Ryan Ellis

New Surtax on Small Employers in<br> House Democrat Health Scheme<br> Will Endanger Millions of Jobs


Posted by Ryan Ellis on Tuesday, November 3rd, 2009, 5:27 PM PERMALINK


  • One of the most economically-destructive aspects of the House Democrat health bill is the new 5.4 percent “surtax” on adjusted gross income (AGI) exceeding $1 million ($500,000 if other than married filing jointly).  This is found on page 336 in H.R. 3962.  When combined with the top marginal tax rate of 39.6 percent due to take effect in 2011, this provision has the same effect as creating a brand new top tax bracket of 45 percent (and without even an inflation adjustment over time).
  • The House Democrat leadership will tell you that this is a new tax on “the rich.”  This is absurd.  The truly rich will re-arrange their finances in such as way as to never pay the tax.  It’s much more likely that this tax will hit small and medium-size employers, who pay taxes on their owners’ 1040 forms.  At this level of income, most unincorporated businesses take the form of partnerships and Subchapter-S corporations, whose taxes are paid at the owner level.
  • According to the IRS (Table 1.4 of the Statistics of Income), these small business employers earned a net $414 billion in 2007.  Of this, some $236 billion—57 percent—was earned in households with AGI of $1 million or more.  The 5.4 percent surtax will tax these businesses some $13 billion per year.  That money has to come from somewhere, and the answer is “jobs.”
  • What does this mean for jobs?  The partnerships and S-corps that earn more than $1 million per year are the ones that have enough capital to employ people.  Assuming that most of these are the firms which employ 20 to 499 people (any larger and they probably are incorporated, any smaller and it’s other businesses), the Census Bureau Statistics of U.S. Businesses reports that 626,000 of these small employers gave jobs to 38.6 million Americans (about one-third of everyone employed), and paid out an average of $36,000 in salary in 2006.
  • The new 5.4 percent surtax can be expected to raise $13 billion per year in new taxes from these successful small and mid-size employers.  By way of illustration, if this tax were paid for entirely by cutting wages for these 38.6 million employees, the average wage would decline by over $300 per year—another hidden cost to the radical Pelosi-Rangel-Obama plan to create a government healthcare system.

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Rush Limbaugh Highlights ATR List of<br> House Dem Health Taxes on Air


Posted by Ryan Ellis on Friday, October 30th, 2009, 12:58 PM PERMALINK


Our comprehensive list of all the tax hikes in the House Democrat health bill got a lot of play yesterday, but none bigger than this treatment by Rush Limbaugh.  As I used to say back in high school, "mega-dittoes, Rush":

What it all adds up to here is there's going to be a tax if you don't go out and get insurance, two-and-a-half percent.  You want to hear some of the other taxes in this?  The Americans for Tax Reform has gone through the bill and they got a comprehensive list of taxes in Pelosi's debacle.  "Employer Mandate Excise Tax (Page 275): If an employer does not pay 72.5 percent of a single employee’s health premium (65 percent of a family employee), the employer must pay an excise tax equal to 8 percent of average wages.  Individual Mandate Surtax (Page 296): If an individual fails to obtain qualifying coverage, he must pay an income surtax equal to the lesser of 2.5 percent of modified adjusted gross income (MAGI) or the average premium.  Medicine Cabinet Tax (Page 324): Non-prescription medications would no longer be able to be purchased from health savings accounts (HSAs), flexible spending accounts (FSAs), or health reimbursement arrangements (HRAs).  Insulin excepted. Increased Additional Tax on Non-Qualified HSA Distributions (Page 326): Non-qualified distributions from HSAs would face an additional tax of 20 percent (current law is 10 percent).  This disadvantages HSAs relative to other tax-free accounts (e.g. IRAs, 401(k)s, 529 plans, etc.)"

