7 Huge Tax Breaks in the Senate GOP Health Care Plan
Policy + Politics

7 Huge Tax Breaks in the Senate GOP Health Care Plan

REUTERS/James Lawler Duggan

As Senate Republicans prepare for a showdown next week over Majority Leader Mitch McConnell’s plan to repeal and replace the Affordable Care Act, a debate is raging over whether the plan is principled conservative overhaul of the nation’s health care system or a thinly veiled transfer of resources from the poor and middle class to the wealthy and corporate America.

The bill revealed on Thursday would eliminate the mandate that individuals acquire insurance and that larger businesses provide health insurance or pay tax penalties. And it would gradually reverse the expansion of the Medicaid program and slash overall spending by roughly $800 billion in the coming decade.

Related: Why Some GOP Senators Are Balking at Their New Health Care Plan

At the same time, the GOP plan would repeal roughly 20 different tax increases imposed under the 2010 Affordable Care Act to finance the health insurance program. The taxes include a 3.8 percent investment income tax, a health insurer tax, a 0.9 percent payroll tax, a medical expense deduction and a prescription drug industry tax.

The Congressional Budget Office has estimated that the Obamacare taxes likely would generate about $1.1 trillion in revenues between 2016 and 2025, absent any changes in the law.

Economists at the Joint Committee on Taxation last year released their estimates of the cost of fully repealing the ACA's taxes. The JCT concluded that the Treasury would lose nearly $600 billion in tax revenue through 2026 – and likely close to $700 billion through 2027.

Here are seven of the biggest tax breaks in the Senate GOP plan, according to the conservative group, Americans for Tax Reform:

1. Repeal of surtax on investment income, worth $222.8 billion over 10 years. This is the granddaddy of the Obamacare taxes directly aimed at wealthier Americans and investors. It created a new, 3.8 percent tax on investment income in households making at least $250,000 a year or for single people earning at least $200,000.

Related: Uncertainty Over Obamacare Drives Up Average Premiums 18% Next Year

2. Repeal of health insurance tax, worth $130 billion over 10 years. This tax is directly levied on the health insurance industry and is collected annually by the Treasury and is divided among insurers based on the premiums they collect each year. While insurers have complained about the tax, they have largely passed it along to small businesses that provide health care to their employers and middle class families and others in the form of higher premiums.

3. Repeal the hike in Medicare payroll tax, worth $123 billion over 10 years. The Affordable Care Act imposes an additional 0.9 percent payroll tax on individuals making $200,000 or couples making more than $250,000. Repealing the law provides a significant tax break for upper-income Americans.

4. Repeal of excise tax on comprehensive health insurance plans, worth $32 billion over 10 years. The proposed 40 percent excise tax on employer-provided “Cadillac” health insurance plans was scheduled to take effect in 2020. The steep tax would target top-of-the-line health insurance plans exceeding $10,200 for individuals and $27,500 for families. The Kaiser Family Foundation projected that the Cadillac tax would hit 26 percent of employer provided plan beginning in 2020 and rise to 42 percent by 2028.

5. Repeal of the “black liquor” tax hike, worth $23.6 billion over 10 years. This is a tax increase on a type of bio-fuel that is the byproduct of wood pulp manufacturing. The tax break would benefit paper mills.

Related: Here Are Six Key Differences Between the House and Senate Health Care Plans

6. Repeal tax on medical device manufacturers, worth $20 billion over the next 10 years. The new 2.3 percent excise tax on all sales of medical devices was temporarily postponed and set to take effect in 2018. Manufacturers have strongly lobbied against the tax, saying it would be serious blow to businesses and consumers, although the tax does not apply to eyeglasses, contact lenses, hearing aids, wheel chairs or other medical devices the public generally buys at retail for individual use. 

7. Repeal “medicine cabinet tax” on HSAs and FSAs, worth $6.7 billion over 10 years. Under Obamacare, the 20.2 million Americans with Health Savings Accounts and the 30 million or so covered by a Flexible Spending Account are no longer able to purchase over-the-counter medicines such as cold, cough and allergy medicine using these pre-tax account funds.