Ryan Ellis

Obamacare's 24 Percent Cap Gains Tax


Posted by Ryan Ellis on Thursday, March 18th, 2010, 5:48 PM PERMALINK


The actual legislative language of the House Democrat reconciliation bill was released this afternoon. 

Keep in mind that this is not the "deemed" bill which passed the Senate already.  If the reconciliation bill passes the House, the Senate bill becomes law.

At that point, the House and Senate will start working on an "improvement" to the Senate healthcare bill from December (which would now be law).

The reconciliation language includes a 3.8 percent surtax on "unearned income," which includes capital gains.

The capital gains rate is already set to rise from 15 to 20 percent in 2011.

This surtax would result in a capital gains rate of 23.8 percent in 2014.

A 24 percent capital gains tax rate is an economy killer.

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Comprehensive List of Tax Hikes in Government Health Bill to be Voted on by House


Posted by Ryan Ellis on Wednesday, March 17th, 2010, 9:05 AM PERMALINK


 

 
Americans for Tax Reform today released the following comprehensive list of tax hikes in the government health bill to be voted on in the House this week:
 
(Page numbers reference ORIGINAL REID-OBAMA BILL unless noted):

Individual Mandate Excise Tax (Page 324/Sec. 1501/Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following (page 71 of manager’s amendment updates Reid bill):
 
 
 
Single
2 People
3+ People
2014
$495/0.5% AGI
$990/0.5% AGI
$1485/0.5%/AGI
2015
$495/1.0% AGI
$990/1.0% AGI
$1485/1.0%/AGI
2016+
$495/2.0% AGI
$990/2.0% AGI
$1485/2.0%/AGI
 
Exemptions for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases (determined by HHS).
 
Employer Mandate Tax (Page 348/Sec. 1513/Jan 2014):  If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $750 for all full-time employees.  Applies to all employers with 50 or more employees.

If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer).

 

CBO Estimates That the Mandate Tax Penalties Will Raise $39 billion from 2010-2019

Excise Tax on Comprehensive Health Insurance Plans (Page 1979/Sec. 9001/$149.1 bil/Jan 2013): Starting in 2013, new 40 percent excise tax on “Cadillac” health insurance plans ($8500 single/$23,000 family).  Higher threshold ($9850 single/$26,000 family) for early retirees and high-risk professions.  CPI +1 percentage point indexed.  Longshoremen have been exempted (page 362 of the manager’s amendment)

From 2013-2015, the 17 highest-cost states are 120% of this level. 

Hike in Medicare Payroll Tax (Page 2040/Sec. 9015/$86.8 bil/Jan 2013): Current law and changes:
 
 
First $200,000
($250,000 Married)
Employer/Employee
All Remaining Wages
Employer/Employee
Current Law
1.45%/1.45%
2.9% self-employed
1.45%/1.45%
2.9% self-employed
Reid-Obama Tax Hike
1.45%/1.45%
2.9% self-employed
1.45%/2.35%
3.8% self-employed
 
The 0.9% new rate addition is not deductible for the self-employment tax adjustment.  Updated by page 372 of manager’s amendment.
 
Medicine Cabinet Tax (Page 1997/Sec. 9003/$5 bil/Jan 2011): Americans would no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin)

HSA Withdrawal Tax Hike (Page 1998/Sec. 9004/$1.3 bil/Jan 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Flexible Spending Account Cap – akaSpecial Needs Kids Tax” (Page 1999/Sec. 9005/$14 bil/Jan 2011): Imposes cap on FSAs of $2500 (now unlimited).  Indexed to inflation after 2011 (added on page 363 of manager’s amendment). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children.  There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education.  Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. 

Tax on Medical Device Manufacturers (Page 2020/Sec. 9009/$19.2 bil/Jan 2010): Medical device manufacturers employ 360,000 people in 6000 plants across the country. This bill would impose a new $2 billion annual tax on the industry imposed relative to shares of sales made that year.  Exempts items retailing for <$100.  Rises to $3 billion annually in 2017 (updated by page 364 of manager’s amendment).

Raise "Haircut" for Medical Itemized Deduction from 7.5% to 10% of AGI (Page 2034/Sec. 9013/$15.2 bil/Jan 2013): Currently, those facing high medical expenses are allowed a deduction if the total cost of the expenses reduces the filer’s income by 7.5%. The new provision would impose a threshold of 10%. Waived for 65+ taxpayers in 2013-2016 only

Tax on Indoor Tanning Services (Page 373 of Manager’s amendment/$2.7 billion/July 1, 2010): New 10% excise tax on Americans using indoor tanning salons

Blue Cross/Blue Shield Tax Hike (Page 2044/Sec. 9016/$0.4 bil/Jan 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services
Excise Tax on Charitable Hospitals (page 2001/Sec. 9007/Min$/immediate): $50,000 per hospital if they fail to meet new "community health assessment needs," "financial assistance," and "billing and collection" rules set by HHS (updated on page 364 of manager’s amendment).
 
