NCPA - National Center for Policy Analysis


November 23, 2009

The latest proposal to pay for a government takeover of the health care system is to increase the Medicare tax for those that earn more than $250,000 a year.  At this point, the deeper economic damage imposed by this tax hike is difficult to analyze because the proposal lacks specifics.  But there is little doubt the tax hike would legally fall on those earning more than $250,000 a year so it remains in accordance with President Obama's campaign pledge, says the Heritage Foundation.

Nevertheless, those earning much less than $250,000 a year will feel the negative impact of the tax, explains Heritage:

  • Higher taxes on high earners will cause them to take fewer risks and cut back on investment.
  • This will lower wages and reduce the number of jobs created.
  • And much of the tax increase is likely to fall on small businesses, which will cause them to create fewer jobs and pay lower wages.
  • Workers earning much less than $250,000 a year will bear the full brunt of these jobs lost and lower wages.

This latest proposed tax hike shows Congress is desperate to find more revenue to pay for its excessively expensive health care plan, says Heritage:

  • The current Medicare tax is 2.9 percent; workers and employers pay 1.45 percent each.
  • It is unclear at this point whether both workers and employers would pay a higher rate, or just workers.
  • Unlike the Social Security tax, the Medicare tax is not capped, so every dollar of wages earned by workers is subject to the tax.

Slowing economic growth with higher taxes during this severe recession will only serve to prolong the suffering of those already hurt by the downturn, says Heritage.

Source: Curtis Dubay, "Higher Medicare Tax Latest Proposal to Fund Health Care Takeover," Heritage Foundation, November 18, 2009.

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