Thursday, November 19, 2009

Financing of Senate Bill

The Senate bill's financing is better than that in the House, but it moved a bit from the Senate finance committee bill. The high cost health insurance tax trigger is $23,000 in annual total premiums plus additions to flex spending accounts for family policies, and $8,500 for individuals. This has net effect of -$154 Billion, down from -$201 Billion in finance committee bill....and the new Medicare payroll tax increase, from 1.45% of payroll to 1.95% of payroll on the amount ABOVE $200,000 for individuals, $250,000 for couples. So, income from $1-$250,000 will be subject to 1.45% (employer and employee) and from $250,001+ to 1.95%. This raises $54 Billion over 10. So, Reid increased point where insurance tax kicks in, had to find revenue/savings to offset and added the payroll tax increase to do so.

I would prefer to not have the payroll tax increase, because it won't serve to address cost inflation. But, it is better than income tax increase I think.....and the big picture of the financing in the Senate is much better.

Keep in mind the point of the tax on high cost insurance is for it TO BE AVOIDED. If people's premiums at high levels will be treated as taxable income, they will be more likely to seek less generous policies from their employer over time. This will transition income from nontaxable when it is delivered via insurance premiums, but it will increase taxable income if their pay rises, which of course increases tax receipts.

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