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Ryan Ellis

47 Reasons the IRS Is Unprepared to Enforce Obamacare

Posted by Ryan Ellis on Tuesday, March 5th, 2013, 4:11 PM PERMALINK

“It is unprecedented in recent history, the amount of responsibility the IRS is being given in an area that most people don’t think of as an IRS function...[t]his is going to lead to problems, sir...“[t]hey have to determine what enforcement mechanisms they’ll employ … how they go about determining who to audit and who not to.”

Treasury Inspector General for the IRS Russell George
March 5, 2013

Testimony before House Committee on Appropriations

You might already know about the twenty new or higher taxes in Obamacare.  What you might not know is that the non-partisan Government Accountability Office (GAO) says that the IRS has 47 new taxes and regulations to administer in overseeing Obamacare.  The IRS is not capable of doing all this, as the quote above confirms. 

Here is the list:

  1. Prohibits group health plans from discriminating in favor of highly compensated individuals.
  1. Establishes a temporary reinsurance program to provide reimbursement for a portion of the cost of providing health insurance coverage to early retirees.
  1. Imposes a penalty on health plans identified in an annual Department of Health and Human Services (HHS) penalty fee report, which is to be collected by the Financial Management Service after notice by the Department of the Treasury (Treasury).
  1. Requires state exchanges to send to Treasury a list of the individuals exempt from having minimum essential coverage, those eligible for the premium assistance tax credit, and those who notified the exchange of change in employer or who ceased coverage of a qualified health plan.
  1. Provides tax exemption for nonprofit health insurance companies receiving federal start-up grants or loans to provide insurance to individuals and small groups.
  1. Provides tax exemption for entities providing reinsurance for individual policies during first 3 years of state exchanges.
  1. Provides premium assistance refundable tax credits for applicable taxpayers who purchase insurance through a state exchange, paid directly to the insurance plans monthly or to individuals who pay out-of-pocket at the end of the taxable year.
  1. Provides a cost-sharing subsidy for applicable taxpayers to reduce annual out-of-pocket deductibles.
  1. Outlines the procedures for determining eligibility for exchange participation, premium tax credits and reduced cost-sharing, and individual responsibility exemptions.
  1. Allows advance determinations and payment of premium tax credits and cost-sharing reductions.
  1. Authorizes IRS to disclose certain taxpayer information to HHS for purposes of determining eligibility for premium tax credit, cost-sharing subsidy, or state programs including Medicaid, including (1) taxpayer identity; (2) the filing status of such taxpayer; (3) the modified adjusted gross income of taxpayer, spouse, or dependents; and (4) tax year of information.
  1. Provides nonrefundable tax credits for qualified small employers (no more than 25 full-time equivalents (FTE) with annual wages averaging no more than $50,000) for contributions made on behalf of its employees for premiums for qualified health plans.
  1. Requires all U.S. citizens and legal residents and their dependents to maintain minimum essential insurance coverage unless exempted starting in 2014 and imposes a fine on those failing to maintain such coverage.
  1. Requires every person who provides minimum essential coverage to file an information return with the insured individuals and with IRS.
  1. Imposes a penalty on large employers (50+ FTEs) who (1) do not offer coverage for all of their full-time employees, offer unaffordable minimum essential coverage, or offer plans with high out-of-pocket costs and (2) have at least one full-time employee certified as having purchased health insurance through a state exchange and was eligible for a tax credit or subsidy.
  1.  Requires information reporting of health insurance coverage information by large employers (subject to IRC 4980H) and certain other employers.
  1. Offers tax exclusion for reimbursement of premiums for small-group exchange participating health plans offered by small employers to all full-time employees as part of a cafeteria plan.
  1.  Subjects new group health plans to certain Public Health Service Act requirements and imposes the excise tax on plans that fail to meet those requirements. (Conforming amendment)
  1.  Authorizes IRS to disclose certain taxpayer information to the Social Security Administration (SSA) regarding reduction in the subsidy for Medicare Part D for high-income beneficiaries. (Conforming amendment)
  1.  Requires the independent institute partnering with the National Academy of Sciences (NAS) to implement a key national indicator system to be a nonprofit entity under section 501(c)(3).
