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PolitiFact.com | Tampa Bay Times
Sorting out the truth in politics

PolitiFact: Health care law is not the largest tax increase ever

Moments after the Supreme Court ruled it was largely upholding President Barack Obama's health care law Thursday, conservatives zeroed in on the court's decision to allow the law to stand based on the idea that the individual mandate was a tax.

But in a race to score political points, several conservatives repeated — or inflated — an incorrect claim. They said that the law includes the largest tax increase in U.S. history.

Conservative radio talk show host Rush Limbaugh went a step further, declaring it "nothing more than the largest tax increase in the history of the world."

Neither phrasing is correct.

While the health care law certainly is, on the whole, a tax increase, it's not the largest in American history — and as such — cannot be the largest in the history of the world. (Luckily, there's enough U.S.-based research that we don't have to explore the tax increases of the Roman Empire, adjusted for inflation.)

Major tax provisions

The federal Joint Committee on Taxation, a nonpartisan committee of Congress with a professional staff of economists, attorneys and accountants, provided Congress a detailed breakdown of the tax impact of the health care law from 2010-2019.

• Starting in 2013, Medicare payroll taxes increase 0.9 percentage points for people with incomes over $200,000 ($250,000 for couples filing jointly). Also, people at this income level would pay a new 3.8 percent tax on investment income. The 10-year cost: $210.2 billion.

• Starting in 2018, a new 40 percent excise tax on high-cost health plans, so-called Cadillac plans (over $10,200 for individuals, $27,500 for families), kicks in. That's expected to bring the government a total of $32 billion in 2018 and 2019.

• Starting in 2011, a new fee for pharmaceutical manufacturers and importers began. It is expected to raise $27 billion over 10 years.

• Starting in 2013, a 2.3 percent excise tax on manufacturers and importers of certain medical devices starts. The 10-year total: $20 billion.

• Starting in 2014, a new annual fee on health insurance providers begins. Total estimated 10-year revenue: $60.1 billion.

• Starting in 2013, the floor on medical expense deductions on itemized income tax returns will be raised from 7.5 percent to 10 percent of income. That's expected to bring in $15.2 billion over the next 10 years.

• Starting in 2011, a 10 percent excise tax on indoor tanning services kicked in. It is expected to bring in $2.7 billion over the next 10 years.

There also is money in the law going the other way.

The plan includes government money, in the form of tax credits, to subsidize the cost of health insurance for lower-income people who don't get insurance through their employer. And there is a tax cut for some very small businesses that allows them to write off a portion of the cost of providing insurance to their employees.

Combined with various other revenue-generating provisions, the Joint Committee on Taxation estimates the health law will bring in more than $437.8 billion by 2019. (The nonpartisan Congressional Budget Office estimated $525 billion.)

Measuring tax hikes

There are many ways to define or measure the size of a tax increase, and not all tax increases have been measured the same way over time.

The health care tax provisions, for instance, take effect between 2011 and 2018, meaning the full effect of the legislation won't be felt until near the end of the decade. Also, it wouldn't make sense to compare 2019 dollars to 1985 dollars. You have to adjust for inflation, or express the amount as a total of Gross Domestic Product at the time, which is a way to measure the relative impact of a tax provision at the time it was enacted.

For our comparison, we used a method perfected by Jerry Tempalski, an analyst in the Office of Tax Analysis with the U.S. Department of the Treasury. In 2006, Tempalski tried to determine the relative impact of major tax revenue bills from 1940-2006. He used revenue estimates from Treasury and the Joint Committee on Taxation and calculated the impact as a percentage of GDP.

Tempalski's calculations do not include the 2010 health law, so we mimicked his work.

We used 2019 as our baseline because that's when all of the tax provisions of the law will be in effect. In 2019, the CBO estimates, the government will see increased revenues of $104 billion, which translates to a tax increase totalling .49 percent of projected GDP.

How does that stack up?

Depending on your rounding, the tax increases from the health care law are projected to be about the size of tax increases proposed and passed in 1980 by President Jimmy Carter, in 1990 by President George H.W. Bush and in 1993 by President Bill Clinton.

They would, however, be smaller than tax increases signed into law by President Ronald Reagan in 1982 and a temporary tax signed into law in 1968 by President Lyndon B. Johnson.

They also would be significantly smaller than two tax increases passed during World War II and a tax increase in 1961.

That's at least five tax increases in the United States that are larger — just since 1940 — than the one proposed in the health care law. And there are another three that are roughly equivalent.

Limbaugh's inflated rhetoric takes a wrong claim and puts it into the realm of the ridiculous. We rate it Pants on Fire.

This fact-check has been edited for print. Read the full version at PolitiFact.com.

PolitiFact: Health care law is not the largest tax increase ever 06/28/12 [Last modified: Friday, June 29, 2012 7:41am]
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