Tax on Innovator Drug Companies (Page 2010/Sec. 9008/ $22.2 bil/Jan 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year.
 
Tax on Health Insurers (Page 2026/Sec. 9010/$59.6 bil/Jan 2011): $10 billion annual tax on the industry imposed relative to health insurance premiums collected that year.  Phases in gradually until 2017.  Fully-imposed on firms with $50 million in profits (updated on page 365 of manager’s amendment)
 
Elimination of tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D (Page 2034/Sec. 9012/$5.4 bil/Jan 2011)
 
$500,000 Annual Executive Compensation Limit for Health Insurance Executives (Page 2035/Sec. 9014/$0.6 bil/Jan 2013)
 
Employer Reporting of Insurance on W-2 (Page 1996/Sec. 9002/Min$/Jan 2011): Preamble to taxing health benefits on individual tax returns.
 
Corporate 1099-MISC Information Reporting (Page 1999/Sec. 9006/$17.1 bil/Jan 2012): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers
 
--
 
Supporting documentation:
 
Original Senate bill and Senate Manager’s Amendment
 

Click here for a printable PDF

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ATR Supports H.R. 4781, the<br> "Keeping American Businesses<br> Competitive Act of 2010"


Posted by Ryan Ellis on Thursday, March 11th, 2010, 5:21 PM PERMALINK


Americans for Tax Reform today sent the following letter to Congressman Todd Tiahrt (R-Kan.):

On behalf of Americans for Tax Reform, I am pleased to support H.R. 4781, the “Keeping American Businesses Competitive Act of 2010.”  I urge all Members of Congress to co-sponsor and support this vital legislation.

Your bill reduces the federal corporate income tax top rate from 35 percent to 22 percent.  Importantly, it does so for any tax year ending in 2009, meaning that businesses would be able to benefit immediately from the pro-growth benefits of the tax relief.

Corporations don’t pay taxes—people do.  The money which is collected in the form of the corporate income tax first is felt by consumers (higher prices), those with IRAs and 401(k) plans (lesser capital gains and dividends), and employees (lower wages and benefits).  A cut in the corporate income tax rate is a price cut at the store, a booster shot to your IRA, and a bonus in your paycheck.  A recent study by CBO concluded that $0.60 on the $1.00 of every corporate income tax cut eventually finds its way into higher wages and benefits.

The U.S. imposes the second-highest corporate income tax rate in the developed world (only slightly behind Japan).  By reducing the top rate to 22 percent, the U.S. corporate rate (including state corporate income taxes) will be about the same as our European competitors and trade partners, who average a 25 percent rate.  This will go a long way toward making America a more attractive place to in-source increasingly-mobile jobs, plant facilities, and corporate headquarters.  We’ll need it, since high-growth nations like Ireland (12.5 percent) and the former Warsaw Pact countries have little to no corporate tax at all.

A corporate rate cut has the advantage of solving the deferral of foreign income question in a pro-growth way (since our rate would be the same or lower than many large nations).  It reduces the double taxation of retained corporate earnings (capital gains) and distributed corporate earnings (dividends).  Corporations who themselves have accumulated capital gains can move assets and not pay a hefty tax penalty.  Lower rates encourage the production, rather than the sheltering, of income.  A lower rate neutralizes some of the bias toward debt financing vs. equity financing of capital.  It makes the gap between tax depreciation and full business expensing less pronounced.

Best of all, H.R. 4781 is a simple, straightforward bill.  It merely reduces the top corporate rate.  It does not endanger any exclusions, deductions, or credits currently in the code (all of which become less important in a lower tax rate environment).  This type of bill should be on the short list for conservative tax reforms in the next decade.

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Does the Obamacare Investment Surtax<br> Apply to Capital Gains?


Posted by Ryan Ellis on Tuesday, March 9th, 2010, 10:46 AM PERMALINK


ATR today sent a letter to President Obama asking him to clarify whether or not the 2.9 percent surtax on "unearned income" applies to capital gains.  Here's an excerpt:

In particular, I am referring to the following sentence:

In addition, it would add a 2.9 percent tax for such high-income households to unearned income including interest, dividends, annuities, royalties and rents (excluding income from active participation in S corporations).