  1. . Imposes a fee through 2019 on specified health insurance policies and applicable self-insured health plans to fund the Patient-Centered Outcomes Research Trust Fund to be used for comparative effectiveness research.
  1.  Imposes a 40 percent excise tax on high cost employer-sponsored health insurance coverage on the aggregate value of certain benefits that exceeds the threshold amount.
  1.  Requires employers to disclose the value of the employee’s health insurance coverage sponsored by the employer on the annual Form W-2.
  1.  Repeals the tax exclusion for over-the-counter medicines under a Health Flexible Spending Arrangement (FSA), Health Reimbursement Arrangement (HRA), Health Savings Account (HSA), or Archer Medical Savings Account (MSA), unless the medicine is prescribed by a physician.
  1.  Increases tax on distributions from HSAs and Archer MSAs not used for medical expenses.
  1.  Limits health FSAs under cafeteria plans to a maximum of $2,500 adjusted for inflation.
  1.  Imposes additional reporting requirements for charitable hospitals to qualify as tax-exempt under IRC 501(c)(3) and requires hospitals to conduct a community health needs assessment at least once every 3 years and to adopt a financial assistance policy and policy relating to emergency medical care.
  1.  Imposes a fee on each covered entity engaged in the business of manufacturing or importing branded prescription drugs.
  1.  Imposes an annual fee on any entity that provides health insurance for any U.S. health risk with net premiums written during the calendar year that exceed $25 million.
  1.  Allows the deduction for retiree prescription drug expenses only after the deduction amount is reduced by the amount of the excludable subsidy payments received.
  1. Increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5 percent of Adjusted Gross Income (AGI) to 10 percent of AGA (unless taxpayer turns 65 during 2013-2016 and then threshold remains at 7.5 percent).
  1.  Denies the business expenses deductions for wage payments made to individuals for services performed for certain health insurance providers if the payment exceeds $500,000.
  1. Imposes an additional Hospital Insurance (Medicare) Tax of 0.9 percent on wages over $200,000 for individuals and over $250,000 for couples filing jointly.
  1.  Limits eligibility for deductions under section 833 (treatment of Blue Cross and Blue Shield) unless the organizations meet a medical loss ratio standard of at least 85 percent for the taxable year.
  1.  Allows an exclusion from gross income for the value of specified Indian tribe health care benefits.
  1.  Allows small businesses to offer simple cafeteria plans—plans that increase employees’ health benefit options without the nondiscrimination requirements of regular cafeteria plans.
  1.  Establishes a 50 percent nonrefundable investment tax credit for qualified therapeutic discovery projects.
  1.  Requires employers to provide free choice vouchers to certain employees who contribute over 8 percent but less than 9.8 percent of their household income to the employer’s insurance plan to be used by employees to purchase health insurance though the exchange.
  1.  Imposes a tax on any indoor tanning service equal to 10 percent of amount paid for service.
  1.  Excludes from gross income amounts received by a taxpayer under any state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas.
  1.  Increases the maximum adoption tax credit and the maximum exclusion for employer-provided adoption assistance for 2010 and 2011 to $13,170 per eligible child.
  1.  Extends the exclusion from gross income for reimbursements for medical expenses under an employer-provided accident or health plan to employees’ children under 27 years.
  1.  Imposes an unearned income Medicare contribution tax of 3.8 percent on individuals, estates, and trusts on the lesser of net investment income or the excess of modified adjusted gross income (AGI + foreign earned income) over a threshold of $200,000 (individual) or $250,000 (joint).
  1.  Imposes a tax of 2.3 percent on the sale price of any taxable medical device on the manufacturer, producer, or importer
  1.  Amends the cellulosic biofuel producer credit (nonrefundable tax credit of about $1.01 for each gallon of qualified fuel production of the producer) to exclude fuels with significant water, sediment, or ash content (such as black liquor).
  1.  Clarifies and enhances the applications of the economic substance doctrine and imposes penalties for underpayments attributable to transaction lacking economic substance.
  1.  Increases the required payment of corporate estimated tax due in the third quarter of 2014 by 15.75 percent for corporations with more than $1 billion in assets, and reduces the next payment due by the same amount.

