The Republican National Committee claims in a new Web ad that Democratic health care plans propose taxes on "charities and small businesses. A doctor’s tax. Taxes on your health insurance. Even a tax on medical supplies."
It’s perfectly true, as the ad says, that "hundreds of billions" in taxes are being proposed – spread over 10 years. But the ad exaggerates and misleads in a number of ways:
- It makes a downright false claim that ordinary wheelchairs would be among "medical supplies" subject to a proposed tax on manufacturers and importers. That’s not true: Wheelchairs and roughly half of all other medical devices would be exempt. (When we pointed this out, an RNC official said the ad would be modified, however.)
- It features a proposed tax on medical laboratory services that has already been dropped.
- The alleged tax on "charities" is actually a proposed limit on federal income tax deductions for charitable gifts by individual taxpayers in the highest brackets, not a tax levied directly on the charities themselves.
- Similarly, the "small business" tax also refers to a proposed tax increase on individuals making more than $280,000 a year ($350,000 for families), only some of whom own small businesses. The vast majority of small-business owners don’t bring in enough to be affected.
The ad claims "your health insurance costs will skyrocket," but independent experts disagree. The head of the Congressional Budget Office says the biggest tax proposed in the Senate Finance Committee plan, for example, would reduce health care spending, because it cuts a tax incentive that encourages spending.
The RNC posted the ad on its Web site Sept. 28 and promoted it with a morning TV appearance by GOP Chairman Michael Steele on Fox News, which aired the ad in full. The RNC also put the ad on YouTube a day earlier.
RNC Web Ad
Announcer: Barack Obama and Democrats promise that healthcare reform will lower costs. But their plans deliver increased taxes.Taxes on tests, scans and X-rays. New taxes on charities and small businesses. A doctor’s tax. Taxes on your health insurance. Even a tax on medical supplies. Hundreds of billions in new taxes. All of it passed right back to the consumer. And if you think you can’t afford it. You can’t afford not to. Because they’ve even proposed a tax for not having health insurance. With at least 8 new taxes. Your health insurance costs will skyrocket. Of course it’s easy to raise taxes when you live in denial about the very meaning of the word.
ABC News’ George Stephanopoulos: Under this mandate, the government is forcing people to spend money, fining you if you don’t. How is that not a tax?
President Obama: No. That’s not true George. For us to say that you’ve got to take a responsibility to get health insurance, is absolutely not a tax increase.
Stephanopoulos: Webster’s dictionary: ‘tax: a charge, usually of money, imposed by authority on persons or property for public purposes.’
Announcer: Obama health care taxes. Wrong for health care. Wrong for our economy. Learn more at barackobamaexperiment.com.
Also, the RNC listed what it called "The Obama Health Care Taxes" as a news release on its Web site. It does list eight proposed "taxes" (Democrats prefer to call some of them "fees"), but the list falls short of backing up the claims in the ad. It cherry-picks items from both the main House bill and its competition in the Senate, throws in one proposal that was dropped and lists another that hasn’t made it into either bill.
We’ll look at each of the claims made in the ad, in the order they appeared.
"Taxes on tests, scans & X-rays"
It’s true that the Senate Finance Committee bill as it was introduced did contain a levy on clinical labs and manufacturers of medical devices based on market share. Nonpartisan arbiters like the Congressional Budget Office say these costs would be passed on to consumers. But the fee for clinical labs was dropped on Sept. 22. The House bill doesn’t contain either of these provisions.
"New taxes on charities …"
Nobody is proposing that charities pay any new taxes. The RNC points to Obama’s proposal to limit federal income-tax deductions (including deductions for gifts to charity) for individual taxpayers making more than $200,000 a year ($250,000 for families) and calls it "the Obama charity tax" on grounds that charitable donations would suffer. That idea isn’t currently in bills in either the House or Senate, but Sen. Jay Rockefeller and some other Democrats on the Senate Finance Committee are proposing several amendments that would limit deductions, including charitable deductions, to pay for their proposals. Leaders of 14 charities sent a letter opposing limits, saying: "Limiting the value of the charitable deduction would hurt these efforts [to raise private donations ] by creating a disincentive for individuals and households who give the most to charitable organizations."
