TWOFER: Tax and Health Care Cuts

Trump has two top legislative priorities: “Tax Reform” and “Repeal the ACA”.
Today, they intersected: his “Tax Reform” plan cuts exactly one tax from the ACA – the 3.8% Medicare tax on Net Investment Income for high-income taxpayers.
It has long been a badly-kept secret that the driving force behind “repeal the ACA” has been the 3.8% Medicare tax on Net Investment Income for high-income taxpayers. After all:
  1. this is a tax on the top 4% of income earners, who make more than a quarter-million dollars annually on investment income. 96% of the population is never affected by this tax.
  2. this is a Medicare tax on investment income. Before the ACA, this income was not subject to Medicare tax – those who made all or most of their income from investments paid nothing or little into Medicare

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So when this new tax took effect, it had a big impact on those who are very well-off. If you made $5 million (as Congressman Dave Trott did in 2014) in “unearned” income, you were facing a tax bill in excess of $200,000. Repealing this tax will save this multi-millionaire over $200,000 each year.

 

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Imposing such a tax on very well-off people is anathema to those decision-makers in Congress.

Keep in mind that every penny of that tax goes into keeping Medicare solvent. That would benefit the millions of Americans who are counting on Medicare in their senior years.
Also keep in mind that if you made the same $5 million dollars in “earned” income – through wages and salary – then you would have been paying this 3.8% tax for years, before and after the ACA took effect. This is a case of some income being “more equal” than others – “unearned” income from investments was (and will be) free of this Medicare tax, while “earned” income from employment is subject to this Medicare tax.
Also keep in mind that this tax is only applied to high-income earners – the top 4% who make at least a quarter-million dollars. 96% of taxpayers were unaffected by this tax.
There are other taxes in the ACA – the 0.9% Medicare hospital tax on high-income earners, the tax on DMEs, the tax on certain services. Yet only one ACA tax was included in this “Tax Reform” plan – only the 3.8% Medicare tax on Net Investment Income for high-income taxpayers is targeted for repeal.
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