TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Thursday, March 18, 2010

House Health Care Bill Includes 3.8% Medicare Tax on Investment Income

Following up on my prior posts (President Obama's Health Care Tax IncreasesWSJ: Obama's 'Sneaky' New Tax on InvestmentsObamaCare's Worst Tax Hike: For the First Time, Payroll Levies Will Hit Investment Income): the House Health Care bill unveiled today includes a 3.8% Medicare tax on investment income (interest, dividends, capital gains, annuities, rents) earned by those with incomes in excess of $200,000 (single) and $250,000 (joint). 

http://taxprof.typepad.com/taxprof_blog/2010/03/house-health-bill-.html

Congressional News, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef0120a950e5c0970b

Listed below are links to weblogs that reference House Health Care Bill Includes 3.8% Medicare Tax on Investment Income:

Comments

The joke is on them. With the current Fed policies, who has any interest income? Dividends, I suppose, but once the rate preference drops companies will just go back to favoring stock repurchases.

I guess that leaves capital gains once people dig out of their loss carryforwards.

Posted by: Dave | Mar 18, 2010 1:38:54 PM

I hate these people.

Posted by: Wendell | Mar 18, 2010 2:32:44 PM

I don't recall ever hearing this specific tax proposal before in any of the versions of the health care 'reform' act. Sure is a good thing that we have 72 hours to discuss it, huh?

Posted by: Steve White | Mar 18, 2010 2:56:33 PM

That increase on top of the tax cuts expiring next year. Also, obama's budget called for the capital gains tax to increase from the current 15% to his desired rate of 20% so with the added 3.8%, cap gains would go from the current 15% to 23.8%. Yeah, that will help the economy. With all the other taxes the Democrats are putting on the top bracket, they'll easily be paying over 50% in state and federal taxes.

Remember obama's best support was the youth and people with graduate degrees. I'm just guessing that many of those in the top bracket are graduate degree holders. Think they have buyers remorse yet?

Posted by: DDay | Mar 18, 2010 2:57:48 PM

Wealth redistribution, pure and simple.

Posted by: JayDee | Mar 18, 2010 3:09:53 PM

I'm no tax expert but any idiot can see this tax won't bring nearly what Nancy "Sooper Geenyus" Pelosi thinks it will. I've got a sawbuck that says a lot of single people and married couples will decide to just give up a few thousand bucks and skip paying the tax altogether.

There are idiots....and then there are Democrats.

Posted by: MarkJ | Mar 18, 2010 3:20:30 PM

In today's economy only losers are supported. There's no interest for savers. Local banks are not bailed out, only large failed banks. Small business is not aided, only failed dinosaurs like GM.
Grrr.

Posted by: Jim,MtnViewCA,USA | Mar 18, 2010 3:26:17 PM

So, how will this effect us working guys with 401ks? Will this additional tax be levied once I retire leaving me with much less to live on?

Posted by: mark | Mar 18, 2010 3:29:15 PM

Does this mean that if I sell my home of 15 years, which thankfully has equity, the government takes another 3.8% of the sales price?

Posted by: Mike | Mar 18, 2010 3:29:53 PM

Lets see if Bill Gates portfolio went from $50 billion to $55 billion (up ten percent), he would owe an additional $190 million in taxes. This tax applies to undistributed gains too, so it is a pretty onerous tax. This might require him to sell $190 million in holdings to pay for the tax, which would then be subject to a 20 percent (after 2010) cap gains tax on top of that. Redistribution are the US.

Posted by: mndasher | Mar 18, 2010 3:33:38 PM

Certainly not advocating violence here, but is there a nice way to hang every last one of these marxist bastards, legally?

Posted by: Punkindrublic | Mar 18, 2010 3:35:27 PM

Apologies if this has been covered in previous posts, but can the proposed new tax be offset by previous capital losses? My guess is that it cannot, but maybe I'm wrong. (I reflexively started to type that I'd be delighted to be wrong. Not.)