"Denial of Tax Deduction for Employer Health Plans Coordinating with Medicare Part D," we just covered that one.  "Surtax on Individuals and Small Businesses (Page 336): Imposes an income surtax of 5.4 percent on MAGI over $500,000 ($1 million married filing jointly)." He just said it was 1.5 percent, Clyburn did, but the Americans for Tax Reform say 5.4%, an income surtax of 5.4% on individuals over 500 grand and couples over a million.  "This would raise the top marginal tax rate in 2011 from 39.6 percent under current law to 45 percent -- a new effective top rate." That's before you start paying state taxes, Social Security, and Medicare, 5.4 percent, not 1.5.  Hmm.  "Codification of the 'Economic Substance Doctrine' (Page 349): Empowers the IRS to disallow a perfectly legal tax deduction or other tax relief merely because the IRS deems that the motive of the taxpayer was not primarily business-related."

Want me to read that to you again?  Page 349, "Economic Substance Doctrine empowers the IRS to disallow a perfectly legal tax deduction or other tax relief merely because the IRS deems that the motive of the taxpayer was not primarily business-related." Welcome to the Soviet Union.  I mean this is just -- and, you know what?  The thing is, this is going to get out, people are going to hear about this, and there's going to be the same reaction to this that there was to H.R. 3200, only it's going to be worse. (interruption) What, Snerdley, what?  No.  You do not have to provide motive.  All they have to do is say your motive wasn't any good.  You're not going to get a chance to argue with them here.  "Empowers the IRS to disallow a perfectly legal tax deduction because the IRS deems the motive of the taxpayer was not primarily business related." (interruption) What did you say, H.R.?  Well, I guess you could call it that, a health care hate crime, because they're taxing you, denying a deduction because of the way you think, is what motive is.  Now, it's a good question.  Snerdley says, "How can they impugn your motive?"  They're liberals!  They're dictators.  They're not small-D democrats.  How can they dictate what little kids are forced to sing in school?  Because they can.  How can they dictate what you think?  They're in the process of doing it now.  They are statists.  They are central planners.  They are deniers of freedom and liberty.  It's all through this. 

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CBO and JCT Scores of<br> House Dem Health Bill


Posted by Ryan Ellis on Thursday, October 29th, 2009, 4:57 PM PERMALINK


Official scores of H.R. 3962 (the House Dem health bill) are out from the Congressional Budget Office (spending) and the Joint Committee on Taxation (revenues).  A few highlights:

  • When the bill is fully phased-in, it will increase spending by approximately $150-$200 billion annually.  Put another way, it will add about a percentage point to federal spending as a portion of the economy.  Put yet another way, it will increase the historical size of the federal government by about 5 percent
     
  • The bill won't even come close to universal coverage.  The bill reduces the number of the uninsured from 53 million to 18 million.  It's true that 96 percent of legal residents will be covered, but those 18 million uninsured will still be a huge drain on our health system.  One would expect that $150 billion to $200 billion per year would get you universal coverage, at the very least
     
  • By far, the largest tax hike will be the 5.4% surtax on millionaires and half-millionaires.  Let's also not forget that this should include about half of all small business earnings in America.  It raises taxes by $461 billion in the first ten years
     
  • When the bill is fully phased-in, it will increase net taxes by approximately $200 billion per year.  Put another way, it will add about a percentage point to federal taxes as a portion of the economy.  Put yet another way, it will increase the historical federal tax burden by about 5.5 percent.
     

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Which Tax Hikes in House Health Bill Break Obama Tax Pledge?


Posted by Ryan Ellis on Thursday, October 29th, 2009, 2:36 PM PERMALINK


Over and over again, President Obama has promised not to raise “any form” of taxes on families making less than $250,000 per year. Yet, the U.S. House of Representatives is getting ready to consider a government healthcare bill which does just that. Here’s how:

Health Insurance Mandate Taxes on Working Families
 
·        Individual Mandate Excise Tax (Page 296): If an individual fails to obtain qualifying coverage, he must pay an income surtax equal to the lesser of 2.5 percent of modified adjusted gross income (MAGI) or the average premium. MAGI adds back in the foreign earned income exclusion and municipal bond interest. There is no exception for families making less than $250,000.
 
