Paul Ryan says a dozen 'Obamacare' taxes hit middle-class Americans

During the Sept. 30, 2012, edition of Fox News Sunday, Paul Ryan took a shot at Barack Obama for raising taxes.

"We don't think that imposing new taxes on anybody is a good idea. Don't forget, Chris, the only person running for president who's proposing higher taxes is President Obama. … "

Chris Wallace, the host, then interjected, "Because he would end the Bush tax cuts for the wealthy."

Ryan continued, "Yeah, tax rates -- he already passed all these Obamacare taxes. About a dozen of them hit middle-income taxpayers, breaking that promise. He's proposing a massive tax increase on job creators in January."

PolitiFact has already given Obama a Promise Broken for saying, "I can make a firm pledge. Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes."

But we hadn’t checked this specific claim, so we’ll do that here.

Are they taxes?

When we asked a Ryan spokesman for the taxes he was including, he referred us to a Web page put together by the House Ways and Means Republican staff. The list of tax increases in Obama’s health care law is pretty similar to a list of 19 that we published in January in a check of a claim by the Romney campaign.

The Ways and Means list marks the tax increases that affect "middle-income taxpayers" with an asterisk. We’ll list those 12 provisions here, with a brief summary of what they would do. As you’ll see, many of these are new taxes, some of them primarily hit the middle-class, others hit certain people within the middle class (along with other people not in the middle class), and others are debatable.

(1) Imposing an annual fee on manufacturers and importers of branded drugs, based on each company’s share of the total market. It took effect on Jan. 1, 2011.

(2) A 10 percent excise tax on indoor tanning services. This tax is narrowly targeted at tanning bed users, but it is still a tax. This took effect July 1, 2010.

(3) Annual fee levied on health insurance providers, based on each company’s share of the total market. Takes effect Jan. 1, 2013.
 
(4) A 2.3 percent excise tax on manufacturers and importers of certain medical devices. Takes effect Jan. 1, 2013.

(5) Limiting the amount taxpayers can deposit in flexible spending accounts to $2,500 a year. Takes effect Jan. 1, 2013.
 
(6) Raise the 7.5 percent adjusted gross income floor for the medical expenses deduction to 10 percent. Takes effect Jan. 1, 2013.
 
(7) Impose a fee on insured and self-insured health plans to fund the Patient-Centered Outcomes Research Trust Fund. Takes effect Jan. 1, 2013.

(8) Increase the tax on distributions from a health savings account or an Archer medical savings account that are not used for qualified medical expenses. Already in effect.

(9) A tax penalty on companies with more than 50 employees that do not offer "adequate" health insurance coverage for their employees. Takes effect Jan. 1, 2014.
 
(10) A mandate for individuals to buy health insurance, with limited hardship exceptions. Takes effect Jan. 1, 2014.

(11) A 40 percent excise tax on employer-provided "Cadillac" health insurance plans costing more than $10,200 for individuals and $27,500 for families. Takes effect Jan. 1, 2018.

(12) Increased penalty for purchasing disallowed products with health savings account. Already in effect.
 
In our prior review of Obama’s 19 tax increases, we relied on this operational definition, offered by Joseph D. Henchman of the Tax Foundation: "Taxes have the primary purpose of raising revenue for general government. Fees have the primary purpose of raising revenue for a specific benefit to the payer. Penalties have the purpose of imposing criminal sanction, and any revenue generation is incidental."

Under this definition, along with our discussions with tax experts, we feel comfortable that Ryan, at the very least, has a strong case for eight tax increases in Obama’s health care bill. (See Nos. 1 through 8 on our list.) Three of these have already taken effect, and the other five are set to take effect in about three months.

Categorizing No. 9 and No. 10 -- the employer and individual mandates -- is tricky. The question of whether the individual mandate is a tax was at the center of the Supreme Court’s decision that upheld the law this past summer. Shortly after the justices’ decision came down, we ruled that Romney was Mostly True when he characterized the Supreme Court decision as saying the individual mandate "is a tax."

However, what kept it from a full True rating was the view expressed by several legal experts that the court ruled that the mandate acts like a tax, or is analogous to one, but not that it is one -- a small linguistic distinction, but an important legal one. These two, in other words, could go either way.

No. 11, the "Cadillac tax," has two problems. First, it’s not scheduled to take effect for another five years. More importantly, there is evidence that a significant share of the revenue from this provision may come not from the penalty itself, but from companies shifting their compensation from health coverage (which is not taxed) to wages (which is taxed).

Jonathan Gruber, a professor at the Massachusetts Institute of Technology who has provided health care policy advice to both Obama and Romney during his governorship of Massachusetts, estimated this using Joint Committee on Taxation data for an early version of the health care bill. He found that penalty revenues would total $201 billion from 2013 to 2019, compared to wage increases of $313 billion.

"If paying higher wages instead of paying for health benefits is a tax increase, then the definition of tax increase is being stretched beyond recognition," said Henry Aaron, a senior fellow at the Brookings Institution.

Finally, No. 12 does not strike us as a tax at all.

No. 12 -- excluding the costs for over-the-counter drugs not prescribed by a doctor from being reimbursed tax-free through a flex spending plan or medical savings account -- strikes us as more like the kind of decision made by regulators than lawmakers responsible for writing the tax code. Lots of purchases still qualify, and plan participants can simply purchase other items to get reimbursed by their plan.

Do they "hit middle-income taxpayers"?

For the most part, yes -- but not exclusively.

First, we should note that not all of these taxes are imposed directly on individuals. Some are taxes on health insurance companies, drug companies or medical device manufacturers. We’re making the assumption here, as many economists do, that these taxes are ultimately passed on to the customer through higher prices, rather than absorbed by the company.

Second, Ryan has excluded a number of other tax provisions in the health care law that are clearly not aimed at middle-class taxpayers, such as taxes that only hit earners above a certain income level, or those aimed at health-insurance CEO compensation. Most of the rest, we think, will hit some, or even many, members of the broad middle-class.

However, it’s worth noting that some of these taxes are narrowly focused. Most people use some brand-name drugs or have private health insurance. But someone who doesn’t use tanning booths won’t get hit by the tanning tax, and those who don’t have medical savings accounts won’t get hit by other new tax hikes. Ryan’s language suggests that a typical middle-class taxpayer is getting hit by a dozen new taxes; in most cases the actual number of new taxes will be smaller.

Our ruling

Ryan said Obama "already passed all these Obamacare taxes. About a dozen of them hit middle-income taxpayers."

We find that only eight of these measures are taxes, and in some cases the taxes are imposed on health insurance companies, drug makers and health device manufacturers, not on individual taxpayers. He can make a less-persuasive case for another three measures actually being tax increases. Finally, there will be a substantial variation in how many new taxes affect the middle class. The typical person will not be paying anywhere close to a dozen new taxes. We rate the claim Mostly False.

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