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  • The President Health Proposal: Taxing Investment Income

    In preparation for today’s bipartisan Health Care Summit, President Obama released his own version of health care reform earlier this week.  The President’s proposal includes several high-ticket provisions for expanding coverage.  Since he has promised time and again not to raise taxes on the middle-class in order to pay for health care reform, the President’s bill imposes a Medicare tax on the investment income of high-individuals to off-set some of the cost of expanding Medicaid and  financing other provisions of his health agenda.

    But, as Heritage analysts Karen Campbell and Guinevere Nell explain in a recent paper, these new taxes would have widespread adverse effects for all Americans, not just the wealthy that they target.  This is partially due to the very nature of a tax:

    “A well-established economic regularity is that if you tax something, you get less of it. For example, policymakers in the Senate recently proposed a tax on “Cadillac” health insurance plans. The justification was that it would not only generate revenue to help pay for subsidized insurance but also reduce demand for high-priced premiums, putting downward pressure on all health insurance premiums.”

    The Cadillac health insurance plan tax is intended to reduce the usage of high-cost insurance plans.  Similarly, the President’s proposal’s tax on tanning beds discourages their use; the same is the case with cigarette taxes.  In several instances, taxes are imposed as punitive measures.  So why on earth would the President impose a tax that would discourage investment, delaying recovery from the current economic downturn?

    Moreover, Campbell and Nell lay out several ways in which this tax would hit average American households hard.  First, the tax would reduce overall household wealth of American families by $274 billion per year.  “The value of the investment portfolios of many households–not just the high-income households that directly pay the tax–are reduced by the tax on investment income.”

    Second, reducing investment would decrease capital in the U.S. economy, which would reduce potential for economical growth.  This affects not only the rate of job creation and wage increase:  it would have a dramatic effect on the ability of the federal government to borrow money.  According to Campbell and Nell, “A lower U.S. economic potential also harms the ability of the government to borrow, because investors lend to the U.S. based on the expected potential of the U.S. economy. Thus a lower potential economy puts upward pressure on government interest rates in order to attract financing for the nation’s deficit.”  Raising government interest rates will add further to the financial burden on taxpayers.

    “Because investment is what drives productivity and economic growth, less investment–even if only slightly less–leads to lower productivity, slower economic growth, weaker wages and salaries, and lower household wealth. How much less depends on the underlying supply and demand for investment.”

    President Obama’s health care proposal would expand health coverage—but is the detriment to the U.S. economy and the burden on the taxpayer worth the cost?

    Posted in Obamacare [slideshow_deploy]

    9 Responses to The President Health Proposal: Taxing Investment Income

    1. Kevin Habib, Glen Bu says:

      The highest earners in the U.S. have enjoyed the biggest tax cuts over the last decade and look what happened to our economy. What happened to the productivity and demand over the last decade? They went up, then took a huge dive down – driving down everythign in the economy – driving a surplus to a deficit – driving down average wages and GDP.

      The top 400 households paid 16.6 percent of their income in federal individual income taxes in 2007, down from 30 percent in 1995. This decline works out to a tax cut of $46 million per filer in 2007, or a total of $18 billion in tax cuts for these households per year. So, the top 400 filers now pay much lower effective tax rates on vastly larger incomes.

      Based on your logic and Brian's logic – why is the economy not booming with all these top earners pulling in such a greater amount of post-tax income.

      Please explain how in Decemner of 2007, the U.S. entered into the worst recession in 50 years when tax rates have been so low? Seems that history and fact debunk your entire argument, no?

    2. Dave - Chelsea, MI says:

      Why is it that ANYONE believes someone else should pay the freight while others ride perfectly free?

      Just over 50% of Americans pay NO Federal Income Tax whatsoever – in many cases even receives an unearned Income Tax Credit —– soooo….those that pay nothing get benefit from those that pay an unfair share of the burden.

      In part, America's strength comes from its meritocracy and would benefit more IF everyone had "skin in the game"……..

      While there has been a steady and constant effort to "socialize" America, we still are a capitalistic Nation, whose People have proven time and time again to be the most generous on the face of the earth —— if we keep trying to redistribute wealth as this Administration and Majority Party intends, we'll kill the golden goose.

    3. Perry, OK says:

      I have no degree in anything,except my ph d of life. So answer these simple questions.

