AP reports:
For the first time, the Medicare payroll tax would be applied to investment income, beginning in 2013. A new 3.8 percent tax would be imposed on interest, dividends, capital gains and other investment income for individuals making more than $200,000 a year and couples making more than $250,000. . .
The new tax on investment income is higher than the 2.9 percent tax proposed by President Barack Obama. House Democratic leaders increased it so they could reduce the impact of a new tax on high-cost health insurance plans strongly opposed by labor unions.
Keep in mind that taxes on dividends and capital gains are fundamentally unjust in the first place, since much of that “income” is simply inflation. It’s shameless: First the government steals your buying power by printing money. Then, if you invest wisely to compensate for inflation, they tax your resulting “gains”.
But this is worse than a mere tax hike; it also carries a severe compliance burden:
Medicare payroll taxes traditionally have been low and predictable: a 1.45 percent tax on wages, paid by both employers and workers. The money is taken out of workers’ pay before they see it. There are no forms to file, no deductions to claim.
Under the new health care bill, married couples with combined incomes approaching $250,000 would have to keep tabs on their spouses’ pay to avoid an unexpected tax bill. Those with investments would have to pay even more attention to the income they earn from interest, dividends and capital gains.
“Unless they are very conscientious folks who constantly monitor their income tax withholding, they’re going to have quite a surprise when they go to file their income taxes,” said Jeffrey L. Kummer, director of tax policy at Deloitte Tax LLP.
Finally, I suppose it’s worth pointing out that the president is once again breaking his no-tax-hikes-under-$200k pledge. Two people making $125k each would see a tax hike if they happened to be married.
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