·        Employer Mandate Payroll Tax (Page 275): If an employer does not pay 72.5 percent of a single employee’s health premium (65 percent of a family employee), the employer must pay an excise tax equal to the following schedule:
 
Payroll Tax Rate
Average Payroll Size
N/A
<$500,000
2%
$500,000-$585,000
4%
$585,000-$670,000
6%
$670,000-$750,000
8%
$750,00<
 
Small business owners pay their taxes on their owners’ personal tax returns. Since this provision does not exempt business owners making less than $250,000 per year, this employer mandate tax will violate President Obama’s promise in some cases.
 
Tax Hikes on Healthcare Spending Accounts
           
·        Cap on Flex-Spending Account (FSA) contributions at $2,500 (Page 325): Currently, the contribution level is unlimited
 
·        Medicine Cabinet Tax (Page 324): Americans would no longer be able to purchase over-the-counter medicines with their FSA, Health Savings Account (HSA), or Health Reimbursement Arrangement (HRA)
 
·        Increase in the Non-Qualified HSA Distribution Penalty from 10% to 20% (Page 326): This makes HSAs less attractive, and paves the way for HSA pre-verification
 
There are 30 million Americans with FSAs. About 8 million Americans have an HSA. Virtually all of them make less than $250,000 per year. These are clear tax hikes on these families
     
Making Legal Tax Deductions Not So Legal
 
·        Codification of the “Economic Substance Doctrine” (Page 349): Empowers the IRS to disallow a perfectly legal tax deduction or other tax relief merely because the IRS deems that the motive of the taxpayer was not primarily business-related. 
 
There is no exception for families making less than $250,000 per year.
 
If President Obama is serious about his tax pledge, he should immediately renounce the bill.

Click here for a printable PDF of this document

 

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BREAKING: Comprehensive List of Taxes<br> In House Democrat Health Bill


Posted by Ryan Ellis on Thursday, October 29th, 2009, 12:20 PM PERMALINK


H.R. 3962, the "Affordable Health Care for America Act" has been introduced--all 1990 pages of it.  This gargantuan beast contains thirteen new tax hikes.  Here they all are, with description and page number (PDF version):

***

Employer Mandate Excise Tax (Page 275): If an employer does not pay 72.5 percent of a single employee’s health premium (65 percent of a family employee), the employer must pay an excise tax equal to 8 percent of average wages.  Small employers (measured by payroll size) have smaller payroll tax rates of 0 percent (<$500,000), 2 percent ($500,000-$585,000), 4 percent ($585,000-$670,000), and 6 percent ($670,000-$750,000).

Individual Mandate Surtax (Page 296): If an individual fails to obtain qualifying coverage, he must pay an income surtax equal to the lesser of 2.5 percent of modified adjusted gross income (MAGI) or the average premium.  MAGI adds back in the foreign earned income exclusion and municipal bond interest.

Medicine Cabinet Tax (Page 324): Non-prescription medications would no longer be able to be purchased from health savings accounts (HSAs), flexible spending accounts (FSAs), or health reimbursement arrangements (HRAs).  Insulin excepted.

Cap on FSAs (Page 325): FSAs would face an annual cap of $2500 (currently uncapped). 

Increased Additional Tax on Non-Qualified HSA Distributions (Page 326): Non-qualified distributions from HSAs would face an additional tax of 20 percent (current law is 10 percent).  This disadvantages HSAs relative to other tax-free accounts (e.g. IRAs, 401(k)s, 529 plans, etc.)

Denial of Tax Deduction for Employer Health Plans Coordinating with Medicare Part D (Page 327): This would further erode private sector participation in delivery of Medicare services.

Surtax on Individuals and Small Businesses (Page 336): Imposes an income surtax of 5.4 percent on MAGI over $500,000 ($1 million married filing jointly).  MAGI adds back in the itemized deduction for margin loan interest.  This would raise the top marginal tax rate in 2011 from 39.6 percent under current law to 45 percent—a new effective top rate.

