CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.

Obama Prescribes Healthcare Plan To Nation

Thursday, February 25, 2010

With the US healthcare reform legislation currently becalmed in Congress, President Obama has outlined some new proposals, including refinements to revenue raising measures, ahead of a bipartisan meeting on health reform to be held in Washington on Thursday, February 25.

The President claims that his proposals will make health care more affordable for families and small business owners by providing "the largest middle class tax cuts for health care in American history." Tens of millions of families will benefit from new tax credits, he says, which will help them reduce their premium costs and purchase insurance. However, taxpayers earning more than USD200,000 a year will see their taxes rise.

Obama's proposals include an additional 0.9% rise Hospital Insurance tax for households with incomes exceeding USD200,000 for singles and USD250,000 for married couples filing jointly. In addition, it would add a 2.9% tax for such high-income households to unearned income including interest, dividends, annuities, royalties and rents, excluding income from active participation in S corporations.

Under current law, workers who earn a salary pay a flat tax of 1.45% of their wages to support the Medicare Hospital Insurance trust fund, but those who have substantial unearned income do not, raising issues of fairness.

This differs from the main revenue raising proposals in the version of the health care legislation approved by the House of Representatives last November - a surtax on individuals with annual adjusted gross income (AGI) of USD500,000 and on couples with annual AGI of USD1m.

The main revenue raiser in the health bill approved by the Senate in December is a 40% excise tax on high-end "Cadillac" health insurance plans. Obama's proposals also include this excise tax, but raises the threshold point at which the tax kicks in to USD27,500 for families (up from USD23,000 in the Senate plan) and USD10,200 for singles (up from USD8,500), starting in 2018. The tax would be adjusted at the consumer price index plus one thereafter.

The President argues that the insurance company excise tax "will help to reduce the long-term cost growth of health care and help to increase workers’ after-tax wages as insurance companies respond to increased competition by offering more cost-effective insurance plans for employers." However, Labor unions, some with strong links to Democrat lawmakers in the House, have complained that the excise tax will disadvantage many middle-class taxpayers.

The President's proposals will also impose fees on various sectors of the health industry, intended to recapture some of the benefits they get as more Americans purchase health insurance. These include: a fee on branded prescription drug pharmaceutical companies in proportion to their federal sales; an excise tax on medical devices; an annual fee on health insurance companies; and an excise tax on indoor tanning services.

Like the versions of the legislation currently sitting in Congress, Obama has included proposals improve enforcement and close 'loopholes' in the tax code. These measures include: expanding corporate information reporting requirements; closing the loophole that allows certain byproducts of paper production to be eligible for the cellulosic biofuels producer credit; and helping prevent tax shelters by clarifying the definition of when activities have true “economic substance” beyond saving tax.