Posted by: gs | Mar 18, 2010 3:35:59 PM

In general, the proposed new tax would apply only to investment income that is subject to income tax (see proposed Code section 1411(c)(1), as added by the bill, which would tax gains only "to the extent taken into account in computing taxable income" and other investment returns only if included in "gross income" rather than excluded therefrom). Municipal bond interest, for example, would be exempt from the proposed new tax because such interest is excluded from "gross income" by Code section 103.

Therefore, in response to Mike's question, the proposed new tax would apply only to capital gains on homes that are subject to income tax under Code section 121, generally any excess of the gain over $250,000 ($500,000 for couples). In response to mndasher's comment, the proposed new tax would not apply to unrealized capital gains because they are not subject to income tax. In response to gs's question, there is no provision for an offset from past capital losses.

In response to Mark's question, the proposed new tax, in an exception to its general design, would not apply to distributions or withdrawals from 401(k)s, IRAs or pensions, even though such distributions are subject to income tax. Proposed Code section 1411(c)(5), as added by the bill, would expressly exempt such distributions from the proposed new tax.

The proposed new tax would take effect in 2013. It may be worth noting that the $200,000 ($250,000 for couples) modified-adjusted-gross-income threshold at which the tax would kick in would NOT be indexed for inflation. In an odd provision, the revenue from the proposed new tax would be earmarked to the Medicare Part B trust fund.

I view the proposed new tax as a highly undesirable penalty on saving and investment. Amy Roden and I criticized the proposal's earlier version (which featured a 2.9 percent rate) at http://www.american.com/archive/2010/march/the-tax-that-spells-trouble-for-the-economy.


Alan Viard
American Enterprise Institute

Posted by: Alan Viard | Mar 18, 2010 4:20:18 PM

Remember, these are the people who recently announced they were going to encourage tourism by taxing it. Logic makes no sense, has no effect, on any of them.

Posted by: DavidN | Mar 18, 2010 4:35:53 PM

It's as though no one has even *heard* of Atlas Shrugged.

Posted by: Chris L | Mar 18, 2010 5:08:19 PM

So, it seems to me the $200K single/$250K joint is a hell of a marriage penalty--if the spouse's income raises AGI by only $51K, which is quite normal in some places such as the D.C. metro area, *both* get socked for 3.8% additional tax on "unearned" income.

And it's not indexed for inflation, which means eventually it will hit EVERYONE who invests, owns rental property, earns interest (i.e. everyone, period). Which is, of course, "a feature, not a bug."

I'm with Punkindrublic...except hangin's too good for 'em...

Posted by: Mikey | Mar 18, 2010 6:30:04 PM

It is about time we shifted the tax burden to the upper class. Reagan and Regan tried to screw me out of the equity (our life's savings) in our home I will push back and fight every Republican and their issues for they could give a rip about the working class. Now maybe they can see what it is like for the rest of us. Step up and pay your fair share you greedy ba....ds

Posted by: Mark P | Mar 18, 2010 6:41:19 PM

Rents?

Does this mean my rent is about to go up 3.8%, assuming I am unlucky enough to have a landlord who makes over the critical amount annually? Or am I misinterpreting?

Posted by: jaed | Mar 18, 2010 6:59:06 PM

I just read the tax portion of the latest bill and it does not appear to me to include capital gains. It clearly defines what constitutes investment income, and capital gains is NOT included, at least not from I can tell.

Can somebody else please read the actual bill and pipe in as to whether they agree (or not) ?

Posted by: EJT | Mar 19, 2010 12:54:33 AM

In response to EJT's question, the proposed new tax would apply to capital gains. Proposed Code section 1402(c)(1)(A)(iii), as added by the bill, states that the investment income to which the new tax would apply includes "net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2)." Note that the provision encompasses both gains on property that qualifies as a capital asset under Code section 1221 (capital gains) and gains on other property, which are part of ordinary income.

In response to jaed's question, your landlord's rent would be subject to the proposed new tax, if he or she is above the income thresholds. But, it is not likely that your rent would increase by that amount, in equilibrium. Your landlord's required rate of return on his investment in the building would decline, because most or all of his alternative investments would offer lower after-tax rates of return because they would also be subject to the proposed new tax.

However, the proposed new tax probably would reduce saving and investment, ultimately causing a decline in real wages throughout the economy.