For a PDF version, click here.

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Taxpayer Advocates Issue Joint "Free File" Letter

Posted by Ryan Ellis on Monday, March 4th, 2013, 11:16 AM PERMALINK

The following joint letter was issued to Capitol Hill this morning:


Dear Congressmen:
We, the undersigned groups and conservative movement leaders, write today to express our support for H.R. 495, the “Free File Program Act,” sponsored by
Congressman Peter Roskam (R-Ill.) This legislation would make the private sector “Free File” program permanent.  We would urge you to co-sponsor this pro-taxpayer, anti-IRS power grab legislation.
It’s no secret that the IRS and big spenders in Washington, D.C. want to socialize all tax preparation in America.  The (ironically-named) IRS Office of Taxpayer Advocate has been pushing for IRS preparation of tax returns for years.  There’s only one reason proponents want to do this—tax revenues.  If the IRS invites a conflict of interest by adding “tax preparer” to its role as “tax collector,” it’s a near-certainty that everyone’s taxes will rise.  In fact, higher tax revenues are a major selling point of mandatory IRS-prepared tax returns.
The “Free File Program Act” is the best hope for preventing this taxpayer nightmare.  Since 2003, sixteen private sector tax software providers have voluntarily banded together to provide free tax preparation services to low- and moderate-income families with simple tax situations.  70 percent of all taxpayers—more than 100 million families—have access to this voluntary, private sector initiative.  To date, 37 million tax returns have been processed by Free File, saving taxpayers $129 million in administrative costs.
H.R. 495, the “Free File Program Act,” would permanently authorize this free and voluntary private sector effort.  More importantly, it directs the IRS that it “shall not compete with the private sector in providing these services to taxpayers, nor acquire, develop, or deploy enabling systems to duplicate or replace private tax preparation services.”  Never again would taxpayers have to worry about the IRS filling out a Form 1040 for them against their will.
As your fellow Americans struggle this tax season to comply with our nation’s costly and complicated tax system, we urge you to stand up for them by co-sponsoring H.R. 495, the “Free File Program Act.”



Grover Norquist
Americans for Tax Reform

Duane Pardee
National Taxpayers Union

Tim Phillips
Americans for Prosperity

Tom Schatz
Council for Citizens Against Government Waste

Jim Martin
60 Plus Association

Heather Higgins
Independent Women's Forum

Phil Kerpen
American Committment

David Williams
Taxpayer Protection Alliance

Andrew Moylan
R Street Institute

Andrew Quinlan
Center for Freedom and Prosperity

Seton Motley
Less Government

Jimmy LaSalvia

Letter PDF

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ATR Supports "Right to Refuse" Constitutional Amendment

Posted by Ryan Ellis on Friday, February 22nd, 2013, 4:30 PM PERMALINK

ATR today sent the following letter to Cong. Steven Palazzo (R-Miss.):

On behalf of Americans for Tax Reform, I am pleased to support H. J. Res. 28, your Constitutional amendment to prevent Congress from enacting any future “Obamacare mandate” style tax penalties. 

When the Supreme Court upheld the Affordable Care Act’s individual mandate in
June 2012, the Court stated that the Affordable Care Act’s individual mandate was a valid exercise of the congressional taxing power cited in Article I, Section 8 of the Constitution.

