Supreme Court ruling casts tax shadow over U.S. healthcare law

WASHINGTON (Reuters) - Republicans seized on a momentous U.S. Supreme Court ruling on Thursday to accuse President Barack Obama of hiding a tax increase in his healthcare law, an argument likely to intensify a congressional tax policy war already underway.

The court ruled the 2010 law was valid because Congress has the power to impose taxes. The Obama administration played down the tax factor, but Republican opponents pounced on the decision, seeking to elicit political points from a legal issue.

Mitt Romney, the presumed Republican challenger to Obama in the November 6 presidential election, said after the ruling that “Obamacare raises taxes on the American people by approximately $500 billion.”

That number is disputed by Democrats. The non-partisan Congressional Budget Office says the law will cut the deficit by $210 billion over 10 years. Nevertheless, some taxes will rise.

Senate Republican Leader Mitch McConnell said after the ruling, “The Supreme Court has spoken. This law is a tax.”

Democrats acknowledge taxes will rise for some, but argued it will prevent “free riders” from using the health care system for free and increasing costs for the rest of the population.

“In their relentlessly negative pursuit to repeal health care reform, Republicans have now fallen back to their predictable anti-tax rhetoric,” said Sander Levin, a Democrat on the tax-writing House Ways and Means Committee in charge of tax financing.

The issue could resonate for months as Congress tackles huge decisions before the year-end expiration of several tax measures in a confluence of events some are calling “taxmageddon.”

Measures set to expire are the tax cuts enacted under former President George W. Bush and extended by President Barack Obama, while broad automatic spending cuts and a potential need to again increase the federal borrowing limit also loom ahead.

“The (court) decision sharpens the year-end tax debate,” especially with the new taxes on the wealthy, said Clint Stretch, a former counsel to the congressional Joint Committee on Taxation.


The healthcare law contains a slew of tax provisions. Most are narrowly targeted and their overall impact hits hardest on the wealthy, whose interests are often defended by Republicans.

One provision is a fee that will have to be paid by some people who lack health insurance starting in 2014. Many people, including the poor and Native Americans, will be exempt from it.

In total, the fee could hit about 4 million Americans in 2016, the Congressional Budget Office has estimated.

In 2014, the fee will be $95, or 1 percent of taxable household income. By 2016, the fee will rise to $695 per person, with a cap equal to the greater of $2,085 per family or 2.5 percent of household income.

Some of the law’s other tax provisions have already kicked in, including an annual fee on drug manufacturers based on sales and market share, and an excise tax on medical device makers. A tanning salon excise tax also has been implemented.

Beginning next year, the Medicare insurance tax will rise to 2.35 percent of wages from 1.45 percent of wages for wealthy people with incomes exceeding $200,000 per individual or $250,000 for married couples.

In another provision hitting only people with high earnings, a 3.8 percent tax on investment income such as capital gains and dividends will be layered on top of the current 15-percent tax.

Starting in 2014, employers with more than 50 workers must pay a fee to the federal government of $2,000 for each full-time employee for which the company does not provide health coverage, though the first 30 workers are excluded from the fee.

Also in 2014, the government will begin charging fees on health insurers. This is expected to raise $8 billion that year.

The healthcare law aims to expand coverage to 32 million more Americans by 2019, reducing by half the number of people who otherwise would be uninsured at the end of the decade.

The law also provides tax subsidies to help families afford the mandated health insurance coverage.

Additional reporting by Donna Smith; editing by Todd Eastham