House Health Care Bill Includes 3.8% Medicare Tax on Investment Income
March 18, 2010
Following up on my prior posts (President Obama's Health Care Tax Increases, WSJ: Obama's 'Sneaky' New Tax on Investments, ObamaCare's Worst Tax Hike: For the First Time, Payroll Levies Will Hit Investment Income): the House Health Care bill unveiled today includes a 3.8% Medicare tax on investment income (interest, dividends, capital gains, annuities, rents) earned by those with incomes in excess of $200,000 (single) and $250,000 (joint).
• Bloomberg, House Health Bill Would Add 3.8% Tax on Unearned Income
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March 18, 2010 in Congressional News, Tax | Permalink
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Comments
The joke is on them. With the current Fed policies, who has any interest income? Dividends, I suppose, but once the rate preference drops companies will just go back to favoring stock repurchases.
I guess that leaves capital gains once people dig out of their loss carryforwards.
Posted by: Dave | Mar 18, 2010 4:38:54 PM
I hate these people.
Posted by: Wendell | Mar 18, 2010 5:32:44 PM
I don't recall ever hearing this specific tax proposal before in any of the versions of the health care 'reform' act. Sure is a good thing that we have 72 hours to discuss it, huh?
Posted by: Steve White | Mar 18, 2010 5:56:33 PM
That increase on top of the tax cuts expiring next year. Also, obama's budget called for the capital gains tax to increase from the current 15% to his desired rate of 20% so with the added 3.8%, cap gains would go from the current 15% to 23.8%. Yeah, that will help the economy. With all the other taxes the Democrats are putting on the top bracket, they'll easily be paying over 50% in state and federal taxes.
Remember obama's best support was the youth and people with graduate degrees. I'm just guessing that many of those in the top bracket are graduate degree holders. Think they have buyers remorse yet?
Posted by: DDay | Mar 18, 2010 5:57:48 PM
Wealth redistribution, pure and simple.
Posted by: JayDee | Mar 18, 2010 6:09:53 PM
I'm no tax expert but any idiot can see this tax won't bring nearly what Nancy "Sooper Geenyus" Pelosi thinks it will. I've got a sawbuck that says a lot of single people and married couples will decide to just give up a few thousand bucks and skip paying the tax altogether.
There are idiots....and then there are Democrats.
Posted by: MarkJ | Mar 18, 2010 6:20:30 PM
In today's economy only losers are supported. There's no interest for savers. Local banks are not bailed out, only large failed banks. Small business is not aided, only failed dinosaurs like GM.
Grrr.
Posted by: Jim,MtnViewCA,USA | Mar 18, 2010 6:26:17 PM
So, how will this effect us working guys with 401ks? Will this additional tax be levied once I retire leaving me with much less to live on?
Posted by: mark | Mar 18, 2010 6:29:15 PM
Does this mean that if I sell my home of 15 years, which thankfully has equity, the government takes another 3.8% of the sales price?
Posted by: Mike | Mar 18, 2010 6:29:53 PM
Lets see if Bill Gates portfolio went from $50 billion to $55 billion (up ten percent), he would owe an additional $190 million in taxes. This tax applies to undistributed gains too, so it is a pretty onerous tax. This might require him to sell $190 million in holdings to pay for the tax, which would then be subject to a 20 percent (after 2010) cap gains tax on top of that. Redistribution are the US.
Posted by: mndasher | Mar 18, 2010 6:33:38 PM
Certainly not advocating violence here, but is there a nice way to hang every last one of these marxist bastards, legally?
Posted by: Punkindrublic | Mar 18, 2010 6:35:27 PM
Apologies if this has been covered in previous posts, but can the proposed new tax be offset by previous capital losses? My guess is that it cannot, but maybe I'm wrong. (I reflexively started to type that I'd be delighted to be wrong. Not.)
Posted by: gs | Mar 18, 2010 6:35:59 PM
In general, the proposed new tax would apply only to investment income that is subject to income tax (see proposed Code section 1411(c)(1), as added by the bill, which would tax gains only "to the extent taken into account in computing taxable income" and other investment returns only if included in "gross income" rather than excluded therefrom). Municipal bond interest, for example, would be exempt from the proposed new tax because such interest is excluded from "gross income" by Code section 103.
Therefore, in response to Mike's question, the proposed new tax would apply only to capital gains on homes that are subject to income tax under Code section 121, generally any excess of the gain over $250,000 ($500,000 for couples). In response to mndasher's comment, the proposed new tax would not apply to unrealized capital gains because they are not subject to income tax. In response to gs's question, there is no provision for an offset from past capital losses.
In response to Mark's question, the proposed new tax, in an exception to its general design, would not apply to distributions or withdrawals from 401(k)s, IRAs or pensions, even though such distributions are subject to income tax.
Proposed Code section 1411(c)(5), as added by the bill, would expressly exempt such distributions from the proposed new tax.
The proposed new tax would take effect in 2013. It may be worth noting that the $200,000 ($250,000 for couples) modified-adjusted-gross-income threshold at which the tax would kick in would NOT be indexed for inflation. In an odd provision, the revenue from the proposed new tax would be earmarked to the Medicare Part B trust fund.
I view the proposed new tax as a highly undesirable penalty on saving and investment. Amy Roden and I criticized the proposal's earlier version (which featured a 2.9 percent rate) at american.com.
Alan Viard
American Enterprise Institute
Posted by: Alan Viard | Mar 18, 2010 7:20:18 PM
Remember, these are the people who recently announced they were going to encourage tourism by taxing it. Logic makes no sense, has no effect, on any of them.
Posted by: DavidN | Mar 18, 2010 7:35:53 PM
It's as though no one has even *heard* of Atlas Shrugged.
Posted by: Chris L | Mar 18, 2010 8:08:19 PM
So, it seems to me the $200K single/$250K joint is a hell of a marriage penalty--if the spouse's income raises AGI by only $51K, which is quite normal in some places such as the D.C. metro area, *both* get socked for 3.8% additional tax on "unearned" income.
And it's not indexed for inflation, which means eventually it will hit EVERYONE who invests, owns rental property, earns interest (i.e. everyone, period). Which is, of course, "a feature, not a bug."
I'm with Punkindrublic...except hangin's too good for 'em...
Posted by: Mikey | Mar 18, 2010 9:30:04 PM
It is about time we shifted the tax burden to the upper class. Reagan and Regan tried to screw me out of the equity (our life's savings) in our home I will push back and fight every Republican and their issues for they could give a rip about the working class. Now maybe they can see what it is like for the rest of us. Step up and pay your fair share you greedy ba....ds
Posted by: Mark P | Mar 18, 2010 9:41:19 PM
Rents?
Does this mean my rent is about to go up 3.8%, assuming I am unlucky enough to have a landlord who makes over the critical amount annually? Or am I misinterpreting? |
