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GOP faces big decision on ObamaCare taxes

GOP faces big decision on ObamaCare taxes
© Victoria Sarno Jordan

Congressional Republicans are facing their first big decision on taxes under President Trump: Which ones to scrap in the repeal of ObamaCare.

Republicans have in the past sought to erase most of the big tax hikes in the healthcare law, and the chairmen of the tax-writing committees have expressed support for eliminating the taxes in a repeal bill. 

“After spending seven years talking about the harm being caused by these taxes, it’s difficult to switch gears now and decide that they’re fine so long as they’re being used to pay for our healthcare bill,” Sen. Orrin HatchOrrin Grant HatchGOP leaders hesitant to challenge Trump on Saudi Arabia Congress should work with Trump and not 'cowboy' on Saudi Arabia, says GOP senator US to open trade talks with Japan, EU, UK MORE (R-Utah), the chairman of the Senate Finance Committee, said Wednesday.

“All of the ObamaCare taxes need to go as part of the repeal process.”

But some GOP lawmakers have floated leaving them to help pay for their ObamaCare replacement plan, and the party has not yet settled on a path forward.

Here's a look at the taxes that could be on the chopping block. 

Net investment income tax

As a result of ObamaCare, individuals making more than $200,000 per year and married couples making more than $250,000 per year have to pay a 3.8-percent surtax on their net investment income, which includes capital gains, interest, rental income and royalties. 

The IRS in 2015 collected about $22.5 billion in revenue from the tax.

Medicare surtax 

The healthcare law created a 0.9-percent Medicare surtax on wages and self-employment income over $200,000 per year for single people and over income of $250,000 per year for married couples. The revenue from the tax goes to Medicare’s hospital insurance trust fund.

The IRS estimated that it collected about $7.3 billion in revenue from people filing their 2014 tax returns.

Cadillac tax

The 40-percent excise tax on high-cost health plans known as the “Cadillac tax” was designed by Democrats to curb the growth of healthcare spending.

But there has been opposition to the tax from Republicans as well as Democrats. Labor unions oppose the tax because they often negotiate generous health plans in their contracts.

The tax has never taken effect. Legislation enacted in 2015 delayed the tax’s implementation until 2020.

Medical device tax

ObamaCare created a 2.3-percent excise tax on medical device sales. The tax could apply to products such as MRI and X-ray systems but does not apply to eyeglasses, contact lenses and hearing aids.

The medical-device industry and many lawmakers argue that the tax hurts companies’ abilities to hire employees and conduct research and development.

Aside from Republicans, some prominent liberal lawmakers with medical-device companies in their states, such as Sens. Elizabeth WarrenElizabeth Ann WarrenDNA is irrelevant — Elizabeth Warren is simply not Cherokee The Hill's 12:30 Report — Trump seizes on immigrant 'caravan' for midterms | WHCA criticizes Trump for praising lawmaker who assaulted reporter | Trump takes harder line on Saudis Clinton aide: Chances 'highly unlikely' but 'not zero' Hillary will run for president again MORE (D-Mass.) and Al FrankenAlan (Al) Stuart FrankenGOP lawmaker once belittled sexual harassment: 'How traumatizing was it?' Meet the man poised to battle Dems from the White House Minnesota GOP Senate candidate compared Michelle Obama to a chimp in Facebook post MORE (D-Minn.), have supported repealing the tax.

In 2015, Congress voted to suspend the tax for 2016 and 2017. In fiscal 2015, the federal government collected about $2 billion from the tax, according to IRS data.

Health insurance tax

ObamaCare requires health-insurance providers to pay an annual fee. There is one aggregate annual fee for all eligible providers, and each provider covered under the provision pays a portion of the fee based on its market share in the U.S. health insurance industry.

The health insurance industry says that the tax has translated to higher premiums for customers, and there are lawmakers on both sides of the aisle who agree.

Congress suspended the tax for 2017, and last month, Reps. Kristi Noem (R-S.D.) and Kyrsten Sinema (D-Ariz.) introduced a bill to repeal the tax that already has more than 100 cosponsors. In fiscal 2015, the federal government collected about $11.3 billion from the tax. 

Prescription drug tax

The healthcare law created an annual fee on businesses that manufacture or import branded prescription drugs that are sold to certain government programs. There is an aggregate annual fee imposed on all eligible businesses, and each business pays a portion of that fee that is based on its share of prescription drug sales. 

The aggregate fee is set under the law and is $4 billion in 2017, $4.1 billion in 2018 and $2.8 billion in 2019 and subsequent years. In fiscal 2015, the federal government collected $3 billion from the tax.

Tanning tax

Under ObamaCare, there is a 10-percent excise tax on indoor tanning services. The tax can apply to tanning beds but doesn’t apply to spray tans or tanning lotions. 

Supporters of the tax had argued that tanning increases the odds of getting skin cancer, adding to costs in the healthcare industry. But the tanning industry has said it has contributed to tanning salons going out of business. In fiscal 2015, the federal government collected about $78.1 million from the tax, according to IRS data.

Changes to flexible spending accounts and health savings accounts

ObamaCare made several changes to flexible spending arrangements (FSAs) and health savings accounts (HSAs) that people can put money in on a pre-tax basis. The law set a limit on the amount that people can contribute to FSAs, and it increased the tax that people have to pay when they use HSA funds for purposes other than eligible medical expenses. 

Additionally, under the health law, money put into FSAs and HSAs generally can’t be used for over-the-counter medications unless they are purchased with a prescription. 

Change to deduction for medical expenses

Prior to ObamaCare’s implementation, people who itemize their tax deductions could deduct their medical expenses if the costs exceed 7.5 percent of their adjusted gross income. ObamaCare increased this threshold to 10 percent starting in 2013 generally and in 2017 for people age 65 and over. 

Mandates 

Two of the cornerstones of ObamaCare are the mandates that individuals have to have health insurance or pay penalties and that employers with at least 50 full-time employees provide health insurance or pay penalties. 

The Supreme Court upheld the individual mandate in 2012, declaring it to be a tax. But the mandates are almost certain to be repealed as part of ObamaCare repeal.