Taxpayers are feeling the first significant financial sting of federal health care reform as a passel of new taxes took effect on the first day of the new year.
A total of six new health care reform taxes were implemented on Jan. 1. High wage earners are feeling the biggest pinch, though middle-income taxpayers and businesses also are affected.
The new provisions join a half dozen other taxes, ranging from a 10 percent levy on tanning services to a surcharge on drug manufacturers, that took effect in earlier years. Four more taxes are scheduled for 2014 and beyond.
The taxes were included in the Affordable Care Act, which Congress passed in 2010.
The law seeks to improve the quality and scope of health care nationwide, extending coverage to millions who are currently uninsured.
From expansion of prescription coverage for seniors to allowing young adults to stay on their parents health plans until age 26, many of the health laws benefits have already begun.
More benefits, including a prohibition against denying coverage due to pre-existing conditions, are scheduled for 2014.
Tax increases help underwrite the cost of the law, a process that will fully take hold in 2014, said Geoffrey Joyce, director of policy at the Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California.
About half of the $1 trillion cost of health care reform will come from taxes on health care providers, and about half through other taxes, Joyce said.
And now, especially for top earners, the bill is coming due. Some observers believe the costs will be broad enough to sway public opinion on the overhaul law.
Sally Pipes, president of the Pacific Research Institute, a San Francisco-based conservative think tank, said she has noticed a general lack of familiarity with the new taxes that is likely to change in the new year.
When I mention these taxes in talks that I give around the country, people just have no idea that this is coming down the pike, Pipes said.
High wage earners, defined as individuals who make $200,000 or more per year, will see the biggest hike, with the health law increasing Medicare withholding from wages by 0.9 percent and adding a new 3.8 percent tax on investment income. Those taxes are expected to generate $317 billion in revenue over the next decade, according to an estimate by the congressional Joint Committee on Taxation.
Taken together, the pair of increases represent the largest single source of funding on a House Ways and Means Committee list of taxes supporting the health care law.
The middle class also could feel the sting. Starting in 2013, the threshold for deducting medical expenses will increase from 7.5 to 10 percent of income.
For a family that makes $50,000 per year, a $5,000 medical expense would no longer be deductible, whereas, today, under the 7.5 percent rule, $1,250 of the total expense could be written off.
The change is expected to generate about $24 billion in new revenue between 2013 and 2018, according to the Joint Committees estimate.
Businesses will also see additional taxes in the new year.
A new tax on medical device manufacturers and elimination of a tax break for companies that receive subsidies to help pay for retiree prescription drug coverage also took effect Jan. 1.
Bigger effects of the new law begin in 2014. Thats when businesses with 50 or more employees must start offering coverage to their employees or pay a penalty.
Likewise, uninsured individuals and families will have to start buying coverage from state-run exchanges or face fines. Its also when the federal government will expand Medicaid known as Medi-Cal in California subsidizing health coverage for an estimated 16 million additional Americans by 2019 who cant afford to buy insurance on their own.
The political fallout from the new taxes remain to be seen.
Pipes, the conservative think tank president, predicted that it will hurt Democrats in the 2014 midterm elections.
I think there is going to be quite a backlash once people realize how this law is going to be hitting them, Pipes said.
But Joyce, the USC health economist, said he wasnt so sure.
He noted that most of the taxes going into effect this year affect a narrow slice of the voting public.
Politically speaking, only a small fraction of the population is going to bear many of these taxes, he said.
Gregory Knoll, chief executive of the Legal Aid Society of San Diego, said it is important to view the health reform law as something that will require years of tinkering to get right.
I dont think that the law as drafted is perfect in any way, but what is perfectly clear, is that we must go forward and figure this stuff out, Knoll said.