As part of the continuing discussions about health care reform, the spectre of how to pay for it has risen again. Yeah, cause that’s how it apparently works in Congress. Much like college students, the plan is to figure out how to pay for all the binge-spending “later.”

So, with that in mind, consider this: Senate Majority Leader Harry Reid (D-NV) is seeking yet another source of funding for health care reform. This one would raise Medicare payroll taxes on couples who make more than $250,000 a year. Yep, these are the same folks that are likely getting hit with an increase in regular ol’ income taxes to pay for health care reform.

Reportedly, the increase would make up for concessions being made with respect to those Cadillac plans. If you believe the chatter, those thresholds may increase – to $8,500 for individuals and $23,000 for couples. The resulting gap will be narrowed by those increased Medicare payroll taxes.

The proposal isn’t much in terms of dollars. It would simply raise the payroll tax to 1.75% from 1.45% for individuals earning more than $200,000 a year and couples making more than $250,000. Popular for the middle class, sure, and for unions who have opposed the Cadillac tax plans.

But not so popular with high dollar wage earners who feel as though they’re being looked at to pay for, well, everything. Need a dollar? Jack up taxes on the wealthy. It’s just so easy.

But maybe – and I’m just throwing it out there – there’s not an endless pool of money out there. Maybe exerting pressure at every turn on high wage earners to make up the difference could have unintended consequences. John Goodman (not the actor who plays Roseanne’s husband but President of National Center for Policy Analysis) claims that the extra Medicare tax “takes money out of the system needed to create jobs.”

That’s not something to be taken lightly in this economy. And the GOP knows it. All of the Republicans in the Senate are opposed to the bill. To push it through and put the kibosh on Sen. Joseph Lieberman (I-CT), Sen. Reid needs the okay from everyone else. Everyone. I’m not sure he’ll get it. Just doing a little bit of math here… But Lieberman kind of counts as one of those “everyone else”, right?

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Author

Kelly Erb is a tax attorney and tax writer.

Comments

  1. The GOP is opposing this bill not because of what some think tank – even one that is funded by the health-care industry (as NCPA is) – says. They’re opposing it to oppose the Democrats. Period.

  2. Another Tax Geek, CPA Reply

    Mark, that’s 100% BS.

    TG, good post. I don’t recall the numbers, but I remember a recent column pointing out that the ‘tax the rich’ solution that seems to keep popping up has an inherent problem. There just isn’t enough $ there. Even if the rate for the over $250K folks goes to 100%, it’s not enough to fund what the Dems want to fund. One way or another, there has to be either less ambitous spending, or taxes increases for the middle class too. I’m betting the latter is what we’ll see.

  3. Sen. Jim DeMint said, “If we’re able to stop Obama on [health care reform], it will be his Waterloo. It will break him and we will show that we can, along with the American people, begin to push those freedom solutions that work in every area of our society.” [ABC News, 7/20/09]

    and

    John C. Goodman is NCPA president and CEO of the National Center for Policy Analysis. The Wall Street Journal and the National Journal, among other publications, have called him the “Father of Health Savings Accounts,” and the Media Research Center credits him, along with former Sen. Phil Gramm and columnist Bill Kristol with playing the pivotal role in the defeat of the Clinton Administration’s plan to overhaul the U.S. health care system.

    http://www.ncpa.org/about/john-c-goodman

  4. “there’s not an endless pool of money out there. Maybe exerting pressure at every turn on high wage earners to make up the difference could have unintended consequences.”
    ———————————–
    Amen. My wife and I finally implemented the best tax reduction strategy there is; work less and earn less income. Rather than supporting the 80% of the population that slacks we will slack for awhile. That way I can get tax breaks we never would have gotten, contribute to our ROTH IRAs (which we haven’t been able to do for a long time), and send more quality time at home. the only thing we have to figure out is how to feed the local property tax monster.

