Sunday, March 31, 2013

ObamaCare attacks low income earners

Does anyone remember how many times President Obama claimed on the campaign trail that his tax plan would not affect individuals earning less than $200,000 or couples earning less than $250,000? It would only affect people, like the Obamas, who could afford to pay a little more. (Isn't it endearing for someone to remind you over and over that they are richer than you?)

One of his tax increases will hit only low income earners and leave rich people, like the Obamas, unaffected. It's a well-known tax threshold that has been tweaked by the Affordable Care Act, namely the medical expense deduction floor.

Up to the end of 2012, anyone who had allowable medical expenses, including co-pays, deductibles, other uninsured expenses, and health and long-term care insurance premiums, could deduct the portion of those expenses that exceeded 7.5% of adjusted gross income (AGI). Simply put, if your AGI was $50,000, then medical expenses in excess of $3,750 would be deductible. That is, $5,000 of medical expenses would yield a deduction of $1,250.

In Massachusetts, this is the only expense from Schedule A, Itemized Deductions, that is also allowed on the state income tax return.

Starting in 2013 (and in 2017 for people 65 and older), the Affordable Care Act raises this threshold to 10%. In the example above, the $1,250 deduction would vanish.

Who is this going to hurt? The Obamas? Of course not. This change will only affect lower wage earners who have high medical expenses. Serious medical conditions are often the reason for both, inability to work and frequent doctor visits and hospitalizations. This is the worst example of the rich riding on the backs of the poor that has slipped into law in years.

Most people will not learn of this attack on low income earners until they visit their tax preparers next year only to find out that they are the target of ObamaCare at a time when they are most vulnerable.

Congress needs to address this issue before the end of this year.


  1. Well he did say math was not one of his strong points. But the real reason is diabolical. Simply put ObamaCare is designed to make health insurance premiums so prohibitively expensive that the system will collapse; and single payer government controlled health care will replace it

  2. If I might, let me refer you back to the post I wrote in May 2010 while ObamaCare was in the works. Jim, obviously we are thinking alike on this one.

  3. Isn't Obama care an oximoran? I Don't think he does.

    1. speaking of morons...

  4. Maybe I am misunderstanding your post Randy, but if I looked at someone with an AGI of $500,000. Their threshold would increase from $37,500 today to $50,000 under the 10% rule. This is a means a $12,500 deduction would disappear for a high wage earner.

    I would also be interested to know the statistics on how many people making $50,000 or less file a Schedule A and do not take the standard deduction.

  5. It would be very unusual for a $500,000 AGI person to spend $37,500 on medical expenses. What was not deductible before still won't be deductible, therefore, no change for high income earners. By the way, taxpayers who get stuck with Alternative Minimum Tax already have a threshold for medical expenses of 10%.

    The standard deduction for an individual is $5,950 for 2012. Most of my clients who earn $50,000 or below itemize their deductions. It doesn't take much more than property taxes and state income taxes to go over $5,950. The IRS might have a stat on this, I don't know.

    Keep in mind also, that people who file MA income tax returns can take their medical deduction on the state return. Yet another reason why raising this threshold hurts low income taxpayers: They also lose their deduction on their MA tax return.

  6. Affordable Health Care Act is here to stay. I think your comments are good and are what will be necessary to tweak and fiddle with the Act as time goes on. Nothing is perfect at its "birth". Like other social programs in our history they have been improved over time. Thanks for highlighting some of the things that will need rectifying.


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