Excise Tax on Medical Devices (Page 339): Imposes a new excise tax on medical device manufacturers equal to 2.5 percent of the wholesale price.  It excludes retail sales and unspecified medical devices sold to the general public.

Corporate 1099-MISC Information Reporting (Page 344): Requires that 1099-MISC forms be issued to corporations as well as persons for trade or business payments.  Current law limits to just persons for small business compliance complexity reasons.  Also expands reporting to exchanges of property.

Delay in Worldwide Allocation of Interest (Page 345): Delays for nine years the worldwide allocation of interest, a corporate tax relief provision from the American Jobs Creation Act

Limitation on Tax Treaty Benefits for Certain Payments (Page 346): Increases taxes on U.S. employers with overseas operations looking to avoid double taxation of earnings.

Codification of the “Economic Substance Doctrine” (Page 349): Empowers the IRS to disallow a perfectly legal tax deduction or other tax relief merely because the IRS deems that the motive of the taxpayer was not primarily business-related.

Application of “More Likely Than Not” Rule (Page 357): Publicly-traded partnerships and corporations with annual gross receipts in excess of $100 million have raised standards on penalties.  If there is a tax underpayment by these taxpayers, they must be able to prove that the estimated tax paid would have more likely than not been sufficient to cover final tax liability.

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Where is Reid's Senate Health Bill?<br> What Is He Hiding?


Posted by Ryan Ellis on Thursday, October 29th, 2009, 10:37 AM PERMALINK


In case you're counting, it's been nearly 72 hours since Senate Democrat Leader Harry Reid (D-Nev.) announced that he had successfully merged together the health care bills produced by the Finance and HELP Committees.  He was sending the product to CBO for a score.

So where's the bill?

To date, not one piece of legislative language has been released.  This bill will likely fall into the 1000 page-plus range.  Taxpayers have a right to know what is in the bill.  All Americans should have been able to read the contents of this legislative breakthrough from the moment Reid announced it.

Oh, there is one detail that has leaked out: one of Max Baucus' many tax hikes has grown in the Reid bill.  The $400 per employee health mandate excise tax on employers is now $750 per employee.

I would love to be able to give a more complete analysis, but there's no bill to read.

So much for a post-partisan and transparent Congress.

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Senior Obama Advisor Endorses Taxing<br> Health Insurance Plans


Posted by Ryan Ellis on Tuesday, October 27th, 2009, 12:39 PM PERMALINK


The Chairman of the White House Council of Economic Advisors, Christina Roemer, may have created a headache for President Obama yesterday.

While speaking to the ultra-liberal Center for American Progress, Roemer had this to say about the Senate's idea for a 40% tax on health insurance plans that exceed $26,000 in cost ($8000 for individuals):

“A policy such as this [the 40% Cadillac excise tax] is probably the number-one item that health economists across the political spectrum believe is likely to stem the explosion of healthcare costs.”

Notice how the "number one item" isn't anything that puts consumers in charge of their own healthcare (like health savings accounts or interstate purchase of health insurance).  No, it's a new tax on existing health insurance plans.  It seems as if the solution to everything for some people is a tax increase.

Roemer's endorsement of this tax is the strongest yet to come out of the White House.  It's sure to cause some consternation among labor unions (who sponsor these type of plans), and the House Democrat leadership (which has flatly ruled out such a tax in their version of reform).

For a list of all the tax hikes that might find their way into Harry Reid's Senate bill, click here.  These are the ones which violate President Obama's promise not to raise "any form" of taxes on families making less than $250,000.

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ATR Launches Massive TV Ad Campaign<br> Urging Sen. Nelson to Keep Tax Pledge


Posted by Ryan Ellis on Monday, October 26th, 2009, 9:50 AM PERMALINK


Americans for Tax Reform today announced we are starting a series of ads aimed at encouraging Senator Ben Nelson (D-Neb.) to oppose the Senate healthcare bill on the grounds that it violates his Taxpayer Protection Pledge.

