As the midterm election storm is brewing, we are closely watching the potential effects of party and committee changes on taxes and tax law. One thing is for certain, this election has the potential to have a big impact on your wallet through the stay or repeal of recently passed health care bill.
More of a rip current than a single wave, healthcare taxes and increased government regulation will hit slowly and steadily over the next few years. The 2012 provision requiring all businesses to file 1099 forms for all other businesses has been acknowledged by the IRS to be an overwhelming burden for them and for taxpayers. However, the majority won’t budge. Republicans are working to repeal this provision, however the best we may be able to hope for is a few exemptions from the requirements. This provision will increase accounting fees for many small firms by up to thousands of dollars, and will increase the cost of owning a business credit card since credit card companies will share a major portion of the reporting burden.
In 2013, upper income earners will be hit with the additional 3.8% tax on investment income. Medicare taxes will also go up .9% on upper income earners. If you have an HSA or an FSA, your taxes are going up no matter how much you make. The first way they are going up is that these tax free medical savings accounts will have their contribution limits cut in half. Next, you will be restricted in what you can purchase under the plan. For example, you will no longer be able to use these to buy over the counter drugs. If you do use them for unapproved purchases, the penalty will be doubled to 20%. And lastly, a key provision in the healthcare bill requires insurance plans to cover at least 60% of the actuarial value of the benefits offered. This could mean the end to HSAs which require the holder to be enrolled in a high deductible plan.
The other way healthcare taxes will hit us is through increased prices on insurance and medical products. Much of the healthcare bill is paid for through embedded taxes on pharmaceuticals, medical equipment makers, and insurance companies. Already many of us are feeling the squeeze as insurance rates steadily rise to meet future costs.
I think we would all like to believe that if taxes go up it will only be on the “wealthiest Americans” and only back to pre-Bush levels. However, nixing an extension of the tax cuts for the top two brackets will only save $700 billion over 10 years, or $70 billion a year. The deficit for 2010 is projected to be the same as 2009 at a whopping $1.4 trillion. Expect shrinking and expiring credits and deductions for everyone until Washington can plug the spending hole.
This is enough to make every American start singing the blues!