Update, Sept. 30: After we posted this article, the RNC objected and made a new argument. RNC Research Director Jeff Berkowitz pointed to an 8 percent payroll tax that the House Democratic bill proposes for large employers, including not-for-profit entities, that don’t provide health care for employees. "[T]hey would face higher costs or have to pay the tax," Berkowitz wrote to us in an e-mail. "So, the House Democrats’ are proposing that charities pay a new tax."
We agree that would be a new tax on some charities – those with payrolls over $500,000 a year – and only those that also fail to provide health insurance for their employees. But it’s not a tax on charities in general, and it applies to all large employers.
". . .and small businesses"
This refers to the House Democrats’ proposal to impose a federal income tax surcharge on individual taxpayers making more than $280,000 a year ($350,000 for families.) It would not fall directly on businesses, but the RNC says it would fall on "many" small businesses indirectly, because owners pay taxes on their profits as individuals. In 2004, such "flow-through" businesses accounted for 93 percent of all U.S. businesses and one-third of all business receipts, according to a Treasury Department study released in 2007. But as we’ve pointed out before, most small-business owners wouldn’t be affected by a tax increase at that income level. Estimates of the number of small businesses range up to nearly 27 million, but the number of owners affected would be well under 1 million.
"A doctor’s tax"
What the RNC calls a "doctor’s tax" is actually a one-time, $350 "application fee" being proposed in the Senate Finance Committee proposal (page 188) to offset costs of a new anti-fraud effort. It would require that doctors – and also all other "providers and suppliers" as well – be screened by the government before they are allowed to bill Medicare for services. Officials would check at least to ensure that a doctor is properly licensed, and could also require "submission of fingerprints, criminal background checks, multistate data base inquiries, and random or unannounced site visits." The fee could be discounted to $250 for current providers, if paid within 12 months of the enactment.
"Taxes on your health insurance"
The Senate Finance Committee proposal would indeed impose a tax on the most costly health insurance plans, but whether this would affect "your" insurance is doubtful. It would fall on policies costing more than $8,000 a year for individuals, or $21,000 a year for family policies, and those levels would rise each year in line with inflation. Most policies wouldn’t be taxed: The proposed cut-off is far above the current average for employer-sponsored plans, which this year is $4,824 for an individual policy and $13,375 for a family, according to the Kaiser Family Foundation. A Kaiser Health News article states that "between 2 and 3 percent of covered workers and families would hit that [proposed tax] threshold today."
The RNC says this tax would result in "raising premiums on many Americans," which is certainly a possibility. Insurance companies might well attempt to pass on the tax to consumers, as makers of luxury autos have done with the so-called "gas guzzler tax." But it is equally possible that insurance companies would tailor policies to avoid the tax by dropping more expensive benefits to keep premiums below the thresholds.
"Even a tax on medical supplies"
The most common medical supplies would actually not be taxed at all. The RNC ad refers to a tax on medical "devices" that is contained in the Senate Finance Committee proposal. The "device" tax would amount to $4 billion per year and be paid by manufacturers, allocated by market share. But about half of all devices – including common items such as tongue depressors, bedpans, enema kits and elastic bandages – would not be taxed. The proposal specifically exempts all devices that the Food and Drug Administration puts in "Class I," which are those that the FDA deems to present "minimal potential for harm." The FDA says 47 percent of devices fall into this category.
In fact, the ad makes a downright false claim by showing an image of an ordinary wheelchair as the sole example of the "medical supplies" that would be taxed. That’s just wrong. The FDA classifies mechanical (non-motorized) wheelchairs as Class I devices, which would be exempt.
(When we asked the RNC about this, an official conceded that the wheelchair pictured would not be subject to tax, but added: "However, that leaves a range of wheelchairs, such as motorized, special grade, stair climbing, stand up, and others hit by the tax." The official said the ad would be modified: "Our video editor is updating the web video now to show a motorized wheelchair to avoid any confusion.")
