Monday, October 21, 2013

What will ObamaCare do to your taxes?

There was some interesting pushback from my last post (although, weirdly, none of it is in the comments), so in an effort to be more "holistic," I thought I'd show the downsides of ObamaCare. As throughout these posts, I'll try to keep it simple and let the data/info speak for itself. If you want more of a scholarly piece, you might want to try the Journal of Healthcare Quality (my Bible). However, if you do stick it out here, I'll provide links to some awesome IRS docs.

So, people obviously dislike tax increases and this has generally been the one of the major complaints about the ACA that does have some truth do it. (For what it's worth, US healthcare is still not run by the government like it is in Great Britain, your 85 year old grandpa will still get his cancer treatment, and no, illegal immigrants do not get free health care under the ACA).

To the tax increases:

-- For those who make over $200k/yr as an individual (or $250k filing jointly), the ACA will
  • Set a net investment income tax (think capital gains, dividends, interest) at 3.8% for this type of income that pushes a person or couple above the above-mentioned income thresholds.
-- For everyone, the ACA will
  • Lower the amount of medical expenses that are deductible for tax purposes. Next year only expenses above 10% of one's income are deductible versus 7.5% in the past. So if you make $40,000 (gross) and incur medical expenses worth $10k (and you're in the 20% bracket), you'll save $1200 [(10k - (40k*.1))*0.2=1200] instead of $1400 [(10k-(40k*.075))*.2=1400] using the tax break*. For the (almost) average person with large medical expenses, that's a loss of ~$200 in a large emergency. To be "holistic" about this point, however, the odds of one incurring such staggering expenses will go down for the typical American as (hopefully) many more will soon have health insurance.
That's pretty much it in terms of individual tax changes coming due to the ACA (and note how little is asked of the middle class). For those seeking info on the more abstruse, FSA contributions will now be capped at $2500/yr, there will be a 2.3% tax on medical devices sales, and in 2018 an excise tax will be levied on "cadillac" health plans. This article explains why the latter is a good idea.

Recall that these provisions cause the ACA to actually reduce the federal deficit over the next ten years. Do these tax changes seem justified to help bring health insurance to ~25 million people by 2023? You be the judge.

* This tax calculation is an over-simplification, but $200 does provide an upper-bound estimate of the pre- and post-ACA tax differences.

Postscript: For reference, the median household income in the US in 2011 is $50,502. Those households grossing over $200k are above the 95th percentile.


  1. Man....that just went over my head. I'm too simple for it all.....(no offense). As far as I'm concerned gov't has no jurisdiction to provide anything to it's citizens. That's up to the citizens to provide for themselves through the market.....not forced legislation of "the law". Anyways....I'm not sure I really understand all that....lower this, higher that, premium this....whatever.

    I'm just a regular citizen trying to make a living. I don't want handouts. I don't want gov't to help me live my life. I just want them to protect my rights.....not provide them to me.

    I'm glad that you've taken the time to figure these things out. But....I think it's a bit more simple than that....which is what I

  2. Good to hear from you, Lio! Sorry it took me so long to reply. It would be nice if these things were simpler and clear cut. Maybe then I wouldn't have much to write about. :) Hope you and yours are doing well.