As a politically involved person, I have often been asked why I became a CPA. My answer has always been clear and simple – the public policy of this country runs through the tax code and I wanted to understand that code. Never in my 35-year practice has anything validated that decision like the Patient Protection and Affordable Care Act. This is not health care reform; it is a full-employment act for CPAs.
In an era where Congress changes the tax law more frequently than a Hollywood actress gets Botox shots, nothing has ever come along like this behemoth. My tax service sent me a list of the Internal Revenue Code sections affected by the bill. It came to 22 pages (in small type), enumerating changes in 231 different Code sections. Of course, that’s before the bureaucrats and the IRS get their hands on this. Once you realize that the IRS will be adding 16,500 new agents to enforce our “Health Care” laws, you’ll begin to understand what this whole fight was about. It has very little to do with your health, and a lot to do with control of your life.
Let’s start with Obama’s big lie. It is absolutely indisputable that taxes are being raised on people whose income is below the magical figure of $250,000. The way it’s done is by reducing the medical-expense deduction. Currently, you’re allowed to deduct out-of-pocket medical expenses that exceed 7.5% of your income, but the new law changes that to 10%. This means if your income is $100,000, and you paid $10,000 in hospital bills, you will lose a $2,500 deduction and probably pay about $700 in additional taxes. In a country in which only 12% of health care expenses are paid by the individuals who actually receive the services, this increase will just encourage more people to shift those costs to third-party payers.
Then there is the familiar political trick; i.e., claiming that your taxes are not being raised, but at the same time increasing taxes on companies that sell things to you. Of course, those companies just pass the cost along to you. Under this “reform,” new fees and taxes are being imposed upon three medical industry groups: health insurers, medical device manufacturers, and pharmaceutical companies. The insidious objective here is not just to hide the real cost of this new plan, but to encourage exasperated Americans – who ultimately have to pay these rising costs – to view government-run health care more favorably.
What the bill mandates is utterly surreal. For example, there is a $2 billion annual tax imposed on medical device companies through 2017, increasing to $3 billion thereafter. Each of these firms must report their sales to the Treasury, who will then apportion the $2 billion tax amongst the various companies. Since no one knows exactly how many medical devices are sold in America, the companies haven’t the slightest clue what their cost per device will be. Let’s say 10 million are sold in the first year – that would mean a fee of $200 per device. But what if sales are driven down because of these higher costs (not to mention the real possibility that some of the companies will go out of business because of these huge new fees)? What if only 7 million devices were sold in the second year? The tax per device would now be $285. That would not only drive up the price of devices again, but – more importantly – it will profoundly discourage product innovation and investment because no one would be able to anticipate their gross production costs.
The elimination of one specific deduction has recently received a lot of media coverage. Companies that provided a prescription drug benefit to their retired employees were until now able to deduct 28% of the cost. It is estimated that this exemption saved taxpayers about $544 per person compared to the price of Medicare Part D for the same drug benefit. Now Congress has told corporations that you can pay the benefit, but you cannot deduct the costs, which is why all these large companies are taking massive loss write-offs. How long will it be before the companies stop providing this benefit? Believe me – when this happens, there will be a further outcry from the Left; the demagogues will point fingers at private industry; and, again the argument will be made for a totally government-run health system.
There’s also a new requirement that companies with 50 employees provide health insurance. What happens to the employer who has 48, then 49 employees? They have to decide whether to expand and be harnessed with the new costs and administrative requirements, or stop the growth of their company. Talk about a job-killing provision.
The only saving grace is that the bill takes on a favorite constituency of the Democrats – Hollywood. The bill adds a 10% tax on tanning salons. No doubt, that should balance the budget.