That’s not to say the tax would be painless. The proposed tax (which the proposal refers to as an annual "fee") is being opposed by the industry and even by some Democrats on grounds that it would deter innovation and cost jobs. A Sept. 16 letter signed by three Democratic senators, Evan Bayh of Indiana and Amy Klobuchar and Al Franken of Minnesota, said: "The amount of capital that these [device] companies would have available to reinvest in product development and innovation would be threatened, dramatically reducing both the number of jobs in the industry and the types of devices available to patients." The three Democrats were joined by Republican Sen. Richard Lugar of Indiana.
"Hundreds of billions in new taxes"
This part is true enough, with the usual caution that the total is spread over 10 years. The most recent estimate by the nonpartisan Joint Committee on Taxation, for example, has the Senate Finance Committee’s proposal bringing in a net total of $357.7 billion in added revenue over the decade, the lion’s share ($205.1 billion) coming from the new tax on high-priced medical insurance. The House Democrats’ bill would be more expensive and also would impose more taxes, a 10-year total of $583 billion as originally estimated in July.
"A tax for not having health insurance"
This is also true. The heart of both the House and Senate bills is a requirement that nearly everybody without health insurance must obtain it or face a penalty. (We won’t quibble over whether it is called a "tax" or a "penalty," since the effect is the same either way.)
Medicaid would be greatly expanded to provide government-paid coverage for millions of additional low-income workers, and subsidies would be provided to help others buy their own coverage on the open market if necessary. But those who still failed to obtain coverage would face fines. In the Senate Finance Committee proposal these originally ranged from $750 a year (for a low-income individual) to $3,800 a year (for higher-income families). Chairman Max Baucus has since cut those in half, however, so the maximum penalty would now be $1,900 for a family.
And while the ad doesn’t mention it, the penalty could be much more severe for anyone who refuses to pay it. Violators could be charged with a misdemeanor and could face up to a year in jail or a $25,000 penalty, according to the chief of staff of the Joint Committee on Taxation.
"Insurance costs will skyrocket"
The Web ad claims that because of these taxes, "your health insurance costs will skyrocket." But the RNC’s list of taxes doesn’t back that up. The Joint Committee on Taxation estimated that several of the taxes mentioned in the ad – on tests, scans, X-rays and medical devices – would be passed along to consumers but would only add "about 1 percent" to the cost of premiums.
Other taxes mentioned in the ad – the misleading references to taxes on “charities” and “small businesses” – are actually changes in income tax rates for those in the top tax brackets. That won’t cause anyone’s “health insurance costs” to “skyrocket.” The excise tax on high-cost health plans might raise premium costs (or reduce benefits) for the relative few who are covered by them, but the CBO didn’t estimate how much. Both the CBO and JCT directors told the Senate Finance Committee on Sept. 22 that the tax on so-called “Cadillac” plans would cause some employees to choose less-expensive plans, which, in turn, would cause their compensation to increase. The JCT estimates on revenue the government would receive from the tax include “additional income tax and payroll tax receipts” that would be received under such a scenario, said JCT Chief of Staff Thomas Barthold. And overall, the agencies see the tax as decreasing health spending. CBO Director Douglas Elmendorf said in his testimony: “[I]mposing this tax would, in our judgment together with the Joint Tax Committee staff, reduce health spending over time by make – by removing what is essentially a subsidy in the current tax code to buy more health insurance relative to buying things that you have to purchase with after-tax income.”
The RNC also fails to note that all of the bills being debated in Congress propose subsidies for low- and moderate-income individuals to help them buy insurance. Whether “your” premium goes up or down, depends on your income, as well as health status and current health care costs – and on the legislation, as we’ve noted before. For instance, according to an analysis by the Lewin Group, a subsidiary of UnitedHealth Group that operates independently of the company, the House bill as introduced would decrease families’ health care spending on average.
– by Brooks Jackson
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