Health Care is a hot topic in the U.S. today and I would like to raise the question of whether unearned income should be taxed further? According to the Council of Governments (COG) (2010), on February 22, 2010 the White House provided a press release of President Obama’s Health Care proposal. Some key features of the proposal expand medical coverage to those who are 133% below the poverty line. States are required to move to the new levels by 2014. It was also noted that the federal government would send states 100% of the costs to cover eligible individuals staring 2014 to 2017. After this time, states will be required to fulfill 95% of the cost by 2018 which will drop to 90% in following years (Council, 2010).
Of course this money will have to come from somewhere. If taken at face value the financial implications could be devastating to American citizens especially low income earners. Cannon (2010) pointed out that “mandates, subsidies, tax penalties and healthcare insurance regulations would penalize workers and reward Americans who refuse to purchase health insurance” (p. 1). He noted that mandates and subsidies could impose effective marginal rates 53% to 57% on average while more affluent individuals would see average rates of no higher than 47.9%. Middle income earners could save approximately $8000 by dropping health care coverage and purchasing it when needed (Cannon, 2010, p. 1). This is definitely not fair to workers who can’t afford to say no.
One answer addressed in President Barak Obama’s healthcare proposal is to reforming the High Cost Plan Excise Tax. The argument is that insurance companies are not encouraged to reduce the premiums they charge policy holders. Overpriced insurance premiums would be taxed and motivate insurers to comply. This should lead to a reduction in insurance premiums and the massive deficit as pointed out in the President’s proposal (White, 2010, para 3). However the policy would not be enforced until 2018 to allow companies enough time to correct pricing. The reform also comes with increases to exemption from assessment for single member and families from $8,500 to $10,200, and $23,000 to $27, 500 respectively (White, 2010).
Regarding the issue of taxation for health care, it was raised previously that lower income workers were at a financial disadvantage because affluent and even middle class workers could elect to pay for insurance when necessary under the House and Senate proposals (Cannon, 2010, p.1). President Obama’s plan would require high income earners or those who have substantial amounts of unearned income (individuals earning $200,000 and families earning $250,000) to pay 2.9% on their income from “interest, dividends, annuities, royalties and rents, other than such income which is derived in the ordinary course of a trade or business which is not a passive activity” for Medicare Hospital Insurance Tax (White, 2010, para 4). This is not currently required but it is being propose to engender a since of fairness. Is it fair to be taxed on money that has been already taxed especially when that is your sole source of income? I make nowhere near $200, 000, but that makes me uneasy.
Cannon, M. (2010). Obama’s prescription for low-wage workers: High emplicit taxes, higher premiums. Cato Institute, 656, 1-16.
Council of State Governments (2010). What does president obama’s healthcare proposal do to state’s medicaid program. Retrieved from http://www.csg.org/policy/health.aspx
White House (2010). Policies to contain cost and to ensure fiancial stability. Retrieved from http://www.whitehouse.gov/health-care-meeting/proposal/whatsnew/cost-sustainability