Alan Viard
American Enterprise Institute

Posted by: Alan Viard | Mar 19, 2010 4:59:57 AM

I've read the language and read numerous news pieces which seem to contradict themselves. Would the new medicare tax apply to investment income above the threshold ($250K/couple) or would the threshold be a trigger to tax all investment income? Example: A couple makes $150K in payroll earnings and $150K of interest income. Besides the usual medicare taxes, would they pay 3.8% on $50K or 3.85 on all $150K of investment income?

Posted by: get low | Mar 19, 2010 6:46:38 AM

3.8% medicare tax on interest, dividends, capital gains, "and other"?

Will the "and other" include Sub-S corporation K-1 earnings? We are already going to be hit with higher income taxes, if the 3.8% medicare tax or the 0.9% medicare tax above 250K is applied to small business owners this recession is going to turn into a Depression.

Granted the health care system needs reform, but this current proposal is going to increase health care costs, drive medical professionals out of the business, and cost American jobs.

Posted by: Steve Pierson | Mar 19, 2010 7:18:08 AM

What is implication of new medicade tax for donor on charitable contributions to 501(c)(3) "public" charities? Is donor taxed on amount donated? Is contributed portion of income donated to charity, effectively taxed?

Posted by: AlxHamiltn | Mar 19, 2010 7:55:22 AM

Does the 3.8% tax on investment income apply marginally to the extent that overall AGI exceeds the $250,000 limit? Or does the $250,000 limit represent a threshold that "triggers" the tax on all unearned income?

Posted by: Thomas A. Bauman | Mar 19, 2010 9:10:24 AM

"Does this mean my rent is about to go up 3.8%, assuming I am unlucky enough to have a landlord who makes over the critical amount annually?"

As an owner of rental property, I can answer your question:

Yes.

I would wager any other rental property owner would give you the same answer.

Of course, since the tax is levied on me rather than you, Obama can say he kept his promise not to raise taxes on you. But just between us...you know better.

Posted by: Mikey | Mar 19, 2010 11:01:52 AM

The tax would be applied against the lesser of the taxpayer’s net investment income or modified adjusted gross income (AGI) in excess of the threshold amounts. These thresholds are set at $200,000 for singles and $250,000 for joint filers.

There has been significant misreporting of the application of the tax in the press.

Posted by: Matt | Mar 19, 2010 4:55:23 PM

Thanks to gs for clarifying that muni bond interest is not includable in "gross income" and thus not included in investment income. However, for purposes of determining "modified adjusted gross income" (MAGI) the bill states (Sec 1004) that MAGI means AGI "increased by ....any amount of interest received or accrued by the taxpayer during the taxable year which is exempt from tax." As I read this, that means that one needs to add back muni interest. This will be an incremental negative for the muni market.

Posted by: Dave | Mar 19, 2010 5:34:48 PM

It has already been tough for people to move to take a job because of so many people being underwater in their mortgage.

But now even if they can rent out their house instead of selling it when they move, boom, they have to pay 3.8% tax on the rent.

This will make it tougher again for people to move around to get a good job.

I think if you owe more on your mortgage than your house is worth on today's market, you should not have to pay the 3.8% tax on rents!

Posted by: Mr. Econotarian | Mar 19, 2010 6:17:14 PM

Will the 3.8% tax apply to earning from an LLC from which I receive a K-1? I am making more than the threshold from my job to trigger such a tax. Thanks - Lenny

Posted by: Lenny H | Mar 20, 2010 1:23:15 PM

ha- I like they guy with his comment on Bill Gates- are you saying it would be a bad thing for Bill Gates to pay an additional $190 Million if he made $5 Billion in investments? Are you worried about him? Do you think he would consider it a bad trade off to fund $190 Million in health care for poor people for his increased $5 Billion? Is he benefiting more from the laws that allow him, and provide the infrastructure to support the system, that helps create that wealth? Or will he be losing more in that $190 Million... or are you somehow worried your great American dream will at any moment put you in his shoes- and if it did- you would still need that money more than those people who can't see Drs. let's try some perspective- if you make $100,000 purely on investments in a year (a pretty damn good turn over I would think) it would cost you $3,800- chump change by comparison- if you can't see $3800 as chump change- well then you're damn well not making $100,000 on your investments this year now are you. - ok, I admit it, I speak as a Canadian guy whose entire family are Drs. - and I'm Jewish and was raised to ensure people are taken care of- did no one teach you people Noblesse Oblige -look it up- When you have power- and in this world that often means money- The Ethical thing is to ensure people without power are taken care of-

ensuring poverty stricken teenage girl have to give up their entire lives to carry their pregnancies to term doesn't count

bloody american politics..