In the majority opinion, Chief Justice John Roberts stated that while “the Federal Government does not have the power to order people to buy health insurance… [it] does have the power to impose a tax on those without health insurance. Section 5000A [the individual mandate] is therefore constitutional, because it can reasonably be read as a tax.”

If passed, your “Right to Refuse” Amendment would exempt individuals and businesses that opt not to purchase insurance from facing thousands in mandate taxes set to take place in 2014.   It would also permanently prevent Congress from passing future legislation forcing Americans to choose between purchase of goods and services or tax penalties.     

There are 20 new or higher taxes in Obamacare, none worse than the penalty tax provisions.  Your amendment will prevent any further damage to taxpayers’ freedoms.

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The Real Story of the Fiscal Cliff and Its Aftermath

Posted by Ryan Ellis on Thursday, February 21st, 2013, 4:30 PM PERMALINK

The fiscal cliff was one of the largest tax hikes in American history.  The tax components actually came from four different clusters of expiring tax provisions.  They were:

The "Bush tax cuts."  The 2001 and 2003 tax relief, extended many times by Congress and most recently by a unified Democrat government in 2010, expired.  This meant that tax rates rose from an old range of 10 to 35 percent up to a new range of 15 to 39.6 percent.  Additionally, the capital gains rate rose from 15 to 20 percent, the dividends tax rose from 15 to 39.6 percent, and the death tax rose from 35 to 55 percent.  A host of other tax increases also kicked in, most notably a halving of the child tax credit to $500 and a return of the marriage penalty for all taxpayers.

The end of the business and personal "extenders."  There were several dozen business and personal tax provisions which expired for good with the fiscal cliff.  Most notable here was the expiration of the AMT "patch" which prevented the AMT from growing from 4 million to 31 million families overnight.  Other notable highlights were the ethanol tax credit and small business expensing of assets.

The end of the payroll tax "holiday."  In 2011 and 2012, Congress provided for a temporary 2 percentage point reduction in the FICA tax.  For most workers, this meant that the fiscal cliff raised their FICA tax portion from 5.65 percent of wages to 7.65 percent of wages.

The inauguration of most of the Obamacare tax hikes.  There were 20 new or higher taxes in Obamacare.  Most of them went into effect with the fiscal cliff.  These included a new 3.8 percent "surtax" on investment income, a hike in the Medicare payroll tax rate, and a new tax on medical device manufacturers. 

All told, these tax hikes totaled nearly $500 billion in 2013 alone.  The most important thing to know about these tax hikes is that they all, in fact, happened.  They happened automatically at midnight on New Year's Eve/New Year's Day.  No one in Congress voted for this to happen, nor did any President sign a tax hike into law.  Temporary law was simply allowed to expire.

This happened despite the efforts of House and Senate Republicans to vote on bills to temporarily or permanently defer this fiscal cliff tax hike nightmare.  At the insistence of President Obama and Harry Reid, the nightmare happened anyway.

When these tax increases went into effect, a new and permanent revenue baseline was established.  Under this new normal, tax revenues would come in at about 21 percent of economic output, far higher than the historical average of 18 percent.  Per year, taxes would be about $500 billion higher than they would have been if the fiscal cliff had been avoided.

Because this tax increase was broadly-felt down the income scale, Congress felt the need to cut taxes from this new, higher, permanent, post-cliff level.  This tax cut was in the form of H.R. 8, the "American Taxpayer Relief Act." 

This bill cut taxes from this "new normal" by $3.7 trillion over 10 years.  The Bush tax cut expiration was rolled back for all taxpayers making less than $400,000 per year.  Most of the business and personal extenders were extended, and the AMT patch was made permanent.  Nothing was done about the Obamacare taxes or the end of the payroll tax rebate.  The death tax was permanently set at a new 40 percent rate with a $10.3 million exemption for married couples.  A new phaseout of itemized deductions and personal exemptions was put in place for those making more than $200,000 per year.

