Senate floor #009: Middle class tax increases

On October 29th, Senate Finance Committee Ranking Member Grassley spoke about health care tax increases.  At the time he was talking about the Baucus bill, but his comments also apply to the Reid amendment.

According to the official Congressional scorekeepers — the Joint Committee on Taxation and the Congressional Budget Office — the Finance Committee bill contains over a half trillion dollars worth of tax increases, fees, and penalties on individuals and businesses.

The Joint Committee on Taxation – also known as Joint Tax – has testified that a significant percentage of these tax increases, fees, and penalties will be borne by middle class taxpayers.  That is, families making $250,000 and singles making $200,000 a year.

Since then, the Senate Finance Committee Republican tax staff have received updated analysis for the Reid amendment.  Here’s the staff summary.

The Joint Committee on Taxation (JCT) conducted a distributional analysis of how four tax provisions in the Reid bill – in the aggregate – affected people.  The four tax provisions JCT analyzed were the (1) the advance-refundable tax credit for health insurance, (2) the high cost plan tax, (3) the medical expense deduction limitation, and (4) additional Medicare payroll tax.

• In 2019 – when the bill is in full effect – JCT’s distributional analysis shows that, on average, individuals making over $50,000 and families making over $75,000 would see their taxes go up under the Reid bill.  In other words, out of those taxpayers affected by these four tax provisions, 42 million “middle class” families and individuals – those earning less than $200,000 – on average, would pay higher taxes under Majority Leader Reid’s amendment.
• Again, this is after taking into account the tax effects of the advance-refundable tax credit for health insurance.

Millions of more middle class families and individuals could bear a tax increase from the health care industry “fees” proposed under the Reid bill.

• Although JCT has not provided a distributional analysis of the effect of the “fees,” JCT and the Congressional Budget Office have testified to the Senate Finance Committee that these “fees” (1) would be passed through to health care consumers and (2) would increase health insurance premiums and prices for health care-related products.  This means that any person with health insurance – either purchased from an insurance company or provided to workers through a self-insured arrangement – will see their premiums go up.  In addition, any person purchasing or accessing a medical device (e.g., X-Rays or CT scans) will face higher costs.

Another clear example of a tax increase on people making less than $250,000 is the limitation on tax-free contributions to a Flexible Spending Arrangement – or an FSA.  This proposal taxes health benefits a worker receives “for the first time.”

• Under the current tax laws, a worker may contribute to an FSA on a pre-tax basis and use those FSA contributions to pay for co-pays and deductibles tax-free.  Currently, there is no limit on these contributions under the tax code.  The Reid bill would limit FSA contributions to $2,500 for the first time.  This means contributions over $2,500 would be taxed.  The average worker that contributes to an FSA earns $55,000 a year.  The typical worker that contributes more than $2,500 to their FSA has a serious medical condition.  As a result, workers (1) with serious illnesses and (2) earning $55,000 would be paying more in taxes.

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