http://en.wikipedia.org/wiki/Noblesse_oblige

Posted by: ari | Mar 21, 2010 8:01:19 AM

The landlord who is taxed 3.8% on his rental income must also pay tax on his total income.....seems like the people who can't afford to own a house are going to feel the bite of this new rental tax, too.
Gun control is next.

Posted by: Nita | Mar 21, 2010 8:14:21 AM

A question for Alan Viard........What about MLPs'(master limited partnerships) and CRTs(Canadian Royalty trusts) . Their distributions are a combination of ROC, (usually around 70-80% with the MLPs) and regularly taxed income. CRTs are now treated as qualified dividends. Surely the ROC shouldn't be taxed the 3.8% should it.

Posted by: Mitch | Mar 21, 2010 8:50:20 PM

Is this Medicare tax in the final pased bill & does it apply to pension income?

Posted by: st | Mar 22, 2010 9:57:30 AM

I own several hundred rental units. Is the 3.8% tax on my gross rents collected or my net profit from those rents?

Posted by: Jeff | Mar 22, 2010 11:16:22 AM

Can anyone provide what page of the bill the proposed tax is on? I'm having trouble finding it in the 2,310 page pdf file I've downloaded.

Posted by: Tax Student | Mar 22, 2010 11:19:11 AM

The 3.8% tax is a double whammy to higher income retirees who are enrolled in Medicare. The Medicare Part B premium under current law already goes up substantially for higher income taxpayers, in some cases to more than double the base Part B premium. Now in addition, such retired individuals will be paying an adidtional 3.8 percent of investment income to help fiance Medicare. And to add insult to injury retirees on Medicare cannot deduct their Medicare and Medicap insurance premiums unless their total medical expenses exceed 10% of MAGI under the new law. In contrast, working idividuals with employer sponsored health insurance pay no income tax on such premiums, unless they reach the "Cadillac" level. This is equity??

Posted by: Tom | Mar 22, 2010 11:43:24 AM

As I (not gs, as Dave stated) previously noted, municipal bond interest is not subject to the tax. Also, contrary to Dave's implication, municipal bond interest would NOT be included in the income computation used to determine the threshold for this provision. For purposes of this provision, modified adjusted gross income (MAGI) is defined by proposed Code section 1411(d) as adjusted gross income plus net foreign earned income excluded under Code section 911. There would be no inclusion of municipal bond interest. However, section 1004(a)(2)(A) of the bill, to which Dave alludes, would amend proposed Code section 36B(d)(2)(B) to include municipal bond interest in the MAGI definition used to determine income-based subsidies to households buying health insurance on the new exchanges, a completely separate provision.

In response to AlxHamiltn's question, there would be no deduction for charitable contributions against the proposed new tax. In that respect, the tax would be similar to the existing Social Security and Medicare payroll and self-employment taxes, which also allow no deductions for charitable contributions.

In response to Lenny H's and Steve Pierson's questions, under proposed Code section 1411(c), the proposed new tax would apply to passive investments in partnerships, LLCs, and S corporations, but not to active investments in such firms. Of course, income received by active investors in partnerships and LLCs is already subject to the existing 2.9 percent Medicare self-employment tax (which the bill would separately increase to 3.8 percent for high earners). Income received by active investors in S corporations is not subject to self-employment tax, although wages for labor provided are subject to payroll tax.

It should be noted that rents would be subject to the proposed new tax only if the landlord is a passive investor. If the landlord is a sole proprietor or an active investor in a partnership, LLC, or S corporation, the proposed new tax would not apply. Of course, if the landlord is a sole proprietor or an active investor in a partnership or LLC (but not an S corporation), the rents are already subject to Medicare self-employment tax, which the bill would separately increase from 2.9 to 3.8 percent for high earners.

