How Obamacare Taxes Hurt Seniors

The Affordable Care Act raises taxes, in direct contradiction to President Barack Obama's promises.

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The revelation that the individual mandate in Obamacare is a tax came as a surprise to many. What is not a surprise is the number of other taxes already in the new law which, if allowed to go fully into effect, threatens to wreak havoc with the nation's economy.

Obamacare, which Republicans on Capitol Hill have labeled "a job killer," includes at least 20 new taxes or tax increases on American families and employers. "Many of these tax increases," according to the nonpartisan Americans for Tax Reform, "fall on families making less than $250,000—a direction violation of candidate Obama's promise not to raise 'any form' of taxes on these families."

[ See a collection of political cartoons on healthcare.]

According to Americans for Tax Reform, seniors are going to be hit particularly hard by these new taxes, and the five worst ways the group identifies are:

1. Individual Mandate Tax. Many seniors face a coverage gap between retirement and Medicare eligibility. Obamacare raises taxes on these younger seniors by punishing them if they don't purchase "qualifying health insurance." Set to go into effect in 2014, the excise tax penalty for mandate non-compliance will in 2016 rise to 2.5 percent of adjusted gross income for a senior couple (or $1,390 for those making less than $55,600). Why does Obamacare raise taxes on seniors just as they are entering retirement?

2. "Cadillac Plan" excise tax. Starting in 2018, Obamacare imposes a whopping 40 percent excise tax on high-cost ("Cadillac plan") health insurance plans. This is defined for seniors as a plan whose premiums exceed $29,450 for a family plan, or $11,500 for a single senior. Seniors often face higher costs in health insurance premiums due to chronic health conditions and other risk factors. This tax is almost exclusively a tax which will fall on seniors with the greatest health insurance needs.

3. Dividends tax hike. Starting in 2013, the top tax rate on dividends is scheduled to rise from 15 percent today to 39.6 percent. In addition, Obamacare imposes a dividend "surtax" of 3.8 percent on families making more than $250,000 per year. That would create a top dividend tax rate of 43.4 percent, nearly triple today's rate. This will fall very hard on seniors. According to the Tax Foundation's analysis of IRS data, 70 percent of households over age 55 receive dividend income. 71 percent of all dividends paid flow to these households. To raise taxes on dividends is to raise taxes on seniors.

4. Medical device excise tax. Obamacare imposes a new excise tax on medical device manufacturers in 2013. These companies will surely build the cost of this new tax into the price of what they sell. Who buys medical devices? Who buys pacemakers, wheelchairs, and other costly medical devices? Seniors do.

5. Reduce allowable medical itemized deductions. Under current law, medical itemized deductions can be claimed on tax returns, but they must be reduced by 7.5 percent of adjusted gross income. Obamacare increases this "haircut" to 10 percent of AGI in 2013. This will mean that millions of Americans claiming medical itemized deductions will no longer be able to. The same IRS data as above tells us that 60 percent of all tax returns claiming this deduction are over age 55.

[ See a collection of political cartoons on the economy.]

The taxes in the new law are going to get increased scrutiny over the next few months. On Tuesday, the House Committee on Ways and Means started hearings on the tax ramifications of the Supreme Court's ruling on the Affordable Care Act.

In his opening remarks, Ways and Means Chairman David Camp said,

Some may argue that this ruling simply reaffirms a power that Congress has always had. However, until the Democrats enacted their healthcare law, and until the individual mandate tax was determined to be an acceptable use of Congress's taxing power, the power to tax has never been used to coerce people who do not purchase a specific product or service. This is the first indirect tax on inactivity in American history.

Describing the tax as being "to force people to do what they otherwise might not freely choose to do," Camp suggested the court's decision had broad implications that Congress must consider before moving forward.

[Read the U.S. News Debate: Should Congress Repeal the Affordable Care Act?]

Camp asked,

How is this different than the government requiring Americans to purchase broccoli or pay a tax for not doing so? How is this different than the government requiring Americans to purchase low-fat or low-salt foods or pay a tax as a means to fight the obesity epidemic? After all, the case put forth by the Democrats and the president was that the individual mandate was necessary to improve the nation's health. Under that premise, what is there to stop future Congresses from using this taxing authority to compel a similar 'it's for the good of the country' outcome? If one refuses to purchase the goods and services the government thinks are best for the country, the act of not purchasing can now trigger a tax.

It's a debate that will wage for months, probably to the GOP's benefit. The lines are clearly drawn, with the Democrats being the party of taxes and the Republicans being the party of tax limitation. And taxes, as we all know, are unpopular with the American people. Anyone want to guess how this is going to turn out?