HCR: "Democrats Weigh New Tax on Investment Income"

[Clio the Leo]

Democrats Weigh New Tax on Investment Income

By MARTIN VAUGHAN and LAURA MECKLER

WASHINGTON -- House and Senate negotiators are considering applying for the first time the Medicare payroll tax to investment income as part of a compromise to pay for a health overhaul.

The extra Medicare tax would apply only to the wealthy and could allow congressional Democrats to reduce the sting of a tax on high-cost insurance plans, said Democratic aides and others briefed on the negotiations.

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Currently, the Medicare tax applies only to wages, without any limits. The 2.9% tax is divided in half, with workers and employers each paying 1.45%. The health bill passed by the Senate would raise the worker contribution to 2.35% for individuals making more than $200,000 a year and couples making more than $250,000 a year.

Under the proposal now being considered, people making more than those amounts would also pay the Medicare tax on dividends and other income from investments, the people familiar with the talks said. Income from pensions and retirement accounts, including 401(k) accounts, would be exempt.

People familiar with the talks cautioned that the idea was still in the study stage along with other ideas, and that it was too early to say whether it would find favor among Democrats.

A version of the broader Medicare tax, put forward by Sen. Debbie Stabenow (D., Mich.), would raise $111 billion over 10 years, according to a December estimate from the congressional Joint Committee on Taxation.

The proposal would also bring the Senate closer to the House version of the health bill, which contains a 5.4% income surtax on the wealthy. That surtax would apply to income above $500,000 for individuals and $1 million for couples.

The extra Medicare tax might bring in enough to scale back the tax on high-cost health plans and still have some left over to beef up subsidies to help the poor buy health insurance -- a key goal of House negotiators in the talks.

"It's an obvious compromise," said Chuck Marr, director of federal tax policy at the left-leaning Center on Budget and Policy Priorities. "They need to find something between the House and Senate versions. The advantage of this proposal is that, like the House surtax, it is broad-based."

http://online.wsj.com/article/SB126325868807825625.html?mod=WSJ_WSJ_US_PoliticsNCampaign_5

[NJmaverick]

1. What they should tax heavily is speculation income

which doesn't do anything but hurt our economy.

[zipplewrath]

2. This a germ of a good idea

Needs some fleshing out, but the exemption of capital gains based income from being treated as "income" needs fixing and this would be a start.

[Mithreal]

3. Labor should not be taxed higher than other forms of income.