes for 2013 may be just a start (Ricardo Alonzo-Zaldivar, Associated Press, Yahoo News)
- Partial list of taxes and fees in health overhaul (The Associated Press, Yahoo News)
- Medicare Tax and the Unearned Income Medicare Contribution Tax (William Perez, About.com Guide)