In response to Mitch's question, the proposed new tax would not apply to return of capital.

CORRECTION TO EARLIER POST - In my post of March 19, 7:59 a.m., I meant to say "1411(c)(1)(A)(iii)" rather than "1402(c)(1)(A)(iii)".

Alan Viard
American Enterprise Institute

Posted by: Paul Caron | Mar 22, 2010 12:15:44 PM

In response to Tax Student's question, the proposed new tax is set forth on page 87 (section 1402(a)) of the 153-page reconciliation bill. The tax was not included in the (much larger) original House and Senate bills.

In response to st's question, the proposed new tax was included in the reconciliation bill passed by the House yesterday. The reconciliation bill has not yet been acted upon by the Senate.

In response to Jeff's question, the proposed new tax would apply to only the net rental income. Proposed Code section 1411(c)(1)(B), as added by the bill, provides that "the deductions allowed by this subtitle which are properly allocable to such gross income or net gain" would also be allowed in the computation of the proposed new tax.

Alan Viard
American Enterprise Institute

Posted by: Alan Viard | Mar 22, 2010 12:48:29 PM

Won't High income people just set up trusts for their investments?

Posted by: george | Mar 22, 2010 1:56:20 PM

i am a landlord with rental properities. if you make 250,000 a year you can afford to pay this 3.8% tax.. so what you need to help others!

Posted by: cindy | Mar 22, 2010 2:34:21 PM

Thank you very much for your answer & the other info on this issue. I called three local Congressional Offices today and no one had any answers..guess they may not have read the bill yet!

There's very little incentive to work at another job after retirement or hold rental propery if it pushes one over the threshold...

Please keep us posted on whether this awful tax makes it into the final bill and when it would become effective.

Posted by: st | Mar 22, 2010 3:51:19 PM

Let me get this straight. I bought Ford stock in late 2008 at $2.18 and I see today it is $13.99 - a gain of almost 600%. So because of the healthcare bill if I were to sell today I would have to pay an additional 3.8 cents on each profit dollar that I have accumulated in less than 18 months by doing nothing. You expect me to give up an additional 3.8 cents of each dollar to help less fortunate Americans with health care who did not have the spare cash to invest in Ford? What kind of capitalist do you think I am? That is my money by gosh and I should be able to keep it all. Why should I care about those less fortunate than me? I should be able to be as greedy as I want to be. After all this is America, and I don't want any darned government telling me what to do. Actually truth be told, I don't mind paying the original capital gains or the additional 3.8% capital gains at all because I can still remember when I didn't have the proverbial pot to pee in and was on food stamps shortly after leaving the army during the Vietnam era. I will always remember that it was my fellow Americans' taxes, including those on capital gains, that helped me and my young family through very difficult times. Since then this great country called America has helped make me very successful, financially and otherwise, and I have no problem with sharing (redistributing if you like) some of that fun, marvelous, unearned wealth back into such a great system to help the less fortunate. Let's all keep things in perspective and try not to be so greedy.

Posted by: JR | Mar 22, 2010 6:45:10 PM

I don't see answers to the questions above about whether the $200,000 individual/$250,000 joint issue is a "threshhold" or a "trigger". To restate: if a couple's taxable income totals $300,000, does the additional 3.8% Medicare tax apply to ALL $300,000 (thus $250,000 is a trigger) or just to the $50,000 over $250,000 (and thus it can be called a threshold).

Posted by: Jan | Mar 22, 2010 7:11:07 PM

Question regarding estates and trusts...

Under this legislation, estates and trusts would also be taxed. But there seems to be confusion regarding the $200K individual threshold.

As an example, the beneficiary of an estate has annual earned income at $100K, and inherits property valued at $400K. Since the threshold for individuals is $200K, would that person be exempt from paying the 3.8% tax on the inherited income ? Or is the inherited income added to the $100K earned income, which would mean the person had $500K income level for that year ?

