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On his Morning Joe program on MSNBC on March 24, 2010, host Joe Scarborough, a former Republican congressman from Florida, sparred with Sen. Dick Durbin over the tax effects of the health care reform bill.
In the course of less than a minute, the bill was alternately described as "the largest tax increase in U.S. history" (Scarborough) and "the biggest tax cut in history" (Durbin).
This seemed like a good place to step in and referee.
First, here's the full context of the exchange between Scarborough and Durbin.
"If this fall's election is going to be a referendum on this health care bill," Scarborough said to Durbin. "What should Democrats do when their opponents say, correctly, this is the largest tax increase in U.S. history? And it was passed at a time when we've got 17 percent real unemployment. And also, it's a further expansion of the federal government at a time when that worries a lot of Americans."
"Joe, I keep hearing you every morning talking about the biggest tax increase in history, but you don't mention it's also the biggest tax cut in history," Durbin responded. "We have almost $500 billion in tax cuts. And the tax cuts go to small businesses to help pay for health insurance premiums. They're going to go to individuals who can't afford their health insurance premiums. It's really going to make certain everybody has a chance for affordable health insurance."
We'll deal specifically with Durbin's claim in a separate item. Here, we'll tackle Scarborough's claim the health bill is "the largest tax increase in U.S. history."
On the tax increase side, here are the biggies, along with what the government's Joint Committee on Taxation estimates they will bring in over the next 10 years:
• Starting in 2013, an increase in the Medicare payroll tax by 0.9 percent on 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. That's expected to bring the government a total of $32 billion in 2018 and 2019.
• Starting in 2011, new annual fees on pharmaceutical manufacturers and importers. That's expected to raise $27 billion over 10 years.
• Starting in 2014, a 2.3 percent excise tax on manufacturers and importers of certain medical devices. The 10-year total: $20 billion.
• Starting in 2014, a new annual fee on health insurance providers. Total estimated 10-year revenue: $60.1 billion.
• Starting in 2013, the floor on medical expense deductions 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.
In all, the Joint Committee on Taxation estimates various revenue-generating provisions in the health bill will bring $437 billion over the next 10 years.
When it comes to tax cuts in the health bill, that's a matter of some debate. The plan includes government money to subsidize the cost of health insurance for lower income people who don't get insurance through their employer. Those subsidies, which are estimated to amount to $464 billion over 10 years, are paid directly to the insurance companies. They come via tax credits, but many Republicans and tax experts argue those shouldn't count as tax cuts. We'll get into that in more detail in the fact-check on Durbin's claim. There's also a no-doubt-about-it tax cut for some very small businesses that kicks in immediately, and allows them to write off a portion of the cost of providing insurance to their employees. That's expected to cost the government $40 billion over 10 years.
"There are big chunks of money coming in and big chunks of money going out," said Linda Blumberg, a health policy expert at the Urban Institute.
So let's talk net.
The government's nonpartisan Congressional Budget Office estimated the changes in direct spending and revenue effects of the health care reform bill (as well as the reconciliation bill, which has yet to pass) and concluded the total net effect is that the bill would bring in an additional $525 billion in total revenues over the next 10 years.
Does that translate to the biggest tax increase ever?
Let's first agree to some ground rules. For starters, it doesn't make sense to compare, say, 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. The Republican calculation also uses the 10-year total effect of the net revenue gain, while in decades past, the Joint Committee on Taxation used to analyze tax provisions only in a 5-year window.
Jim Horney, director of federal fiscal policy at the left-leaning Center on Budget and Policy Priorities, thinks it makes the most sense to look at the last year of the 10-year CBO projections for the health care reform bill. By then, the plan is fully phased in, including the full effect of all the tax cuts and tax hikes. In that year, the total revenue increase is estimated to be $104 billion. That comes to a little less than 1/2 percent of the projected GDP that year.
Horney notes that that's slightly smaller than the tax effect in the fifth years of the Omnibus Budget Reconciliation Act of 1990 (a tax increase signed by President George H.W. Bush) and the Omnibus Budget Reconciliation Act of 1993 (a tax increase signed by President Bill Clinton), as a percentage of the GDP at the time. And it's less than half of the tax increase (again as a percentage of GDP) from the Tax Equity And Fiscal Responsibility Act signed by President Ronald Reagan.
"CBO says the net effect on revenues is that it is an increase," Horney said. "It's not insignificant. But it is far from being the largest tax increase in recent history."
William Ahern with the Tax Foundation, a business-backed tax policy group, said total new revenues of $525 billion over 10 years isn't close to the size of the Clinton tax hike in 1993 or the Reagan tax hike in 1982. However, he said, a rigorous comparison can't be made because in 1982 and 1993, the Joint Committee on Taxation only did five-year estimates.
Blumberg, of the Urban Institute, said both Republicans and Democrats would be wise to get away from the "biggest" jargon.
Again, here we're are looking at Scarborough's side of the hyperbole wars. There's ample evidence that the health care bills result in a net tax increase. But when Scarborough characterized it as "the largest tax increase in U.S. history," that doesn't hold up when you level the playing field and compare several tax increases in recent decades to the GDP at the time. And so we rate his claim False.
MSNBC, Video: "Morning Joe" program on MSNBC, Interview with Sen. Dick Durbin, March 24, 2010
Congressioal Budget Office, Estimate of the direct spending and revenue effects of health care reform bill, March 20, 2010
Joint Committeee on Taxation, Estimated Revenue Effects Of The Amendment In The Nature Of A Substitute To H.R. 4872, The "Reconciliation Act Of 2010," In Combination With The Revenue Effects Of H.R. 3590, The "Patient Protection And Affordable Care Act," As Passed By The Senate, March 18, 2010
Patient Protection and Affordable Care Act, as passed by the Senate
GOP.gov, Press release: "The Largest Tax Cut in History? Are They Kidding?" March 24, 2010
Reuters, "Factbox-Major tax provisions in U.S. healthcare bill," by Donna Smith, March 22, 2010
White House Web site, "The Truth on Health Care Reform and Taxes," by Jason Furman, Dec. 16, 2009
Interview with William Ahern with the Tax Foundation, March 24, 2010
Interview with Jim Horney, director of federal fiscal policy at the Center on Budget and Policy Priorities, March 24, 2010
Interview with Linda Blumberg, a health policy expert at the Urban Institute, March 24, 2010
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