WASHINGTON — New taxes are coming Jan. 1 to help finance President Obama’s health care overhaul.
Most people may not notice, because the taxes are aimed at the health industry and high-income taxpayers. But they will pay attention if Congress starts taxing employer-sponsored health insurance, one option in play if lawmakers can ever agree on a budget deal to reduce federal deficits.
The tax hikes already on the books, taking effect in 2013, fall mainly on people who make lots of money and on the health care industry. But about half of Americans benefit from the tax-free status of employer health insurance.
Workers pay no income or payroll taxes on what their employer contributes for health insurance, and in most cases on their own share of premiums as well.
It’s the single biggest tax break the government allows, outstripping the mortgage interest deduction, the deduction for charitable giving, and other better-known benefits. If the value of job-based health insurance were taxed like regular income, it would raise nearly $150 billion in 2013, according to congressional estimates.
By comparison, wiping away the mortgage interest deduction would bring in only about $90 billion.
‘‘If you are looking to raise revenue to pay for tax reform, that is the biggest pot of money of all,’’ said Martin Sullivan, chief economist with Tax Analysts, a nonpartisan publisher of tax information.
It’s hard to see how lawmakers can avoid touching health insurance if they want to eliminate loopholes and curtail deductions so as to raise revenue and lower tax rates. Congress probably would not do away with the health care tax break, but limit it in some form. Such limits could be keyed to the cost of a particular health insurance plan, the income level of taxpayers, or a combination.
Many economists think some kind of limit would be a good thing because it would force consumers to watch costs, and that could help keep health care spending in check. Obama’s health law took a tentative step toward limits by imposing a tax on high-value health insurance plans. But that does not start until 2018.
Next spring will be three years since Congress passed the health care overhaul but, because of a long phase-in, many of the taxes to finance the plan are only now coming into effect.
Medicare spending cuts that help pay for covering the uninsured have started to take effect, but they also are staggered.
The law’s main benefit, coverage for 30 million uninsured people, will take a little longer. It does not start until Jan. 1, 2014.
The biggest tax increase from the health care law has a bit of mystery to it.
The legislation calls it a ‘‘Medicare contribution,’’ but none of the revenue will go to the Medicare trust fund. Instead, it’s funneled into the government’s general fund, which pays the lion’s share of Medicare outpatient and prescription costs, but also covers most other things the government does.
The new tax is a 3.8 percent levy on investment income that applies to individuals making more than $200,000 or married couples above $250,000. Projected to raise $123 billion from 2013-2019, it comes on top of other taxes on investment income.
While it applies to profits from home sales, the vast majority of sellers will not have to worry since another law allows individuals to shield up to $250,000 in gains on their home from taxation. (Married couples can exclude up to $500,000 in home sale gains.)
Investors have been taking steps to avoid the tax, selling assets this year before it takes effect. The impact of the investment tax will be compounded if Obama and Republicans cannot stave off the automatic tax increases coming next year if there is no budget agreement.
High earners will face another new tax under the health care law Jan. 1. It’s an additional Medicare payroll tax of 0.9 percent on wage income above $200,000 for an individual or $250,000 for couples. This one goes to the Medicare trust fund.
Donald Marron, director of the nonpartisan Tax Policy Center, says the health care law’s tax increases are medium-sized by historical standards. The center, a joint project of the Brookings Institution and the Urban Institute, provides in-depth analyses on tax issues.
They also foreshadow the current debate about raising taxes on people with high incomes. ‘‘These were an example of the president winning, and raising taxes on upper-income people,’’ said Marron. ‘‘They are going to happen.’’
Other health care law tax increases taking effect Jan. 1 include a 2.3 percent sales tax on medical devices used by hospitals and doctors. Industry is trying to delay or repeal the tax, saying it will lead to a loss of jobs. Several economists say manufacturers should be able to pass on most of the cost.
Also taking effect is a limit on the amount employees can contribute to tax-free flexible spending accounts for medical expenses. It is set at $2,500 for 2013, and indexed thereafter for inflation.
Efforts to save the nation from going over the year-end ‘‘fiscal cliff’’ of automatic tax increases and budget cuts were in disarray as lawmakers left Washington for their Christmas break. ‘‘God only knows’’ how a deal can be reached now, House Speaker John Boehner declared.
Obama, on his way out of town for a vacation in Hawaii, insisted a bargain could still be struck before Dec. 31. ‘‘Call me a hopeless optimist,’’ he said.
If Congress and the president fail to meet the deadline, some scary fiscal forces come together at the start of 2013.
They include about $536 billion in tax increases, touching nearly all Americans, because various federal tax cuts and breaks expire at year’s end. About $110 billion in spending cuts would be divided equally between the military and most other federal departments.