NCPA - National Center for Policy Analysis


January 22, 2010

Supporters of health care reform need money -- a lot of money -- to pay for it.  So it's not surprising that they would try to get it from the people with the most money to spare.  Hence the so-called millionaire's tax, a levy embedded in the House health care bill.  As House Ways and Means Committee chairman, Rep. Charles Rangel (D-N.Y.), explained, lawmakers are targeting big earners because it "causes the least amount of pain on the least amount of people." 

That's the theory, anyway.  In fact, the millionaire's tax is a good example of how poorly some politicians understand the policies they propose, says Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University: 

  • The health care bill that the House narrowly approved in November included a 5.4 percent tax on the portion of gross income (which includes capital gains and dividends) that exceeds $500,000 for individuals and $1 million for a couple.
  • The surtax would apply to tax years that begin after December 31, 2010.
  • So the first sign that the tax will hit more than millionaires is the fact that it targets half-millionaires from the get-go.

The idea's main selling point, says de Rugy, is that the increase would hit only 0.3 percent of tax filers -- roughly 400,000 people -- yet would raise $460.5 billion over the next 10 years: 

  • Congress' Joint Committee on Taxation estimated that the new rate would affect only 1.2 percent of relatively small business owners, including sole proprietorships (that is, businesses owned by just one person), partnerships (owned by a few people), and S corporations (which have up to 75 shareholders).
  • But because the tax isn't indexed for inflation, over time it will apply to more taxpayers as inflation affects income levels.

Sound familiar?  It should, because this is how the alternative minimum tax (AMT) became such a nightmare, says de Rugy. 

According to the Tax Policy Center, by 2019 the number of taxpayers subjected to the health care bill's tax will have doubled.  If inflation hits harder than the center's analysts assume, the number will be even higher.  Either way, it will keep climbing, gradually assimilating more and more people who never thought they'd be considered super-rich, says de Rugy. 

Source: Veronique de Rugy, "Who Wants to Tax a Millionaire?" Reason, February 2010. 

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