Trey Whitt, CPA posted on August 21, 2009 08:49
The debate over healthcare reform has created the first major policy bump in the road for the Obama administration. While it seems unlikely at this point that we will see the sweeping reform that the President initially envisioned, it seems equally unlikely that we will emerge from this debate with no change on the healthcare horizon. So what does this mean for the American taxpayer?
First, taxes are going up for the wealthiest Americans regardless of what happens with healthcare. The two highest income tax brackets, 33% and 35%, are expected to be replaced with 36% and 39.6% brackets that will stage in at lower income levels beginning in 2011. Also in 2011, the tax rate on capital gains and dividends is expected to rise from its current 15% to 20%. Another revenue raiser proposed by the Obama administration that has received less attention lately is a reinstatement of the Social Security tax on earned income over $250,000. Currently, Social Security tax is assessed on earned income up to $106,800.
The funding for healthcare reform has generated considerable heat in recent months with the key questions being:
- Who pays?
- How do they pay?
- How much do they pay?
A surtax on the wealthiest Americans and a cap on the deductibility of health insurance premiums paid by an employer are the two funding options frequently discussed. The proposed surtax would range from 1% to 5.4% and would be assessed on married couples with adjusted gross income exceeding $350,000 (single filers, $280,000). The taxation of health insurance premiums would likely provide more modest revenues, so this funding option becomes more likely if the scope (and price) of healthcare reform is narrowed. Also in the healthcare funding debate is an 8% payroll tax surcharge for businesses with 25 or more employees that opt not to offer health insurance to their employees.
The top bracket increase plus the highest surtax places the highest federal individual bracket at 45%. When combined with state income taxes, it is easy to envision a future where the highest income tax rates move well beyond 50%.