The Joint Committee on Taxation has privately scored your plan under the assumption that it does not tax capital gains in this way.  However, a February 22nd report in Bloomberg stated that an un-named administration source confirmed that the 2.9 percent tax did, in fact, apply to capital gains.

Which one is it, Mr. President?  Is the “unearned income” list you provided exhaustive, as the JCT has assumed?  Or is it an incomplete list, one which failed to include capital gains, as the Bloomberg report suggests?

In the interest of transparency and full disclosure in the healthcare debate, I don’t think it’s too much to ask that a multi-hundred billion dollar tax hike be made known in full well ahead of any further Congressional votes on healthcare.

Full text of letter

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Obamacare's Individual Mandate<br> Penalty Is a Tax


Posted by Ryan Ellis on Tuesday, February 23rd, 2010, 1:44 PM PERMALINK


A close reading of President Obama's healthcare plan finds several terms to describe the tax Americans will pay if they choose not to purchase qualifying health insurance.  These terms include "payment," "assessment," and "individual responsibility."

This same tax has also variously been referred to as a "penalty," a "fee," or a "fine."

In fact, it's none of those things, precisely.  It's a tax.  The various synonyms used are designed to hide that simple fact.  The reason for wanting to do so is clear: since this tax would be assigned to any uninsured American (including those making less than $250,000 per year), it's a pretty apparent violation of the President's promise not to raise "any form" of taxes on working families.

The evidence that this tax on the uninsured is in fact a tax comes from a thorough reading of the Senate healthcare bill's uninsurance tax section (which the Obama plan specifically says it is starting from).

Page 322 of the Senate bill (the "Patient Protection and Affordable Care Act") says that "any penalty imposed by this section with respect to any month shall be included with a taxpayer's return under Chapter 1 [of the Internal Revenue Code (IRC)] for the taxable year which includes such month."  The procedure to collect the tax on page 336 of the bill references Chapter 68 of the IRC.  On page 337 of the bill, a new Chapter 48 is added to Subtitle D of the Code (Miscellaneous Excise Taxes) in order to create the uninsurance tax.  Page 341 of the bill continues to reference various parts of the Code that need to be amended in order to cover this new tax.

Anyone reading this precise legislative language can see how this tax would be collected.  An uninsured individual would add the excise tax to their regular income tax burden on the 1040 Form every April.  It is much like other excise taxes collected on the 1040 (early IRA withdrawal tax, for example).

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UPDATED: Obamacare Raises Taxes by<br> $748 Billion Over the Next Decade


Posted by Ryan Ellis on Monday, February 22nd, 2010, 4:20 PM PERMALINK


(Note: these estimates have been updated to reflect changes made in the effective date of the “Cadillac plan” excise tax relative to the Senate bill, and to reflect a report from Bloomberg citing a White House source that net capital gains are included in the “unearned income” Medicare payroll tax.  It also makes it clear that the "unearned income" Medicare tax is assessed at the current 2.9 percent rate, not the higher wage and self-employment Medicare tax rate also in the plan.)

Today, the White House released President Obama's draft healthcare plan.  Below is a comprehensive analysis of all the tax provisions.  Where possible, scores have been assigned based on earlier versions of the legislation passed by the Senate, the President's budget, and (in the case of applying the Medicare tax to unearned income) my own estimates based on IRS data (all scores are 10-year estimates):

*** Overall proposal is a net tax hike of $748 billion over 10 years ***

 Title I (Net tax hike of $85 billion)

  • Same individual credit as Senate bill (-$102 billion)

  • Same small business credit as Senate bill (-$38 billion)

  • Reinsurance program ($121 billion)

  • Individual and employer insurance mandate penalties ($43 billion)

  • Associated effects on coverage provisions ($61 billion)


Title IX
(Net tax hike of $663 billion)

  • Corporate 1099-MISC information reporting ($17 billion): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers
     
  • Black liquor credit repeal ($24 billion): This is an excise tax hike which is contained in the President's budget
     
  • Economic substance doctrine ($4 billion): This would require taxpayers to prove to the IRS that a perfectly-legal tax deduction or strategy is "economically substantial," and not simply a way to pay less in taxes
     
  • Medicare payroll tax hike ($87 billion): Increases Medicare payroll tax rate from 2.9 percent to 3.8 percent on wages and self-employment income which exceeds $200,000 ($250,000 married)
     
  • Apply Medicare tax to unearned income ($334 billion): Would apply the current 2.9 percent Medicare tax rate to unearned income in households earning at least $200,000 or $250,000 married (interest, dividends, capital gains, rent, royalties, and passive investment in pass-throughs like S-corporations and partnerships)
     