      Why loan your money to a BANK and get 1.5 percent and invest in a stock market where all the bankers play(with your money). Add to the fact that big brother now wants MORE of you savings. Just to pay for WHAT? Medicare/Medicare.

      My banker ask why I was not pay his light bill any more. He WOULD NOT answer my questions.

      #2

      Why is it that we will put a thief in jail for stealing less than $100, yet all those responsible for our current lack of st*tus in this country and abroad, roam free? Hey eric get off your bum and pursue something worth while would feel better knowing you were doing dothing for your pay.

      #3

      We as a nation have lost something! A work ethic. We DO NOT need another peace corps, we need to establish the welfare system to train our people. The law of most lands "YOU WORK YOU EAT". That incentive alone will pull us out of where we are. From child care to our national security, we are suppressing our people, with our generosity. They have it in them, they just need someone to guide them. MAYBE in 2012.

      Thank you for your time. May GOD bless the USA and preserve her till we can CHANGE our Stupid ways!

    4. bigdave, ocala fl says:

      The most horrible word in the English language is DEMOCRAT! Why? 1) create lies about catastrophes(global warming/cap and trade) to control and tax people, and make a few cronies rich in the process. 2) tax the earners cause they have taken advantage of the non-earners. 3) create UNIONS cause they are closest to our socialist principles(everyone makes the same regardless what they do or how hard/or hardly they work, and can not be fired). 4) destroy American businesses which are NOT UNIONIZED costing MILLIONS OF JOBS!! 5) make hard working taxpayers PAY for healthcare/new babies born of all illegal immigrants and pay for their welfare also. 6) amnesty for illegals cause they vote for democrats( except those born here, own a business and are now threatened by illegals . 7) re-write history to EXCLUDE our forefathers, in fact, denigrate them. 8) get GOD out of everything. 9) blame everything wrong on republicans and the media will back us up. 10) party BEFORE country.

    5. Pingback: Must Know Headlines 2.26.2010 — ExposeTheMedia.com

    6. ronald e. galli 379g says:

      To stimulate this economy we need just the opposite of the current administrations policies and by tax cuts put money in the private sector. This will create jobs. T

    7. ronald e. galli 379g says:

      We should do the opposite of the current administrations policy and instead of raising taxes give tax breaks to business which will then create jobs. This has worked in the past.

    8. Sam, WI says:

      Although the information pointed out by Kevin and Glen is most likely accurate, I am certain that there is a good deal more information that they didn't list. However, I guess I shouldn't be too hard on them, after all, the media leaves out facts that they don't like too.

    9. Norma in Nebraska says:

      I am always amazed when I hear or read about how the "wealthy" should pay more to take care of those who are not so fortunate. These are the very people who contribute billions of dollars to charities every single year and support programs like the Red Cross that gives aid to help with worldwide catastrophes. How much money is contributed VOLUNTARILY by the low or medium incomes families in this country?

      Almost every person born in the United States has the opportunity to get an education and lift themselves up as high as they dream to go. It is the INDIVIDUAL's decision just how diligently they will pursue the opportunities they are given. If that individual sets a goal, works hard and relentlessly faces the challenges in their path, they will experience immeasurable success. How hard they work and how long they endure determines how financially successful they will be. Every single day, we hear about individuals who overcome overwhelming odds and do the unthinkable because they CAN, and in many cases, those opportunities only exist in the United States of America! Why do you think so many people have risked everything to come to this country? It wasn't so they could stand in line at a soup kitchen somewhere.

      So my question is this: If we CONTINUE to penalize those individuals who have worked hard and endured in order to be successful, what will be their incentive to continue if they are FORCED to pay 50% or more of their earned income to the government? Is it the government's role to "redistribute the wealth" and take from those who have worked hard and give it to those who choose to sit and wait with their hands out???

      Why would any of us, in the process of trying to give our children "everything we never had", want to rob them of the pride and feeling of self-worth that comes from succeeding on their own? Since when is it desirable to be a free-loader and be a liability rather than an asset to our community and our country? I believe that true happiness comes from strong character supported by pride in our successes not only in the business world but our personal lives as well.

      Perry (OK) is right . . . the downfall of our country may very well be all the freebies that we "give" to anyone with their hands out. When we reward people for being non-productive we are not doing them or ourselves any favors. And the end result is that the more that is given, the more that is expected . . . . a nanny state in full bloom!

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