How Healthcare Reform Will Affect Taxes

The health insurance overhaul that was recently passed will expand access to medicine, but will also significantly increase the tax burden on a number of Americans. Approximately $438 billion will be levied over the coming ten years, and much of this will come through increased taxes on capital gains, making tax-efficient investing strategies important. See the following post from The Capital Spectator.

The newly enacted health care reform legislation may be a net plus when it comes to expanding access to medical services, but it's not free, or at least not for taxpayers in the upper brackets and certain investors. The new health care reform "will raise taxes for many Americans," according to a report by RSM McGladrey, a consulting firm in Atlanta.

The two new pieces of legislation that comprise the health care reform "significantly increase taxes on individuals with higher incomes and those with more costly health insurance plans," says Mike Metz of RSM's vice president of tax services via the firm's web site.

The overall cost of the reform for the next decade is roughly $940 billion. "To pay for these changes," Metz continues, "the bills impose $438 billion in new taxes and fees on insurers, businesses and individuals. The remainder of the cost is paid for by cuts in Medicare funding. The bills are expected to reduce federal deficits by $143 billion over the next ten years. The bills are also expected to expand health insurance coverage to 32 million individuals."

RSM's web site goes on to report...

The bills significantly increase taxes on individuals with higher incomes and those with more costly health insurance plans. At the same time, the bills provide significant tax credits for some individuals and small businesses, including:

• a credit to qualifying small businesses to reimburse them for the cost of providing health insurance to their employees, and

• a credit for up to 50 percent of investments made in 2009 and 2010 for new therapies to prevent, diagnose and treat acute and chronic diseases.

Considering the investment implications, the Aperio Group, a quantitative money management shop in Sausalito, California, projects the following changes to the federal marginal capital gains rate in terms of today vs. January 2013:



The not-so-subtle implication, according to Aperio, is that returns on tax-inefficient investments, such as bonds, active equity strategies and hedge funds, are set to shrink, all else equal.

Speaking of taxes, the Tax Foundation yesterday published its 2010 Facts & Figures Handbook. Among the taxing tidbits in the booklet is a ranking of tax burdens by state. The top three with the highest combined state and local tax burdens for fiscal year 2008:

Connecticut: $7,007
New Jersey: $6,610
New York: $6,419

And the bottom three:

Mississippi: $2,834
Alaska: $2,871
West Virginia: $3,000

The U.S. overall weighs in at $4,283.

This post has been republished from James Picerno's blog, The Capital Spectator.