Some have said that Congressmen voting for H.R. 8 were voting for a tax increase, as if a vote for H.R. 8 was somehow an endorsement of the fiscal cliff tax hikes which happened hours earlier.  That is simply untrue.  House and Senate Republicans voting for H.R. 8 made it clear that their strong preference was for the fiscal cliff tax hikes to never have happened, but they did.  Given that new reality, their vote to cut taxes can hardly be called a bad thing.

That's not to say that H.R. 8 was an ideal bill--far from it.  It failed to fully roll back the fiscal cliff tax hikes which had already happened, and resulted in a tax policy regime worse on net than the one which preceded the fiscal cliff.  However, that does not make H.R. 8 something it is not.  H.R. 8 is a tax cut--a large one.  Those voting for it cannot be smeared as tax hikers when the facts simply don't support that analysis.

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ATR Supports Hatch Ideas for Medicare, Medicaid Reform

Posted by Ryan Ellis on Thursday, February 14th, 2013, 4:23 PM PERMALINK

ATR sent the following letter today to Senator Orrin Hatch (R-Utah):

On behalf of Americans for Tax Reform, I am pleased to support your five common-sense reforms to the Medicare and Medicaid systems.  They represent a serious down payment on reform, and are the first steps Congress should take in a broader health entitlement overhaul.  Your reforms include:

Allowing the Medicare eligibility age to grow with life expectancy.  Under current law, the eligibility age for Medicare enrollment is 65.  Your proposal would permit this level to reflect longer life expectancy by increasing the age 2 months every year until a new age of 67 is met.  At that point, both Medicare and Social Security normal retirement ages would be aligned.  Because the change is not abrupt, it’s a fair deal for current and near-retirees who have planned their retirements around Medicare.

Putting more market forces to work in Medigap policies.  Many seniors purchase “Medigap” policies to wrap around the holes in their traditional Medicare plans.  However, most of these Medigap plans provide first-dollar coverage, which means that seniors have little incentive to be smart about their heathcare purchases.  Your plan would prohibit Medigap policies from covering initial out-of-pocket expenses for seniors when they receive care, giving seniors a motivation to ask their doctors how much medical services will cost.

Creating a simple, unified Medicare cost-sharing structure.  Most people are unaware that Medicare has a confusing hodgepodge of deductibles, coinsurance limits, and caps which make planning healthcare nearly impossible for seniors.  Your plan would create a simple system with one unified deductible, uniform coinsurance rates, and an annual catastrophic out-of-pocket cap.

Allowing for competitive bidding within Medicare.  This is an idea whose time has come.  It has a long, bi-partisan history.  Its origins can be found in the 1999 Breaux-Thomas commission, but it also has roots in the Rivlin-Domenici plan, and most recently in the Ryan-Wyden agreement.  Letting private companies compete to provide Medicare services will provide better Medicare choices for seniors at less cost than the status quo.

Putting a per-capita cap on Medicaid.  Similar to block granting, this form of defined contribution Medicaid reform has its origins in the Clinton Administration.  Spending limits would be set by beneficiary eligibility categories and adjusted for patient health condition.  Whether done per-beneficiary or per-state, it’s time for Washington to get out of the way and let the states reform Medicaid the same way they reformed welfare in the 1990s.

Full Letter PDF

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Top Five Tax and Spending Lies from the State of the Union

Posted by Ryan Ellis, Mattie Duppler, Chris Prandoni on Wednesday, February 13th, 2013, 11:06 AM PERMALINK

Obama Claim #1:  “[The American people] know that broad-based economic growth requires a balanced approach to deficit reduction, with spending cuts and revenue, and with everybody doing their fair share.”

Reality:  According to the Congressional Budget Office (CBO), tax revenues to the federal government will double over the next decade, from $2.5 trillion in 2012 to $5 trillion in 2023.  Tax revenues will settle in at 19 percent of economic output, a full percentage point higher than the historical average.  That means that tax revenues every year will be running $150 billion to $200 billion higher than what we’ve come to experience as the norm since the Second World War. 