  • Cadillac plan excise tax ($125 billion): 40 percent excise tax on health insurance plans to the extent they exceed $27,500 in cost for family plans, and $10,200 for single plans
     
  • Innovator medicine company tax ($22 billion): $2.3 billion annual tax on the industry imposed relative to share of sales made that year
     
  • Medical device manufacturer tax ($19 billion): $2 billion annual tax on the industry imposed relative to shares of sales made that year.  Exempts items retailing for <$100.  Rises to $3 billion annually in 2017
     
  • Health insurance company tax ($60 billion): $10 billion annual tax on the industry imposed relative to health insurance premiums collected that year.  Phases in gradually until 2017.  Fully-imposed on firms with $50 million in profits
     
  • Tanning tax ($3 billion): New 10% excise tax on indoor tanning salons
     
  • Increase HSA distribution penalty by 10 percentage points ($1 billion): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.
     
  • $2500 FSA cap a.k.a. special needs kiddie tax ($13 billion): Imposes cap on FSAs of $2500 (now unlimited).  Indexed to inflation after 2011
     
  • Employer-provided retiree Rx deduction repeal ($5 billion)
     
  • Medical itemized deduction "haircut" raised from 7.5 to 10 percent of AGI ($15 billion)
     
  • $500,000 executive compensation limit for health insurance companies ($1 billion)
     
  • Miscellaneous tax relief (-$2 billion)

Interestingly, the draft release from the White House seemingly lacks the following tax hikes which were contained in the Senate bill:

  • Employer reporting of insurance costs on W-2 (no revenue effect)
  • Excise tax on charitable hospitals (no revenue effect)
  • Blue Cross/Blue Shield tax hike ($400 million)
  • "Medicine cabinet tax" (limiting the purchase of non-Rx, over-the-counter medicines from HSAs, FSAs, and HRAs, $5 billion)

PDF Version

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ATR Will Rate Against a Cloture Vote on<br> HIRE Act (So-Called "Jobs Bill")


Posted by Ryan Ellis on Monday, February 22nd, 2010, 3:25 PM PERMALINK


This evening, the United States Senate will be voting on a cloture motion on the “Hiring Incentives to Restore Employment Act,” erroneously dubbed the “jobs bill.”  ATR will keyvote against this cloture vote in our annual “Hero of the Taxpayer” Congressional scorecard.

According to the Congressional Budget Office, this bill will raise net taxes by $8.6 billion over the next decade.  It will funnel $50 billion to organized labor projects.  It will increase spending and increase the national debt.

The tax hikes include a raft of tax increases on Americans who conduct business overseas.  It imposes a tax penalty on overseas banks that don’t report information on U.S. taxpayers to the IRS.  It also requires U.S. taxpayers to disclose foreign accounts on their American tax returns.  This is another step in the direction of the IRS having its nose in every area of our lives.  The simplest way to deal with the question of international tax reform is to move toward territoriality.  Most of our trading partners only seek to tax income earned within their borders, rather than trying to tax on a worldwide basis.  America should do the same.

The other major tax hike is a further delay in the worldwide allocation of interest rules, a tax cut which Congress passed back in 2004 but has never implemented.

Raising taxes is never a good idea, but especially not at a time of economic weakness.  This bill will not create (or save) any new jobs, and is another example of Washington wasting money and raising taxes.

ATR WILL RATE A VOTE AGAINST CLOTURE ON THE “HIRING INCENTIVES TO RESTORE EMPLOYMENT” ACT

PDF Version

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Obamacare Plan Breaks<br> $250,000 Tax Pledge


Posted by Ryan Ellis on Monday, February 22nd, 2010, 12:26 PM PERMALINK


The following is a breakout of all the net taxes from the Obamacare plan which fall (or easily could fall) directly on families making less than $250,000 per year.

Based on our analysis, we find that the "working families tax hike" subset is a ten-year tax increase of $136 billion on these households.

Of course, the rest of the tax hikes will affect all families in the form of lower wages, higher prices, and less economic growth.  This list is simply those which are in direct violation of President Obama's oft-made promise not to raise "any form" of taxes on families making less than $250,000 per year.

