One of the biggest problems with our tax code that frustrates me beyond anything else is how we tax different types of incomes. That is intentional as a benefit for the rich. There is a reason that the capital gains rate is a lower rate than the income tax rate; most rich people make their money off of capital gains and like Mitt Romney – they are able to pay a lower rate than they would have if all income were treated the same.
And a person like Mitt Romney and the vast majority of these ultra rich do not actually take in much in the way of regular income … so they don’t pay much of the payroll tax and even if they did make all their money in regular income – you only have to pay the payroll tax on the first 104k on a person’s income. So a person making $110,100k a year pays the same payroll tax in $ as a millionaire who made $30 million in regular income in that one year. It’s a big deal because payroll taxes make up 1/3 of the total revenues the treasury takes in … and the vast majority of that comes from the middle class. It has been up till now a regressive tax on the middle class.
Well – Obamacare addresses that issue. Obamacare charges a 3.8% Medicare tax on all income over $250,000. And this ladies and gentlemen is why these billionaires are willing to put forth hundreds of millions to defeat Obama and why repealing Obamacare is priority #1. Let’s look at an example – Ray Dalio made more money than any American last year with $3 billion … over $1.4 million an hour. Last year – the most Mr. Dalio would have paid in payroll taxes would have been $8,422 a year. That’s the max. Under Obamacare with the same income – he would pay $114 million. Let’s call it a little tax hike. More on him HERE.
If you make less than $250k a year – no change to your taxes.
Economix explains the law HERE:
For most taxpayers, the 2.9 percent Medicare tax levied on wage income will be the same next year as it was in 2011. But starting in 2013, high-income taxpayers will pay more – and in the Romneys’ case – much more.
Married taxpayers with income over $250,000 will pay a 3.8 percent Medicare tax rate on income over that amount, and all income will be covered, including the capital gains that make up most of the Romneys’ income.
If their 2013 income were unchanged from this year, their Medicare tax bill would exceed $500,000.
The Center on Budget and Policy Priorities lays it out HERE:
The provisions raising the amount of Medicare HI tax that high-income households pay will provide $184 billion in revenue over ten years, according to very preliminary estimates from the Joint Committee on Taxation. These revenues, along with various other revenues and substantial program savings, primarily in Medicare, enable the health reform legislation to reduce deficits modestly both over the next ten years and beyond.
In addition to helping ensure that the health reform legislation is fully paid for, broadening the base of the Medicare tax for high-income households (by extending it to unearned income) would be sound economically. A major source of inefficiency in today’s tax code is that it taxes different types of income at sharply different rates. The much lower tax rates applied to capital gains and dividend income than for earnings stand out in this respect. As the Tax Policy Center has explained:
Low tax rates on capital gains are an important part of many individual income tax shelters, which employ sophisticated financial techniques to convert ordinary income (such as wages and salaries) to capital gains. For top-bracket taxpayers, tax sheltering can save 20 cents per dollar of income sheltered. Tax sheltering is economically inefficient because the resources that go into designing and managing tax shelters could be used instead for productive purposes, and many tax shelter investments pay subpar returns, turning a profit only after considering the tax benefits. 
The proposal to broaden the base of the Medicare tax would narrow the gap between the tax rates that high-income people face on ordinary income and the rates they face on capital gains — and would thereby modestly reduce incentives for economically unproductive tax sheltering. 
And here is what I love about what the CBPP writes above … you constantly hear conservatives talking about “broadening the base, lowering the rates” but they only want to do that in a way that benefits the rich. They would still treat capital gains income differently than salary. Most conservatives want to lower the capital gains tax rate to 0%. Seriously. Well – Obama implemented a progressive “broadening of the base” by increasing the number of millionaires who will pay the payroll tax. When conservatives say it – they mean they want poor people to pay more. When Obama says it – he wants millionaires to pay more. Big difference in visions.
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