Commonsense & Wonder

The Tax Formerly Known as the Medicare Tax
Posted By Rick Richman

As we continue to find out what is contained in ObamaCare [1] (now that it’s been enacted), it is worth noting a last-minute change in nomenclature, made just before the House vote — a disingenuous revision that exemplifies the bill’s legislative process.
The name of the new 3.8 percent “Medicare Tax” on investment income (imposed on people in the upper two tax brackets) was changed [2] the day before the House vote. Its official name in the law signed by President Obama last week is not the “Medicare Tax” (the name in the text released 72 hours before the vote) but rather the “Medicare Contribution.”
The word that should have been changed was not “Tax” but “Medicare.” As discussed here [3] and here [4], the “High Income Medicare Contribution” has nothing to do with Medicare: it is unrelated to the Medicare benefits of those who will pay the “contribution”; it will not fund the Medicare benefits of others (since the revenue will not go to the Medicare Trust Fund but toward a new entitlement); it is part of legislation that substantially reduces Medicare by cutting Medicare Advantage; and the “contribution” is in a new Internal Revenue Code section whose operative language refers to it as a “tax.” Only the name of the tax was changed — to eliminate the word “Tax.”
It is not hard to understand why. The Bush tax rates — reflecting a 10 percent across-the-board reduction — will expire at the end of this year, which will necessitate some kind of tax legislation, since no one wants a 10 percent across-the-board tax increase on everyone in the country with taxable income exceeding $16,750. Obama will want new “share the wealth” legislation that retains the lower brackets while increasing the upper ones, to transfer another huge tranche of funds from the private economy to the government for spending or redistribution.
Obama will assert that this is required by “fairness.” The “rich” are always — by definition — the people best able to give the government more money. But the real issues in the coming legislative battle will be the broader, macro-economic ones: in an economy that runs on investment, should the tax rates on investment be increased yet again now that they have already been substantially increased by ObamaCare? Should the trillion-dollar Obama deficits, now projected to extend indefinitely into the future, be fed with still another tax increase, or should the spending that produces those deficits be cut?
The administration recognized that a second tax increase — on the same two tax brackets already raised by ObamaCare — will present issues that cannot be fully addressed by the ritual invocation of “fairness,” and apparently decided that one way to deal with the double tax-increase problem would be to rename the first one a “Medicare Contribution.”