***The Obamacare plan raises net taxes on families making less than $250,000 by $136 billion***

 Title I (Net working families tax hike of $85 billion)

  • Same individual credit as Senate bill (-$102 billion)

  • Same small business credit as Senate bill (-$38 billion)

  • Reinsurance program ($121 billion)

  • Individual and employer insurance mandate penalties ($43 billion)

  • Associated effects on coverage provisions ($61 billion)

Title IX (Net working families tax hike of $51 billion)

  • Corporate 1099-MISC information reporting ($17 billion): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers
     
  • Economic substance doctrine ($4 billion): This would require taxpayers to prove to the IRS that a perfectly-legal tax deduction or strategy is "economically substantial," and not simply a way to pay less in taxes 
  • Tanning tax ($3 billion): New 10% excise tax on indoor tanning salons
     
  • Increase HSA distribution penalty by 10 percentage points ($1 billion): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.
     
  • $2500 FSA cap a.k.a. special needs kiddie tax ($13 billion): Imposes cap on FSAs of $2500 (now unlimited).  Indexed to inflation after 2011
     
  • Medical itemized deduction "haircut" raised from 7.5 to 10 percent of AGI ($15 billion) 
     
  • Miscellaneous tax relief (-$2 billion)


PDF Version

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BREAKING: Tax Analysis of Obamacare Plan


Posted by Ryan Ellis on Monday, February 22nd, 2010, 11:47 AM PERMALINK


Today, the White House released President Obama's draft healthcare plan.  Below is a comprehensive analysis of all the tax provisions.  Where possible, scores have been assigned based on earlier versions of the legislation passed by the Senate, the President's budget, and (in the case of applying the Medicare tax to unearned income) my own estimates based on IRS data (all scores are 10-year estimates):

 

*** Overall proposal is a net tax hike of $629 billion over 10 years ***

 

Title I (Net tax hike of $85 billion)

  • Same individual credit as Senate bill (-$102 billion)

  • Same small business credit as Senate bill (-$38 billion)

  • Reinsurance program ($121 billion)

  • Individual and employer insurance mandate penalties ($43 billion)

  • Associated effects on coverage provisions ($61 billion)


Title IX
(Net tax hike of $544 billion)

  • Corporate 1099-MISC information reporting ($17 billion): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers
     
  • Black liquor credit repeal ($24 billion): This is an excise tax hike which is contained in the President's budget
     
  • Economic substance doctrine ($4 billion): This would require taxpayers to prove to the IRS that a perfectly-legal tax deduction or strategy is "economically substantial," and not simply a way to pay less in taxes
     
  • Medicare payroll tax hike ($87 billion): Increases Medicare payroll tax rate from 2.9 percent to 3.8 percent on wages and self-employment income which exceeds $200,000 ($250,000 married)
     
  • Apply Medicare tax to unearned income ($150 billion): Would apply this new, higher Medicare tax rate to unearned income (interest, dividends, rent, royalties, and passive investment in pass-throughs like S-corporations and partnerships--capital gains not mentioned)
     
  • Cadillac plan excise tax ($125 billion): 40 percent excise tax on health insurance plans to the extent they exceed $27,500 in cost for family plans, and $10,200 for single plans
     
  • Innovator medicine company tax ($22 billion): $2.3 billion annual tax on the industry imposed relative to share of sales made that year
     
  • Medical device manufacturer tax ($19 billion): $2 billion annual tax on the industry imposed relative to shares of sales made that year.  Exempts items retailing for <$100.  Rises to $3 billion annually in 2017
     
  • Health insurance company tax ($60 billion): $10 billion annual tax on the industry imposed relative to health insurance premiums collected that year.  Phases in gradually until 2017.  Fully-imposed on firms with $50 million in profits
     
  • Tanning tax ($3 billion): New 10% excise tax on indoor tanning salons
     
  • Increase HSA distribution penalty by 10 percentage points ($1 billion): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.
     
  • $2500 FSA cap a.k.a. special needs kiddie tax ($13 billion): Imposes cap on FSAs of $2500 (now unlimited).  Indexed to inflation after 2011
     
  • Employer-provided retiree Rx deduction repeal ($5 billion)
     
  • Medical itemized deduction "haircut" raised from 7.5 to 10 percent of AGI ($15 billion)
     
  • $500,000 executive compensation limit for health insurance companies ($1 billion)
     
  • Miscellaneous tax relief (-$2 billion)


Interestingly, the draft release from the White House seemingly lacks the following tax hikes which were contained in the Senate bill:

  • Employer reporting of insurance costs on W-2 (no revenue effect)
  • Excise tax on charitable hospitals (no revenue effect)
  • Blue Cross/Blue Shield tax hike ($400 million)
  • "Medicine cabinet tax" (limiting the purchase of non-Rx, over-the-counter medicines from HSAs, FSAs, and HRAs, $5 billion)


PDF Version

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