American taxpayers are already doing their part, Mr. President.  It’s time for Washington to go on a spending diet.

Obama Claim #2:  “We should do what leaders in both parties have already suggested, and save hundreds of billions of dollars by getting rid of tax loopholes and deductions for the well-off and well-connected.”

Reality:  Most so-called “tax expenditures” are actually common, everyday tax benefits enjoyed by the middle class.  As for denying these tax preferences to high-income households, that was already done as part of the fiscal cliff deal.  Besides, the tax code is already very steeply-progressive, and is only getting more so.  Washington’s giant debt and deficit problems are caused by overspending, not undertaxing.

Obama Claim #3:  “The American people deserve a tax code that…ensures billionaires with high-powered accountants can’t pay a lower rate than their hard-working secretaries.”

Reality:  This is a straw man argument and is intellectually-dishonest.  CBO has already shown that billionaires pay taxes at a far greater rate than a middle class family.

A typical middle income family faces an average federal tax rate (total federal taxes divided by income) of 11 percent.  The top one percent of families face an average tax rate of 29 percent.  That’s nearly three times as high. 

The middle quintile of taxpayers finance less than 10 percent of all federal taxes paid.  The top one percenters finance over 22 percent of all federal taxes.  This is more than twice as much as the middle quintile.

Whether it’s expressed as percent of income paid in taxes or as percent of all taxes paid to the government, it’s clear that progressivity is not one of the problems in our tax code.  Tax reform is not about punishing households (many of whom are small businesses paying taxes using individual rates), but about creating a pro-growth tax system that creates jobs and wealth for all Americans.

Obama Claim #4:  “Over the last few years, both parties have worked together to reduce the deficit by more than $2.5 trillion...Democrats, Republicans, business leaders, and economists have already said that these cuts, known here in Washington as ‘the sequester,’ are a really bad idea.”

Reality:  The President is claiming credit for the sequester savings while at the same time demanding the cuts be avoided. The $2.5 trillion in savings the President claims to have “worked together” with Congress to achieve are derived partially from spending caps in the Budget Control Act, and partially from $1.2 trillion in automatic spending cuts scheduled to take place over the next ten years. President Obama can’t avert those cuts while counting the savings as a successful token of bipartisan deficit reduction. Not mentioned in the speech? This “really bad idea” was Obama’s idea.

Obama Claim #5:  “So tonight, I propose we use some of our oil and gas revenues to fund an Energy Security Trust that will drive new research and technology to shift our cars and trucks off oil for good.”

Reality:  President Obama is triple-counting these tax hikes. Elsewhere in the speech he suggests that the tax increases on oil and natural gas companies should be used to reduce the deficit, pay for the sequester, and now to create a new “Energy Security Trust.” Raising taxes on oil and natural gas companies gives the government about $5 billion dollars in additional revenue annually, which is enough to avert about six percent of the sequester, reduce the deficit by 0.5 percent, or create a new “Energy Security Trust” but not do all three. And the repercussions of these tax hikes would be substantial, killing 48,000 jobs and reducing our domestic production by 700,000 barrels of oil. 

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100 Years of the Income Tax: Then and Now

Posted by Ryan Ellis on Friday, February 1st, 2013, 3:55 PM PERMALINK

The century-long history of the income tax has been marked by more and more taxpayers paying higher and higher amounts of tax. 

As Americans get ready for yet another tax filing season, let’s take a look at how the income tax became the raw deal it is today:

View PDF here.