When Senator Nelson ran for the U.S. Senate, he made a written Pledge to his constituents and the American people to oppose any net income tax hikes.  He is bound by that Pledge for the duration of his career as a senator.  The Senate healthcare bill contains nearly $500 billion in new tax hikes over the next decade, including billions in income tax hikes.

The television advertisements will run on both local and national news and commentary broadcasts for at least three weeks, reflecting how critical Senator Nelson's vote is to preventing tax increases as a part of the healthcare bill.  In addition, the campaign will have an internet component, centered around a dedicated website which will launch Monday.

In order to get government healthcare paid for by massive tax hikes through the Senate, every Democrat must vote on motions to proceed and cloture.  If Senator Nelson joins his Democrat colleagues on these votes, he will be breaking the Pledge he made to all Nebraskans to not raise income taxes.  Now is the time where Senator Nelson must follow through on the promise he made to get elected.

PDF of press release

PDF of Senator Nelson's signed Taxpayer Protection Pledge

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Which Tax Hikes in Senate Health Bill Violate Obama's Tax Promise?


Posted by Ryan Ellis on Wednesday, October 21st, 2009, 1:56 PM PERMALINK


Over and over again, President Obama has promised not to raise “any form” of taxes on families making less than $250,000 per year. Yet, the U.S. Senate is getting ready to consider a government healthcare bill which does just that. Here’s how:

Health Insurance Mandate Taxes on Working Families
 
·        Individual Mandate Excise Tax. Americans who do not sign up for health insurance will have to pay an excise tax in the following range:
 

 
Single
Family
100-300% of Federal Poverty Level
$750
$1500
300+% of Federal Poverty Level
$900
$1900

 
300 percent of the federal poverty line is well under $250,000. For a family of four, it’s $67,000. For an individual, it’s about $30,000.
 
·        Employer Mandate Tax. $400 per employee if health coverage is not offered. Note: this is a huge incentive to drop coverage, as $400 is much less than the average plan cost of $11,000 for families or $5000 for singles (Source: AHIP)
 
Small businesses pay their tax liability on their owners’ 1040 forms. This $400 employer mandate tax does not hold harmless business owners making less than $250,000
 
Tax Hikes on Healthcare Spending Accounts
           
·        Cap on Flex-Spending Account (FSA) contributions at $2500: Currently, the contribution level is unlimited
 
·        Medicine Cabinet Tax : Americans would no longer be able to purchase over-the-counter medicines with their FSA, Health Savings Account (HSA), or Health Reimbursement Arrangement (HRA)
 
·        Increase in the Non-Qualified HSA Distribution Penalty from 10% to 20%: This makes HSAs less attractive, and paves the way for HSA pre-verification
 
There are 30 million Americans with FSAs. About 8 million Americans have an HSA. Virtually all of them make less than $250,000 per year. These are clear tax hike on these families
 
         Denying a Tax Deduction for Medical Costs
 
·        Increase “haircut” of medical itemized deductions from 7.5% to 10% of adjusted gross income (AGI), further denying medical itemized deductions
 
There is no exemption made here for families making less than $250,000 per year.
 
If President Obama is serious about his tax pledge, he should immediately renounce the bill.

Click here for a printable PDF of this document

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ATR May Rate a Vote Against<br> "Doc-Fix" Without Spending Cuts


Posted by Ryan Ellis on Tuesday, October 20th, 2009, 5:00 PM PERMALINK


Americans for Tax Reform sent the following keyvote alert to the U.S. Senate this afternoon.  Click here to read the full letter:

Americans for Tax Reform MAY RATE a vote against a doc-fix measure which is not 100% offset with spending reductions.  ATR also opposes and MAY RATE a vote against any tax revenue increases to “pay for” a doc-fix bill.  The ratings appear annually in ATR’s “Hero of the Taxpayer” scorecard.

ATR earlier this week signed onto a joint letter opposing "doc-fix" without spending cuts.

Last week, ATR's Center for Fiscal Accountability sent a notice that they will be rating a "doc-fix" bill which does not include offsetting spending cuts.

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