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ADA advises Congress on looming tax cliff

Washington—Tax increases and spending cuts scheduled to take effect Jan. 1, 2013, could have “a chilling effect” on dental practices if not adequately addressed, the Association told the U.S. House of Representatives Small Business Committee.

“The bottom line is the ADA believes increasing taxes on employer dental practices would only succeed in exacerbating an already very sluggish economy and will increase the cost of providing care, and thereby undoubtedly have a negative impact on access to care,” the Association said in a statement for the record.

The Committee held a hearing on how small businesses could be affected by the impending “tax cliff.” The combination of tax hikes and spending cuts could trigger a “significant recession” if not adequately addressed, according to the non-partisan Congressional Budget Office.

“Like all similarly situated small businesses, employer dental practices would be adversely affected by the potential increase in income tax rates and the phase-out of deductions and exemptions, such as estate, gift and generation-skipping transfer taxes, as well as the phase-out of itemized deductions for high income earners,” the Association said.

“Dentists who own their own practices rely on section 179 expensing of investments in new equipment and dental operatories to expand and update their facilities. The very significant reduction in the amount that can be deducted under section 179 (the 2012 maximum write-off of $139,000 will fall to $25,000 in 2013) and the continual uncertainty in this area will have a chilling effect on needed capital expenditures in the dental profession.”

Dental practices are important economic contributors in their communities, and higher taxes would compound the adverse effects of the economic downturn, the Association said.

The Association also cited these scheduled tax hikes.

• A coalition of 11 organizations representing dentists, dental product manufacturers and dental laboratories continues to support repeal of the 2.3 percent medical device excise tax scheduled to take effect Jan. 1, 2013. The coalition estimates that the tax will increase the cost of dental care by more than $160 million annually.

• In 2013, there is 0.9 percent payroll surtax on wage and salary income over $200,000 for single filers or $250,000 for joint filers. The 2012 Medicare Hospital Insurance (Part A) tax for the Medicare Hospital Insurance (HI) Trust Fund is 1.45 percent of all salary income, with an equal 1.45 percent paid by employers. In January, 2013, the new tax will be 2.35 percent on all earnings above $200,000 for individuals and $250,000 for married couples filing jointly. For the self-employed, the rate increases from 2.9 to 3.8 percent.

• There is also a 3.8 percent tax in 2013 on some investment income of taxpayers whose modified adjusted income (MAGI) exceeds $200,000 for single or $250,000 for joint filers. Investment income includes rents, dividends, interest, royalties and capital gains on property sales (with a partial exclusion for primary residence sales).

“The sum of all the taxes will have a chilling effect on dental practices and would make it much more difficult to hire new employees or invest in new equipment and technology,” the Association told Congress.

Members of the device excise tax coalition include the Academy of General Dentistry, American Academy of Periodontology, American Academy of Oral and Maxillofacial Pathology, American Academy of Pediatric Dentistry, American Association of Oral and Maxillofacial Surgeons, American Dental Association, American Society of Dentist Anesthesiologists, Hispanic Dental Association, National Dental Association, Dental Trade Alliance and National Association of Dental Laboratories.