May 26, 2010
How Does the Health Care Reform Bill Interact with the Bush Tax Cuts?
The recently passed health care reform bill is not significantly related to the expiration of the Bush tax cuts. The tax provisions in the health care reform bill are mostly outside the individual income tax with the exception of the provision to scale back the use of the itemized deduction for medical expenditures (from a threshold of 7.5 percent of AGI to 10 percent of AGI). That provision of the health care bill directly interacts with provisions in the Bush tax cuts: the increasing of tax rates and the PEP/Pease provisions, as well as with President Obama's proposed additional limitation on itemized deductions.
Other provisions of the health care bill will interact with the Bush tax cuts in an indirect manner. For example, the new Medicare tax increases in the health care bill on high-income taxpayers will shrink the tax base somewhat, which will affect the revenue that would be raised from the expiration of the Bush tax cuts.