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November 13 2009

Squeeze that Golden Goose!

Nicole Kurokawa Neily

As policy wonks around the beltway grimly await Sen. Harry Reid's compromise health reform bill, another possible funding mechanism has leaked from the hallowed halls of the Senate: increased Medicare taxes on the "wealthy."

Gerald Prante at the Tax Foundation writes:

Now Senate Majority Leader Harry Reid is eyeing his health care reform proposal, and the AP is reporting that Reid is looking at raising Medicare taxes on those earning more than $250,000.

Currently, earnings are taxed at a flat rate of 1.45% on employer and 1.45% on employee (2.9% total) for Medicare, and unlike Social Security taxes, there is no ceiling.

Insurance companies, the pharmaceutical industry - they're only good to blame for health care woes. Coal and oil companies - they're only good for blame on environmental issues. But obviously, the Democrats' all-time favorite whipping boy is the rich - they're always there, and they can be blamed for everything! And they have enough money to pay for everything! Jackpot!

From The New York Times:

Several Democratic senators have urged Mr. Reid to propose extending the Medicare payroll tax to income other than wages, like capital gains, dividends and rental income. Such a change could generate substantial revenue from higher-income households, who tend to derive a greater share of their income from sources other than wages.

The House also wants more money from affluent people. The House-passed bill would raise $460 billion over the next decade from a new income surtax. The surtax would equal 5.4 percent of adjusted gross income exceeding $1 million for couples and $500,000 for individuals.

Unfortunately, this theory is flawed: the rich won't always be there to pick up the tab for the government's out-of-control spending. The Congressional Budget Office has acknowledged that punitive taxes force people to change their behavior. People will put their money where it won't be taxed as heavily, or they will stop working hard because they won't get to keep their money at the end of the day. Disincentivizing citizens to work hard... sounds like a GREAT idea.

America's reputation is that it is the land of opportunity, and that people can become anything they want. People dream of becoming rich - and unlike many parts of the world, we don't have social constructs that prevent them from doing so. Why, then, does the government want to punish Americans for achieving their dreams, and having money? As the saying goes, tax what you want less of, and subsidize what you want more of. Accordingly, the more we tax the rich, the fewer of them there will be.

So then what? If there aren't any more wealthy individuals to tax to death, where next to turn for money to finance (the inevitably more expensive than forecast) health plans in the future?

Congress flirted in the past with a tax on "Cadillac" plans (worth over $8,000/ individual, or $21,000/ family) but was roundly smacked down by union leadership, since the majority of union plans fall under this rubric. The New York Times continues:

Steven M. Kreisberg, director of collective bargaining and health care policy at the American Federation of State, County and Municipal Employees, said an increase in the payroll tax on high-income people was "far preferable" to the excise tax on high-cost insurance plans.

And let's be honest, Congressional leadership is unlikely to bite the hand that feeds them.

Looks like the burden will be borne by the rich alone, for now. Just pray you don't have to work overtime and get paid time and a half (Gasp! The horror!)

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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