Posted by: Nancy | Mar 23, 2010 4:05:02 AM

It doesn't matter whether someone is Bill Gates or makes $250,000, why is it "fair" to use their money to pay for other people's health care? Wealth is relative - if someone makes $50,000 then why shouldn't he pay for someone only making $25,000? The $50,000 person doesn't think that's fair. It's only fair if they are being taken care of. Thomas Jefferson said, "The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." He also said, "A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine." Unfortunately, the "wealthy" are in the 49%, so they really don't have a voice but to subsidize the rest of the nation.

Posted by: KS | Mar 23, 2010 8:05:32 AM

Jan's question about whether the $200,000/$250,000 level would be a threshold or a trigger was answered correctly and clearly by Matt (March 19, 7:55 pm). The income level would be a threshold. Under proposed Code section 1411(a)(1), as added by the bill, the tax would apply to the LESSER of (net investment income) and (the taxpayer's modified adjusted gross income (MAGI) minus the relevant income threshold). If a married couple has MAGI of $300,000, the proposed new tax would apply to no more than $50,000, even if the couple's net investment income was greater than $50,000. Similarly, a married couple with MAGI of $250,001 would owe tax on no more than $1 - there is no cliff or notch.

In response to George's question, trusts would also be subject to the tax, under proposed Code section 1411(a)(2).

In response to Nancy's question, the receipt of the inheritance would neither be subject to the proposed new tax, nor would the inheritance be included in MAGI for purposes of applying the $200,000/$250,000 threshold. Under Code section 102(a), inheritances are excluded from gross income. Note that, under proposed Code section 1411(a)(2), estates would be subject to the proposed new tax on the investment income that they receive.

As I previously noted (March 18, 7:20 pm), pensions and IRA and 401(k) withdrawals would be exempt, under proposed Code section 1411(c)(5).

If the proposed new tax is adopted (i.e., if the reconciliation bill passes and is signed into law), the tax would take effect on January 1, 2013. Enactment seems highly probable, but it may be a week or so before we know for certain.

Alan Viard
American Enterprise Institute

Posted by: Alan Viard | Mar 23, 2010 12:17:15 PM

So All rents are going up at least 3.8%. Thanks Again Obama

Posted by: Dana Fogg | Mar 23, 2010 12:44:23 PM

one "intersting" aspect of the legis to me is the expansion of health ins coverage to "children" up to age 27...

Can one be forced to cover adult children? Who absorbs the additional costs & premiums? Is this a deductible medical expenditure? Is this to be treated as a gift to the child & part of the annual premitted amt of a gift? What about maternity care & children of the children??

Does this nullify COBRA?

Posted by: st | Mar 23, 2010 12:58:31 PM

Does the 3.8% tax on unearned income apply to distributions received under a non-qualified, unfunded deferred compensation plan?

Posted by: Michael | Mar 23, 2010 4:59:24 PM

I'm a 25 y/o student with $13,000 in a mutual fund.
I've read different articles that state that the 3.8% tax will be on people who make more than $200,00 but other articles are stating that ALL investments will get this tax.
What's the deal, what do I do with my money so Obama and the Socialists don't take it and/or tax it to death?
Thanks so much :)

Posted by: LA | Mar 23, 2010 5:44:28 PM

Thanks for all your clarifications, Alan. As I understand it from an earlier post, the new 3.8% Medicare tax does not apply to distributions or withdrawals from 401(k)s, IRAs, or pensions.

However,
(1.) Does income distributed/withdrawn from non-qualified "commercial" (e.g. deferred) annuities count in the computation of the MAGI for purposes of the new 3.8% Medicare tax?
(2.) Does the new Medicare tax apply to income from such non-qualified annuities? If so, does it just apply to the amount that is subject to income tax already, or does it apply to the whole thing (i.e. including the part that is return of funds invested by the policy owner)?

Posted by: George | Mar 24, 2010 1:45:47 PM

I forgot to say "Thanks in advance for your help!"

Posted by: George | Mar 24, 2010 1:47:20 PM

How would the proposed 3.8% medicare tax interact with the AMT, especially for those taxpayers having very large capital gains?

