By Carten Cordell│Watchdog.org Virginia Bureau
ALEXANDRIA — The depth and complexities of the Affordable Care Act are many, but one certainty of the massive health care law is it will raise taxes and make some deductions tougher to earn.
Delegate Bob Marshall, R-Manassas, wants to ensure that while the federal income tax code will change because of the ACA, Virginia doesn’t necessarily follow in lock-step.
Marshall has introduced HB 1313 for this month’s General Assembly with the aim of keeping the deduction rates status-quo for residents with high out-of-pocket medical bills.
At the heart of the legislation is the amount people will have to spend on uninsured costs to get a tax break. The ACA’s Section 9013 raises the minimum level of spending to achieve a deduction from 7.5 percent of gross adjusted income to 10 percent.
Section 9005 slashes in half the maximum amount an individual can save in a flexible spending account (FSA), a payroll tax-free savings account used for medical expenses, from $5,000 to $2,500.
“If you have a handicapped child or someone who has got chronic illness, you have to spend more money before you can get any of this money deducted from against your income tax,” Marshall said. “Since this was already a high threshold, the Obamacare provision hits those people with the most medical expenses, and I didn’t think that was fair.”
While many states mirror their income tax codes on the federal books, Marshall proposes to uncouple the Virginia rules from the ACA, leaving the deduction rate and FSA at their previous requirements, at least on the state level.
It’s a subtle change that many lawmakers may over overlooked, Marshall said, but it illustrates the divide between Republicans and the president on how to provide health care for the country.
“Barack Obama always talks about tax fairness,” he said. “Well, he is hitting the American families with the biggest medical bills with a tax he shouldn’t be using if he claims he is for helping the little guy and middle-class Americans.”
But Thomas Miller, a resident fellow at American Enterprise Institute, said the bill is so acutely focused that its impact may be small, especially given the structure of high deductible insurance policies and other ACA coverage subsidies that would lessen out-of-pocket exposure.
“This is a fraction of a fraction,” he said. “You are talking about people who would have substantial medical expenses or which would increase the likelihood of relative low income.
“If you didn’t otherwise have those expenses covered by insurance or reimbursed by an employer, you would be able to get at least some degree of a tax break on those high netable costs (under Marshall’s plan), which is fine in itself. I am just saying it has relatively limited impact in terms of the population involved or the amount of dollars of tax relief coming across.”
Michael Thompson, president of the Thomas Jefferson Institute, a Springfield-based nonpartisan think tank, said the bill is an attempt to lessen the tax burden expanded by the ACA by at least taking control at the state level.
“I think what Marshall is trying to do is not only keep our taxes low, but it probably forces the state to look for more savings and more efficiency, though it has done a good job so far,” he said. “If you conform the other way, then I will be paying more at the state level as well as at the federal level.”
HB 1313 has been referred to the House Committee on Finance, which could up the bill as early as Jan. 14.
Email Carten Cordell at [email protected]