The federal health care law is "probably the biggest tax increase ever in the history of our country."
Rick Scott on Thursday, February 3rd, 2011 in comments during a tour of a manufacturing plant.
Rick Scott says health care law is biggest tax increase in U.S. history
Florida Gov. Rick Scott's new job isn't getting in the way of his old hobby -- criticizing the federal health care law.
Scott, who in 2009 formed Conservatives for Patients' Rights to oppose health care reforms being proposed by President Barack Obama and Democrats in Congress, has continued to fight the health care reforms from his new perch as governor of Florida.
The multimillionaire former hospital chain CEO promises to support lawsuits seeking to declare the law unconstitutional, and on Feb. 3, 2011, called on Obama to repeal the tax provisions of the health care law. In a speech to tout the release of his first state budget, Scott challenged Obama to repeal or roll back taxes and fees increased to help pay for the increased coverage the health care seeks to provide. Scott said Obama should follow Florida's lead -- where Scott was planning to cut state school property taxes and the corporate income tax.
The federal health care law is "a massive tax increase, probably the biggest tax increase ever in the history of our country," Scott told about 100 Chromalloy employees during a tour of their aerospace manufacturing plant in Tampa. "Those tax increases, they are taking money out of your pocket. They are taking money out of your company's pocket. They are taxing things that you buy. All that is taking money out of our economy and throwing more money at the federal government, which makes no sense."
Scott spent more than a year fighting the passage of the health care bill, so he certainly knows the legislation. But does he have the line right about being the "biggest tax increase ever?"
The health care law certainly is, on the whole, a tax increase.
Major tax provisions
The federal Joint Committee on Taxation, a nonpartisan committee of Congress with a professional staff of economists, attorneys and accountants, provided members a detailed breakdown of tax impact 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, there's a new fee for pharmaceutical manufacturers and importers. That's 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. That's 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. For the record, many Republicans and tax experts argue those shouldn't count as tax cuts. 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 government's nonpartisan Congressional Budget Office estimated the additional revenues coming in to the government to be $525 billion between now and 2019.
Does that translate to the biggest tax increase in American history?
Comparing tax impacts of legislation
First, we need to set some goal posts. 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. On top of that, it doesn'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.
To make matters even more complicated, there are tax cuts that are direct results of tax increases, and vice-versa. The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), for example, was passed largely to reverse revenue losses from the Economic Recovery Tax Act of 1981 (ERTA).
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.
For 1940-1967 calculations, he used a single-year snapshot of the revenue impact of the tax legislation. For more recent tax bills, from 1968-2006, Tempalski used a two-year average of the revenue effects. Tempalski wrote: "The comparison of tax bills for the first period should be examined with some caution, because the revenue estimates are from different sources and are not completely consistent. The comparison for the second period can be viewed with more confidence, because the estimates are relatively consistent."
As a percent of GDP, here are the top five tax increases from 1940-2006, according to Tempalski:
1. Revenue Act of 1942: 5.04 percent of GDP;
2. Revenue Act of 1961: 2.2 percent of GDP;
3. Current Tax Payment Act of 1943: 1.13 percent of GDP;
4. Revenue and Expenditure Control Act of 1968: 1.09 percent of GDP;
5. Excess Profits Tax of 1950: .97 percent of GDP;
And here are the top five tax increases from the "modern" era of 1968-2006:
1. Revenue and Expenditure Control Act of 1968: 1.09 percent of GDP;
2. Tax Equity and Fiscal Responsibility Act of 1982: .8 percent of GDP;
3(t): Crude Oil Windfall Profit Tax Act of 1980: .5 percent of GDP
3(t): Omnibus Budget Reconciliation Act of 1993; .5 percent of GDP;
5: Omnibus Budget Reconciliation Act of 1990; .49 percent of GDP.
The 2010 health care law
The list obviously does not include the health care law, which passed in 2010, and a spokeswoman for the Department of Treasury says it hasn't been updated. So we calculated our own percent of GDP figure. 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. We then divided that number into the projected GDP for 2019, which according to the CBO economic forecast is $21.164 trillion. That would mean the tax increase provisions of the health care law would amount to .49 percent of total GDP.
Depending on your rounding, that would mean the tax increases resulting from the health care law would be about the size of tax cuts proposed and passed in 1980 by President Jimmy Carter, in 1990 by President George H.W. Bush and in 1993 by President Bill Clinton.
The health care-related tax increases are smaller than the tax increase signed into law by President Ronald Reagan in 1982 and a temporary tax signed into law in 1968 by President Lyndon B. Johnson. And they are significantly smaller than two tax increases passed during World War II and a tax increase passed in 1961.
The tax increases in the health care legislation do reverse a trend of federal tax cuts and represents the first significant tax increases since 1993. But for Scott to suggest they are the largest in U.S. history is inaccurate. We rate this claim False.
Published: Monday, February 14th, 2011 at 9:41 a.m.
Rick Scott, comments to reporters, Feb. 3, 2011
Joint Committee on Taxation, tax impact for the federal health care bill, accessed Feb. 7, 2011
PolitiFact, Bush I, Clinton and Reagan all pushed taxes higher than the bump from Obama's health care bill, March 25, 2010
CBO, revenue and tax estimates of federal health care bill 2011-2019, accessed Feb. 8, 2011
Department of Treasury, Revenue impacts of major tax legislation 1940-2006, accessed Feb. 8, 2011
E-mail interview with Department of Treasury spokeswoman Sandra Salstrom, Feb. 8, 2011
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