  5. David Schneider Reply

    Thank goodness for the internet. Listening to the “news” is getting to the point that it gives me a headache just sitting there.
    Firstly, I would like to offer a suggestion I read on another blog: (I wish I could give credit to who said it, but I honestly don’t remember where I read it) “If you want real healthcare reform… ask the politicians to wear a jacket that shows all there main campaign contibutors” (kinda like the NASCAR drivers wear) Then you will hear loud and clear what they are really saying. (and who is saying it)
    Secondly, Bill Gates stated to the press openly that his secretary pays more in taxes than he does. Why??? I think what happens is one party will raise the taxes and the other party will come up with ways for them to get out of it. (tax cuts/loop hole/etc…) Especially for those that have deep pockets because it helps them too.
    You really want to pay for healthcare and NOT raise taxes? MEDICARE for all (plus 5%). The 5% limits the proffit. Years ago when car insurance became mandatory in our state, over night the rates increased some 300%. What do you think making health insurance mandatory will do? I said it back then and I’ll say it again now. If the government is going to mandate it the they should offer a form of coverage that will keep the prices in check.
    Suplimental insurance is something that several of my older friends have along with medicare to help protect their assets, and they have had a good life and solid retirement. The point being that there is still room for insurance companies and their multi million dollar CEO’s. People who think those companies care are just nuts. The only thing they care about is the bottom line. I have a couple of friends that work for an insurance company, and can’t afford the policy the company offers them. I have also heard them tell the horror stories about the denying of claims because of preexisting condition. (On a 3 week old little girl) These politicians have had their pockets filled by the insurance companies to either block (business as usual) any vote or get them to make it mandatory so they will have millions more customers. What a win/win that is. Insurance should not be a “for profit” business. Healthcare should not be a luxury.
    Lastly, I wanted to tell Henry:
    ROTH IRA… really? 80%… really? Slacking… really?
    The way out of that property tax burden is not to have any property. So when ever that burden gets to be too much for you, just give me the house and I will be glad to pay the taxes on it. (I don’t have one and cant get one)

  6. SKIP MCQUAID Reply

    All income taxes start out as a tax on the rich. That is how they are jutified. And no one cares because the tax doesn’t affect “us” – only the “rich” so who cares? Then it dribbles down to the middle class (the original Income Tax or AMT ring a bell?) – and then the howling and worrying starts – a little late…..It does appear that I am heading for a tax increase of a substantial amount – rates and medicare – it really doesn’t bother me financially that much (I am single and everything is paid for and I don’t have a life away from work anyway) but it does bother me in other ways – I’m just getting a little tired of people telling me what I can do with the money I earn….and “re-distribution” is getting to be plain stupid now. I’m paying for folks that have houses they couldn’t afford to buy in the first place, folks that are going to buy a house, folks that buy a new car, folks that are getting million dollar bonuses, banks that are “too big to fail” and post a 3.6 billion dollar profit in a 3 month period and on and on and on. Two more years and Costa Rica here I come……or wherever they let me decide what to do with my money myself. The sales tax is horrendous but I simply won’t buy much….and I know I won’t work…..just eat, drink and sleep…..maybe I’ll be the next Hemmingway…..

    Skip

  7. garagefather Reply

    Taxing the rich is a relative term. Who is rich? Everybody’s definition is different. That is the beauty of the rhetoric in the minds of politicians. You can say tax the rich and then basically tax anyone making above average income. In this country, with a couple both working, it doesn’t take a lot to exceed the average wage of a single American. That means if you are smart enough to even be interested in the discussion, you are probably making enough to get taxed like you are “rich”.

  8. I agree with your 11/13 comments, re raising payroll taxes on the “wealthy” to pay for healthcare. I would also add another thought: why does no one challenge the conflation of high earners with wealthy? The two are not one and the same, yet the terms are used interchangeably. And why all the focus on taxing “high” (this term is also relative) wage earners rather than focusing on those who are truly wealthy (i.e., have a lot of assets and few liabilities)?

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