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Braces for the Kids Just Got More Expensive: Obamacare Tax Hike Case Study

Posted by Ryan Ellis, John Kartch on Friday, January 11th, 2013, 10:57 AM PERMALINK

As just one example, below are some of the taxes that will impact the purchase of dental braces:

Obamacare Medical Device Tax:  As of Jan.1, Obamacare imposes a new tax of 2.3 percent on medical device manufacturers, including those who make dental braces.  The tax is imposed on gross sales -- even if the company does not earn a profit in a given year.  While the tax will be paid to the IRS by the manufacturer, the tax will be passed along as a higher cost of the product, ultimately to be borne by the parent buying the braces for their child.  With the cost of braces being as high as $7,625 this new tax could raise the cost of these braces by $175.

Obamacare Flexible Spending Account Cap:  As of Jan. 1, the 30-35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face a new government cap of $2,500. This will squeeze $13 billion of tax money from Americans over the next ten years. (Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap.) A parent looking to sock away extra money to pay for braces would find themselves quickly hitting this new cap, meaning they would have to pony up some or all of the cost with after-tax dollars.  Needless to say, this tax will especially impact middle class families.

Obamacare “Haircut” to the Medical Itemized Deduction:  Faced with higher prices for braces and a reduced ability to pay for them with their FSA, parents might decide to deduct the cost of braces on their tax returns.  Unfortunately, Obamacare makes this harder, too. 

Before Obamacare, Americans facing high medical and dental expenses were allowed a deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI).  As of Jan. 1, Obamacare imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income.

According to the IRS, 10 million families took advantage of this tax deduction in 2009, the latest year of available data. Almost all are middle class. The average taxpayer claiming this deduction earned just over $53,000 annually. ATR estimates that the average income tax increase for the average family claiming this tax benefit will be $200 - $400 per year. To learn more about this tax, click here.

This is just a small example of how a simple, everyday, kitchen table decision has been fundamentally altered by the tax hikes in Obamacare.  It does not even take into account the indirect effects of the rest of the tax hikes in the law, which will reduce family income and kill jobs. 

Follow the authors on Twitter @JohnKartch and @RyanLEllis

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2013: Obamacare "High Medical Bills Tax" to hit 10 Million Middle Class Families

Posted by Ryan Ellis, John Kartch on Friday, January 4th, 2013, 1:19 PM PERMALINK

The average family subject to this new tax makes just over $53,000 and will face an income tax increase of between $200 - $400 per year.

Background:  Americans have long been allowed to deduct out of pocket medical expenses as an itemized deduction on their taxes. They cannot have already benefited from other tax provisions for health care like tax-free employer-provided care or tax-free accounts like flexible spending accounts (FSAs) or health savings accounts (HSAs). A full list of qualified expenses can be found in IRS Publication 502.

After totaling all unreimbursed, out-of-pocket medical expenses, the taxpayer must then subtract from this figure an amount equal to 7.5 percent of the taxpayer's adjusted gross income (AGI). This subtraction amount is known commonly as a "haircut."

According to the IRS, 10 million families took advantage of this tax deduction in 2009, the latest year of available data. They deducted $80 billion in medical expenses after applying the “haircut.”  The Office of Management and Budget reports that this tax deduction saves these taxpayers upwards of $10 billion annually.

Obamacare's tax hike:  The Obamacare law made one change to this tax provision: it raised the "haircut" from 7.5 percent of AGI to 10 percent of AGI. Since virtually all taxpayers claiming this income tax deduction make less than $200,000 per year, the income tax hike falls almost exclusively on the middle class:

-Virtually every family taking this deduction made less than $200,000 in 2009. Over 90 percent earned less than $100,000.

-The average taxpayer claiming this deduction earns just over $53,000 annually.

-ATR estimates that the average income tax increase for the average family claiming this tax benefit will be $200 - $400 per year.

-This income tax increase is focused on families with the largest medical bills that weren't covered by insurance. So the target population is low- and middle-income families with debilitating medical costs. That's a good definition of the opposite of “affordable” or “caring.”

