While the reform plan unveiled on November 18, 2009, by Senate Majority Leader Harry Reid (D-NV) contains revenue-raising provisions that closely track those of the Senate Finance Committee bill put forth by Chairman Max Baucus (D-MT), the Reid bill also includes new revenue raisers not seen in earlier versions of either Senate or House reform proposals. Like the Senate Finance bill, Reid’s bill relies most heavily on a 40 percent excise tax on “Cadillac” policies. By contrast, the House bill would impose no such excise tax, instead relying primarily on a 5.4 percent income tax hike on high-earning individuals. Reid’s bill incorporates all three sector excise taxes from the Senate Finance bill, with annual levies of $2 billion on medical device manufacturers, $6.7 billion on health insurers, and $2.3 billion on branded pharmaceutical manufacturers. By contrast, the House bill imposes only a 2.5 percent excise tax on medical devices. The Reid Bill has several provisions in common with both the House and Senate Finance bills:
- Placing new restrictions on Health Savings Accounts, including capping them at $2,500 per year
- Eliminating the deduction for expenses allocable to Medicare Part D prescription drug plans for retirees
- Requiring information reporting on most payments over $600 to corporations
Reid’s bill adds several new revenue raisers present in neither the Senate Finance nor the House bills:
- A 0.5 percent increase in the Medicare tax rate on taxpayers earning over $200,000 (or $250,000 for joint-filers)
- A 5 percent excise tax on elective cosmetic surgery
- Denying a deduction for compensation exceeding $500,000 for executives at insurers
Unlike the House Bill, the Reid bill lacks provisions codifying the economic substance doctrine, repealing the reform of interest allocation for multinationals, limiting tax treaty benefits or excluding “black liquor” from the cellulosic biofuel tax credit.
What’s at Stake
The tax impact of the Senate bill will fall mostly on health-care-related sectors, while the House bill would have more effect on businesses far removed from health care.
Steps to Consider
All businesses should carefully monitor the progress of the health reform debate and consider the possible impact of competing revenue raising proposals.