Obama’s Health Plan Has Dangerous New Taxes

Curtis Dubay / February 23, 2010

The health care plan President Obama recently released is mostly a combination of the different plans passed by the House of Representatives and the Senate. But in one major way it breaks with long-standing precedent, proposing a fundamental wrong-headed change to both entitlement policy and tax policy. He proposes for the first time to tax capital income to support entitlement programs.

Payroll taxes have always applied just to wages and salaries and the revenue those taxes raise has gone solely to pay for entitlements like Social Security and Medicare. The deal has always been that we pay payroll taxes during our working years and receive the benefits they fund after we retire. President Obama’s health care plan would shatter this compact forever.

The Hospital Insurance (HI) portion of the payroll tax is 2.9 percent on all wages and salary that is paid half (1.45 percent) by workers and half (the remaining 1.45 percent) by employers. It is supposed to pay only for the hospital insurance portion of Medicare benefits that retirees receive. President Obama’s plan adopts this break with long-held policy and doubles down by further severing the link between HI and Medicare benefits. Obama’s plan not only increases the HI tax on wages and salaries for high-income earners similar to the Senate bill, it also applies the HI tax to investment income for the first time. Obama’s unprecedented plan would levy the current 2.9 percent HI tax on what the administration obnoxiously refers to as “unearned” income, which includes capital gains, interest, dividends, annuities, royalties and rents for families earning more than $250,000 a year ($200,000 for single filers). (more…)