Applying Payroll Tax to Investments Will Slow Recovery and Hurt Seniors

Curtis Dubay /

The House and Senate are working to reconcile their differing health care reform bills into one final bill. Tax increases remain a stubborn sticking point. The House prefers a surtax on high-earners and the Senate an excise tax on so-called “Cadillac” health insurance plans that cost over $8,500 for individuals and $23,000 for families.

Labor unions, and their backers in the House, have made clear they are staunchly against the excise tax. Congressional negotiators are now looking to reduce it so it has less of an impact on union members, but will need to raise other taxes to replace the lost revenue if they do.

Their latest idea to bridge the divide is to apply the payroll tax to investment income for the first time. Currently, the payroll tax applies only to wages. Increasing taxes on investment income would be a bad idea at any time, but doing so now as the economy is just emerging from a deep recession is downright irresponsible. We are in the beginning of recovery and higher taxes on investment would threaten that recovery. The Obama Administration has reportedly even considered that it will likely have to put off the tax increases it wants – including increasing taxes on capital gains and dividends – because of the weakened state of the economy. If Congress goes through with its plan to hike taxes on investment income and capital gains it will hurt economic growth at the worst possible time and contradict the sensible concession of the administration that taxes should not be raised now.