Posted by: Glenn | Mar 24, 2010 3:21:03 PM

Slightly off topic but shouldn't the cost basis of an investment be adjusted for inflation before computing the income derived from it? Shouldn't interest income also be only that amount that is greater than the inflation rate of the underlying value?

Posted by: jelang | Mar 24, 2010 4:57:13 PM

In response to Michael's question, the proposed new tax would apply to distributions from nonqualified deferred compensation plans. Proposed Code section 1411(c)(5), as added by the bill, would exempt distributions from qualified plans (those described in Code sections 401(a), 403(a), 403(b), 408, 408A, and 457(b)), but not distributions from nonqualified plans.

In response to LA's question, the proposed new tax would apply only to taxpayers with modified adjusted gross income above $200,000 ($250,000 for couples), as set forth in proposed Code sections 1411(a)(1)(B) and 1411(b). The tax would have no application to taxpayers below those income levels; any articles stating otherwise are simply incorrect. Also, as I (March 23, 3:17 pm) and Matt (March 19, 7:55 pm) explained, there would be no notch or cliff when the income levels are reached; under proposed Code section 1411(a)(1), the tax would apply to the lesser of (net investment income) and (the excess of modified adjusted gross income over the threshold).

Alan Viard
American Enterprise Institute

Posted by: Alan Viard | Mar 25, 2010 4:22:59 AM

I think its totally sickening that Obama has it out for two groups, high income earners and elderly people. I suspect he would like to see us all fall off a cliff and go away.

The $250K income limit is totally arbitrary, People earning $250K, $500K, even $1M are not rolling in it as Obama would like you to believe. With the current tax rates (and the wonderful dreaded AMT) people in these ranges get taxed at a marginal rate of about 50% (federal and state). Sorry to those who would like to stick it all to the wealthy, but people earning these kinds of incomes are far from wealthy nowadays - especially after they are taxed. It certainly sounds to me that you would love for someone else to pay for your benefits - and don't ever care that is plainly isn't just or fair. If that isn't a form of hatred or bias, I don't know what is.

Now when you get into the $5M to $10M or more, that is a different story. But Obama chose the limit of $250K based on votes. $250K is about the best number he could figure that would get the most revenue but not anger too many voters. He vilifies the wealthy but doesn't even know what defines wealthy. He just wants their money and assumes that he can do without their votes.

All he will do by this is discourage investment. Between letting the Bush cuts lapse ONLY for the wealthy (and not on everyone) in 2011 and this new "suddenly appearing" Medicare tax and increase, he is just going to stifle investment in a time where it is best not stifled. Obama is not a fair man - but rather a ruthless man who will stop at nothing short of what he wants. He wants to spread the wealth and he doesn't care who he screws over doing it. Unfortunately this will be his legacy - not one of reform. When unemployment goes up even more, he will just blame it on someone else. The fact is that people have been holding onto cash and waiting for these taxes - and I suspect they will continue to do so. There is way too much risk and an ever-lessening potential gain. Its quickly becoming easier to put your money in a mattress rather than take risks on earnings that will have too much of a potential tax.

Oh, and wait until Obama doesn't need your vote in 2012. You can expect everyone's taxes to go sky high. He won't be worrying about votes then, and just wants to take your money and spend it on his programs so that he can become ever more larger than life.

Posted by: Jon F | Mar 26, 2010 2:16:23 AM

As a landlord, I can assure you that I am already charging the maximum amount of rent I can possibly get. If I tried to pass on the 3.8% tax by raising the rent, my tenant would move. And someone who rents out a house that is "underwater" is highly unlikely to realize net income on that rental - there would most likely be a loss, which would offset other investment income, reducing the amount subject to the 3.8% tax.

Posted by: JLS | Mar 30, 2010 2:40:07 PM

According to Greta this also applies to home sales, essentially a 3.8 sales tax on home sales.

Posted by: Mel | Apr 8, 2010 7:30:09 PM

Democrat definition of greed: Wanting to keep the money you earn.
Democrat definition of generosity: Giving away other people's hard earned money.

Of course, democrats would never think that perhaps it may be greedy to want the things other people have earned.

Posted by: mike rice | Apr 9, 2010 7:15:20 PM