I’ve always been a “right brain” person. You know the type – good with words, not so good with numbers, and the main reason you run into very few lawyers/accountants. This is why, among several more significant reasons, I married a “left brain” person. This protects me and others. And while I wish I’d paid more attention in math class, even the numerically challenged such as I can see, that based on the direction Congress is heading, there’s a whole lot of numbers coming down the pike and they aren’t necessarily friendly to individuals and businesses.
I’ve been searching for comprehensive press reports or analyses of the various Obama Administration legislative priorities. This is very unlike me – mainly because it always results in a serious headache – but I want to know the cumulative fiscal impact of these bills so far, as in, if all of these are enacted, what will this list of “must have” legislation cost us as individuals and businesses? My list starts with climate change/cap and trade, jumps to food safety reform, then jumps to health care, and includes overall tax policy.
However, the problem is all reporters and think tanks of whatever political stripe are approaching these initiatives in a singular manner, which is probably exactly what the White House hopes they’ll do. And further complicating the calculations is that, by and large, we have only the House version of these bills to examine for economic impact.
Let’s take a look at the “comprehen-sive health care reform” package, estimated by the Congressional Budget Office (CBO) to cost $1 trillion to $1.5 trillion over 10 years. The impact of this one’s a doozy, according to the Tax Foundation, a “nonpartisan nonprofit” Washington, DC, think tank. Quoting any “nonpartisan” DC group automatically opens you up to partisan sniping, so I’m admitting here and now that I have no idea whether the Tax Foundation has a political ax to grind. I just know it’s been around since 1937, and it’s actually done analyses.
There are a couple of assumptions that make the impact of health care even more painful, potentially. First, folks forget that at the end of 2010, President George W. Bush’s tax cuts expire, and this current administration does not favor extending them. This means the top two federal income tax rates revert to 36 and 39.6 percent (currently at 33 and 35 percent). The other assumption is that millions of small businesses in the United States are taxed on the individual income of their owner(s).
The House Ways and Means Committee approved a “surcharge” on the top individual/married tax brackets to pay for about half of the health care package. The new surtax, aimed at “wealthy Americans,” is estimated to produce $544 billion over 10 years. The surtax on adjusted gross income would begin in 2011, with surtax rates set on incomes of $280,000 per individual and $350,000 for a married couple. The rate begins at one percent, increases to 1.5 percent for individuals earning over $400,000 and couples making more than $500,000, and jumps to 5.4 percent for individuals making $800,000 and couples earning over $1 million.
The Tax Foundation estimates 63 percent of all business income is earned by entities facing a tax hike, and the average return with business income is facing a total tax increase of $3,246. Perhaps the real number to look at is the tax rate. The total average tax rate on business income would increase from 23.7 percent to 29.5 percent, assuming business income is the last dollar of income earned. Tax rate + surcharge = 39 states with top individual tax rates exceeding 50 percent.
My head is starting to hurt.
Now, let’s shift focus to the climate change/cap and trade package. This one is far fuzzier in its impact as the House bill has been significantly changed from its original form and no complete analysis is available. Further, cost estimates are predicated on a lot of “ifs.”
During committee deliberation, the CBO number crunchers looked at just one year out of 10 – 2020 – and estimated the “average” cost to consumers at $175 per year. Independent analysis of the CBO numbers pegs a family of four’s real cost increase at about $1,600 per family per year. The Republicans in the House said the actual impact is $3,100 per family, but overall objective analysis pegs the figure around $1,500 to $1,800 per year. Our friends at the Tax Foundation back in March concluded the cost impact of a $144.8 billion cap and trade system designed to reduce emissions by 15 percent at about $1,218, or about two percent of the average family income. The foundation says its figure includes not only utility cost increases, but also the increased cost of goods and services due to the carbon tax. And the increases would fall disproportionately on those under 25 and over 75 years old; those in southern states, rural communities, and single parents with children.
In Great Britain, which instituted a similar system a few years back, average family costs have increased about $1,300 per year.
“Lawmakers weighing the costs and benefits of climate policy should be aware that cap and trade would impose a significant and regressive annual burden on U.S. households, and would not represent a ‘tax-free’ way to reduce greenhouse gas emissions,” said Andrew Chamberlain, the Tax Foundation author.
Then there’s the ongoing legislative evolution of the food safety reform package. While there are packages in both chambers, only the House package contains specific figures for fees and so forth. The bottom line for any company that currently registers under the Bioterrorism Act – and that would include all renderers – is you’ll now reregister under the House food safety scheme and have the privilege of paying fees for registration, as well as for the cost of a recall, the cost of a re-inspection, and the cost of export certificates.
The number hurting most is the registration fee. The fee in the House bill is set at $500 per facility, with a per company annual cap of $175,000. “Facility” and “company” are not synonymous. A facility is defined as any structure or site that processes, packs, sorts, transports, or holds a food or a food ingredient. Under the federal Food, Drug, and Cosmetic Act, “food” is anything fed to man or animal, meaning rendered products are covered. So, if a plant location has separate buildings for receiving material, holding material, processing material, and shipping material, that site has four “facilities,” and the annual fee for that single site registration would be $2,000.
The other fees called for in the House bill are unspecified, with authority given to the Secretary of Health and Human Services or the Food and Drug Administration (FDA) commissioner to set those fees.
And, on top of the congressional machinations over food safety, the White House has an interagency food safety working group that’s coming up with its own set of recommendations on how FDA and the U.S. Department of Agriculture should operate. The forthcoming “enhancements” – many of which are predicated upon pathogen control in meat, poultry, and dairy – will no doubt carry their own set of additional operating costs.
I’m taking two aspirin and going to lie down until this headache passes.
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View from Washington – August 2009 RENDER | back