Health-care reform's 'back-door' tax

[unblock]

Source: Fortune

WASHINGTON (Fortune) -- The big talk on Capitol Hill may be about health-care reform, but as part of this massive undertaking, the Democrats are quietly reshaping the tax system too. Tucked inside President Obama's latest health-care proposal is a major change to the Medicare tax.

Since its conception, the Medicare tax has always been tied to payrolls. Every paycheck, employers and employees each chip in 1.45%, regardless of how much someone makes. Under Obama's proposal -- which should be very close to what Congress winds up enacting -- a Medicare tax would now be applied to investment income too: Individuals who earn more than $200,000 and couples over $250,000 would pay an additional 2.9% surtax on unearned income from interest, dividends, annuities, royalties and rents.

...

Two things happen here. The first one is that the Medicare tax would go from being a payroll tax (like Social Security) to an income tax.

...

But by giving the Medicare tax the qualities of an income tax, Democrats can raise taxes on high-earners without explicitly calling it an income tax hike. The proposal also targets this group by adding 0.9% to their payroll portion of the Medicare tax too. Adding a tax just for households making over $250,000 would make the tax progressive for the first time.





Read more: http://money.cnn.com/2010/03/10/news/economy/medicare_tax.fortune/index.htm

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progressivity in the payroll tax!!!!

[Oregone]

1. Good stuff

[sinkingfeeling]

2. And this is bad, how?

[unblock]

18. overall, i think progressivity in the payroll taxes is a great idea

although i'm not sure about the specifics in this case. the article makes it sound like it's not done with incremental brackets like the income tax. the penny that puts you over the threshold immediately brings the 2.9% on you. that creates weirdnesses, like it being a good idea to turn down a raise in certain rare circumstances.

but in general, this is a good idea, i think the lack of progressivity in the payroll taxes is a horrendous thing, and any technical flaws i would think would get fixed eventually.

[harun]

32. Exactly, this is a good thing.

[napi21]

3. that's actually a GREAT IDEA! It's not high enough to really tick

a lot of people off (only y $1,450 on every $100,000.00) but it should bring in a LOT OF $$ to the treasury.

[groundloop]

6. well, actually I bet ANY tax increase will draw the ire of right wingers and tea-baggers

No doubt they'll be using this as a rallying cry during the upcoming elections - gotta defeat those tax-n-spend liberals. This is a really great idea (and much needed), but the right wing will surely be bitching about it once they get wind of this.

[Winterblues]

15. Is there ANYTHING beside war and killing that does not draw the ire of Republicans?

:shrug:

[shraby]

17. Ask me if I care what the right wing nutjobs say.

[thecrow]

34. Yeah as if they make $200,000

From the looks of it they are a bunch of fundie loonies that hate women and can't read or spell.
I doubt all but a handful (the leaders, maybe) make that much money.
It's like their "death" tax. As if they'll all be leaving over 7 million in their estates.
The teabaggies are tools.

[happygoluckytoyou]

4. INCOME LEVELING IS A GREAT THING.... WHEN YOU ARE NOT THE TOP OF THE PYRAMID! ! !

[Schema Thing]

5. a shred of tax sanity, finally

[ixion]

7. tax-happy bastards...

just more money for the swine at the trough, and more strain on We, the People.

[Inuca]

9. Saracsm, right? n/t

[ixion]

12. not in the least

We already pay too much in taxes, it's just that most of it goes to either a) put us in jail; or b) destroy people abroad.

There is plenty of money in the till. What needs to happen is that corruption needs to be cleaned up and waste curtailed.

[keopeli]

22. Who is "we"? Do you mean people making over 250K a year? Is that your tax bracket?

If so, you would know that there are a litany of loopholes of which to avail yourself. You'll have to pay an accountant or two, but better them than uncle sam.

Is that the "we" who pays too much in taxes?

I believe the rich should be paying more. But, that's just me.

btw, I'm not poor at all (today), and I can accept my taxes increasing if it's to pay for health care, green energy, education, and fighting poverty.

[ixion]

24. Not quite that tax bracket

but up in the higher levels. I'm not opposed to paying for common services. I AM opposed to waste and corruption and the MIC, though.

[wackywaggin]

8. Simply a great idea!

Why shouldn't everyone pay their fair share?

Heretic Wack

[ShockediSay]

10. Why shouldn'tt this nation's deficit be addressed by those who can best afford it

and those who in past {Bushie} years benefited most from the growing deficit?

[harmonicon]

11. GOOD! at least there may be one good outcome from this. (nt)

[jody]

13. The top 50% who pay income taxes already pay 97% of income taxes. How close to 100% will this become

de facto?

[unblock]

14. i'm pretty sure your numbers are off.

you probably mean something like the top 50% of *all households pay 97% of income tax, the reason being that many households don't pay income taxes at all due to poverty. even then, i don't think the number's quite as high as 97%, although i'll believe it's close.

[jody]

16. You are correct I am off. Actually it's 97.11% not 97% as I said. See link below

http://www.taxfoundation.org/news/show/250.html

[unblock]

20. i stand corrected. of course, they also earn 87.74% of agi

[jody]

21. Absolutely! Does a multi million dollar bonus recipient contribute 1.45% to medicare? n/t

[Dr.Phool]

25. Throw in payroll taxes, and they pay a lot lower percentage.

[jody]

27. Understand but the OP was about income taxes and a 2.9% surtax on income from interest, dividends,

annuities, royalties and rents.

[unblock]

28. actually, the op was about medicare taxes

although this proposal would certainly blur the distinction, hence the use of the term "back-door" in the article's headline.

[jody]

29. “Health-care reform's 'back-door' tax” and “Medicare tax. . . to an income tax.”

[unblock]

30. but to dr. phool's point, if you lump them together, you can't ignore the "old" medicare tax

if the new medicare tax is going to be lumped together with the income tax and the medicare-as-payroll-tax goes away, then you can't focus on the change in distribution of the income tax while ignoring the change in the payroll tax.

you have to compare the progressivity of the the combined medicare + income tax in the present system to the progressivity of the combined income/medicare tax system in the proposal.

dr. phool's point was that the progressivity in the present medicare + income tax system isn't anything near like what your numbers would suggest because they ignore the regressivity of the present medicare tax structure.

[jody]

31. Your OP was about taxing so called "unearned income" to fund medicare and then making medicare taxes

progressive.

In any case, the issue is who pays the bill and your article clearly shows that the tax burden under the proposed tax change would shift medicare costs to higher income earners.

The stats I cited are correct and people can use them any way they choose. :shrug:

[high density]

33. I'm quite confident that very few of the "top 50%" have more than $250k in investment income

I'd say these people have $5+ million in investments and/or they've very lucky and earn high returns on their money. Either way I will not shed a tear for them paying a Medicare tax on this income. I also don't see how .9% on earned income over $250k is onerous either.

[Change Happens]

19. Pass the damn bill already! God bless our President and Democratic Progressive Leadership team!!!

[ShortnFiery]

23. Yes, in FORTUNE magazine we trust? No way, the middle class will get fleeced again.

Too many here are super GULLIBLE if they believe the bloated rich crones who publish FORTUNE Magazine. :crazy:

[unblock]

26. um, it's not an editorial.

the wall street journal has excellent actual reporting, although its op-eds are invariably horrendous.

[Name removed]

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