Health care reform, just know what you are paying for and how much you will pay

The current estate tax was enacted as a temporary measure to help fund World War I, the Alternative Minimum Tax was designed for a few individual who escaped paying income tax, it’s still with us and has not been indexed, The Medicare Part B tax once stopped at the Social Security wage base, it does no longer.  Once a tax is in place, the revenue is always spent and new things always found to spend it on.  If the tax is spent on entitlements that are ever increasing and upon which more and more people come to depend, the tax will forever be expanded.  Keep all this in mind when you decide about health care reform, not that you are going to have any say.

Two hundred and fifty thousand dollars is a lot of money even in 2010 and very few Americans have incomes at that level – now.  On the other hand, ten years from now a two-income family may easily reach that limit when all sources of income are considered, or perhaps the $250,000 becomes $200,000.

Here is what the President proposes to do to help fund health care reform, not to worry; it is a matter of fairness.

Broaden the Medicare Hospital Insurance (HI) Tax Base for High-Income Taxpayers. Under current law, people who earn a salary pay the Medicare HI tax on their earned income, but those who have substantial unearned income do not, raising issues of fairness. The House bill includes a 5.4% surcharge on high-income households to improve the fairness of the tax system and to support health reform. The Senate bill includes an increase in the HI tax for high-income households for similar reasons, an increase of 0.9% on earnings above a specific threshold for a total employee assessment of 2.35% on these amounts. The President’s Proposal adopts the Senate bill approach and adds a 2.9 percent assessment (equal to the combined employer and employee share of the existing HI tax) on 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 (e.g., income from active participation in S corporations) on taxpayers with respect to income above $200,000 for singles and $250,000 for married couples filing jointly. The additional revenues from the tax on earned income would be credited to the HI trust fund and the revenues from the tax on unearned income would be credited to the Supplemental Medical Insurance (SMI) trust fund. 

For the record, those amounts include your pension, 401(k) and IRA withdrawals and who know what else, presumably, it does not include Social Security benefits, but that is not clearly stated yet. I am not sure I would consider my pension unearned, but what do I know.  In the case of interest, you will have the pleasure of paying tax on the money you earned to put in a savings account, income tax on the interest and then another 2.9% on the interest under this legislation. 

If you are not currently affected by these new taxes, you probably do not see any big deal, but that is what people thought about the estate tax and AMT as well.  Hey, that will never affect me.  Unless you believe that our current versions of health care reform are going to cut health care costs and more importantly are going to lower the future rates of increases in health care costs, you should be afraid of all this, very afraid.  Health care reform is a tremendous expansion of entitlements from expanded prescription benefits for Medicare, to expanded Medicaid and new subsides on health insurance premiums for lower income people.  This all sounds like good stuff in 2010, but Social Security sounded affordable in 1935 and so did Medicare in 1965, the problem is that succeeding Congresses keep changing and enhancing the benefits with little concern for the impact of future obligations much like the fifty states do with their pension and benefit programs.  

As you read this, Congress is about to scrap (again) cuts to Medicare payments to physicians.  While the cuts may have been ill conceived in the first place, the point is that they were counted as savings in Medicare, but never implemented.  Medicare Part D sound like a good idea, but there was never any funding to pay for it.  The new Long Term Care insurance that is part of health care reform sounds like a good idea, after all workers pay for it…until the costs get too high or the program is tinkered with to improve it. 

No matter where you stand on health care reform, no matter how much you want to help people obtain affordable health care, keep in mind the history of government programs and taxes and be prepared to pay considerably more in taxes in the future.  America is no longer a rich country, rich countries do not have to incur massive debt or run regular annual deficits to fund basic needs and services.  America is as mismanaged as the family that took a mortgage with a payment equal to its gross monthly income and then was aghast they could not pay the mortgage each month.  Come to think of that, you are paying for that mismanagement as well.

blogsurfer.us