Excise Taxes and ObamaCare

There has been an incessant influx of emails and internet rumors concerning a new “hidden tax” to fund ObamaCare, seemingly kicked off by posts that feature receipts from Cabela’s that show a Medical Excise Tax being applied to sporting equipment:

The authors of these emails and posts often gleefully point out that the administration is levying hidden taxes on our sporting equipment in an effort to get middle America to fund his wrong-headed policies. These are a mixture of truth and fiction, the latter caused by a computer mistake and possibly a lack of due diligence in reviewing confusing IRS publications.

There is indeed an excise tax imposed by ObamaCare, aka ACA (Affordable Care Act), but meant only for a "medical device" which is intended for use by medical professionals. The tax is imposed at the point that a manufacturer (or importer) sells the medical device to the buyer, which is (of course) subsequently passed on the the consumer (or patient) in the form of higher prices.

The definition of a "taxable medical device" is laid out rather confusingly in section 48.4191-2 of an IRS publication that attempts to clarify the final regulations , but it is basically any device that is, or should have been, "listed as a device with the Food and Drug Administration (FDA) under section 510(j) of   the FFDCA and 21 CFR part 807, pursuant to FDA requirements."

Clear? I didn’t think so.

To try and clarify things, the publication explicitly says that eyeglasses, contact lenses and hearing aids are not subject to the tax, or indeed any device generally available to the public through retail outlets. Further, it offers up a plethora of examples which try to show how the determination of taxable vs. non-taxable is made, through which we learn that denture adhesive and oxygen concentrators are not taxable, while portable x-ray machines and nonabsorbable silk sutures are (big surprise there, huh?).

So obviously, fishing poles and the like do are not subject to the ObamaCare excise tax that is adding to the already burdensome cost of medical care in this country. But it is easy to see why the internet lit up with false rumors otherwise.

The main source are numerous posts displaying a Cabela’s receipt such as the one shown above. While these receipts are real, they were a temporary phenomena caused by a computer glitch that has since been corrected.

The other source of confusion is the fact that the ObamaCare taxes are reported on form 720, which lists all excise taxes, including fishing poles and the like. So rather than assuming malicious intent on the part of the author of said emails and posts, it may be a lack of diligent review that contributed to this internet myth.

But let us return for a moment to the subject of excise taxes in general.

Excise taxes are intended to excise (i.e., control or hopefully eliminate) certain behaviors by levying punitive taxes such as drinking (UK) and prostitution (Canada). Wikipedia explains:

Excise duties or taxes often serve political as well as financial ends. Public safety and health, public morals, environmental protection, and national defense are all rationales for the imposition of an excise.

  • Public safety and health
  • Environmental protection
    • deter individuals or organizations from harming the general environment, including curbing activities which contribute to pollution, or which harm the natural environment.
  • Defense – including taxation directly levied on other countries’ militaries and/or governments, such as the UK’s taxation on "visiting forces"
  • Punitive – Many US states taxes on drugs, as well as the UK government impose excise on money laundering and on "visiting forces" (i.e., occupying military forces). These taxes are not considered revenue sources, but rather exist to allow governments greater leverage for punishments and reparations/war reparations – based mainly around tax evasion – which can be imposed in the event that the perpetrator is caught and tried.

As Samuel Johnson so eloquently put it, an excise tax is "A hateful tax levied upon commodities, and adjudged not by the common judges of property, but wretches hired by those to whom excise is paid."

Smart guy, that Mr. Johnson.

So what behaviors are imposed in the US of A, land of the free? According to Chapter 24 of the IRS publication Internal Revenue Manual these are:

Type of Excise Tax Trust Fund
Air Transportation of Persons and Property Airport and Airways Air Transportation
Taxable Fuel (gasoline, diesel fuel, kerosene) Highway, Airport and Airway
Heavy Highway Vehicle Use Highway
Retail Truck Highway
Tires Highway
Sports Fishing/Bows and Arrow Components Aquatic Resources, Wildlife Restoration
Coal Black Lung Disability
Inland Waterways Inland Waterways Trust
Leaking Underground Storage Tank Leaking Underground Storage Tank
Vaccines Vaccine Injury Compensation
Communications General
Foreign Insurance General
Gas Guzzler General
Indoor Tanning General
Medical Device General
Obligations not in Registered Form General
Occupational Tax and Registration Return for Wagering General
Ozone Depleting Chemicals General
Ship Passenger General
Structured Settlement Factoring General
Wagering General

 

These are the activities in our society that the government has deemed important enough to warrant additional scrutiny, the items that Uncle Sam wants to opportunistically profit from (like telephone tax or ship passenger tax), use to subsidize public service (like taxing heavy haulers and tires to help fund highways), or punish behavior (like wagering, buying "gas guzzlers" and indoor tanning).

Thus the excise tax on sporting equipment is rationalized by setting it aside to fund bureaucratic oversight of our park system and has been in existence for quite a few years — at least back to 1983. There is, however, some evidence that a portion of this particular tax has been used effectively, at least according to one study.

But what I don’t get is why the ObamaCare excise tax on medical devices aren’t set aside for an ObamaCare fund instead of being put in general population with the rest of the tax dollars stolen from the pockets of hard working Americans. After all, that would make it easy to track and report on the efficacy of the new tax and make it obvious when ObamaCare costs far outpaced the taxes collected.

Oh wait. I see. Never mind.

Posted February 24th, 2013 Filed in Obama, Barack Hussein, Taxes and the IRS