According to the Joint Tax Committee, this tax increase is scheduled to raise between $2 billion and $3 billion annually. That may be a drop in the bucket in Washington DC, but try telling that to the $53,000 family with high medical bills that just saw a tax increase.  

The tax is a clear violation of President Obama's "firm pledge" in 2008 to not enact "any form of tax increase" on these families.

President Obama and his Democrat congressional allies have some explaining to do.

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No Pledge Signer Voted to Raise Taxes in Fiscal Cliff Bill

Posted by Ryan Ellis on Wednesday, January 2nd, 2013, 4:06 PM PERMALINK

No Taxpayer Protection Pledge signer voted for a tax increase this week.  No one—except President Obama—has broken their tax pledge to their constituents.  President Obama is wrong to say that Republicans voted for a tax increase.

As December 31, 2012 became January 1, 2013, taxes went up automatically on every American.  The top marginal income tax rate rose from 35 to 39.6%.  The death tax rate rose from 35 to 55%, with an exemption of $1 million.  The capital gains rate rose from 15 to 23.8%.  The dividends rate rose from 15 to 43.8%.  $1 trillion in Obamacare tax increases went into effect.  The 2 percentage point payroll tax rebate expired.  This was a permanent change in tax law, and a permanent tax hike on the American people.

This tax increase did not happen because of Republican Pledge signers.  The House, for example, voted to make all income tax rates permanent as part of the House budget, and also in H.R. 8 in July 2012.  Senate Republicans repeatedly emphasized that their goal was to avoid income tax increases on any American. This happened because President Obama wanted it to happen - if the President wanted to extend tax relief for middle class Americans, he would have done so when his party controlled both the White House and Congress in 2009 and 2010.  He would have campaigned in 2012 on more than a one-year tax hike reprieve for families making less than $250,000 per year.  The President wanted taxes to go up on New Years Eve, and they did.  They rose for each and every American family and small business.

Because of this tax increase, Congress’s job after that was to cut taxes for the American people, and that’s exactly what lawmakers did.

On New Years Day, the Senate and House voted on a bill to cut taxes by $3.7 trillion over the next decade.  The American people deserved a bigger tax cut; they deserved a cut that made permanent the levels in place from 2003 through 2012.  But there is good news.  This tax cut bill permanently secures tax relief for 99% of Americans.  It sets a tax rate schedule permanently.  It patches the AMT permanently.  It cuts the dividend tax rate permanently.  Importantly, income tax bills for those making less than $250,000 per year will not rise from 2012 levels, ever.  As House Ways and Means Committee Chairman Dave Camp (R-Mich.) said on the House floor last night, this tax bill “settles the level of revenue Washington should bring in.”  For the first time in a long time, the tax revenue baseline is permanent.

Because this bill was clearly a tax cut (to say otherwise is to pretend that the Obama tax increase never happened), there were no Taxpayer Protection Pledge implications to this vote.  This bill was a tax relief bill.  No Pledge signer is obligated to support tax relief, so those who voted against this bill weren’t violating their Pledge, either.  Going forward, with the specter of automatic tax increases effectively eliminated, tax increases will be clear and obvious, and questions about the Pledge will be less difficult.  If, as is anticipated, Obama presses for tax increases this year, Pledge signers will stop him cold.

Now the focus turns to the real problem: spending.  Over the next 90 days, Congress will have three opportunities to cut spending: during debate regarding the sequester, the continuing resolution, and the debt ceiling.  These are all opportunities to extract real spending cuts and entitlement reforms out of Washington.  The U.S. House won’t be voting for any tax hikes, since (as Chairman Camp put it), the revenue level is now settled.

The House can also turn to fundamental tax reform.  As it has done for the past two years, we expect the House to endorse comprehensive tax reform with the new permanent revenue baseline as part of the budget.  Chairman Camp has indicated he will produce a revenue-neutral tax reform bill this year.
ATR looks forward to continuing to work with lawmakers to enact spending cuts and oppose tax hikes.

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