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November 19th, 2009 3:30 pm
Health Care Taxes as the New AMT?
Posted by Print

The recently passed House health care bill contains a plethora of tax hikes that would make any nanny-state liberal smile with appreciation.

Perhaps the biggest tax hike, in terms of revenue generation, is the new surtax on “high-income” earners.  However, even most Democrats realize that any new tax on income (amounts over $500,000 and $1 million) must be indexed for inflation to avoid hitting middle-class taxpayers.

If not, taxpayers could experience “bracket creep” similar to the Alternative Minimum Tax (AMT), the inception of which was meant to target literally a few dozen millionaires, but could soon affect over 30 million taxpayers.  If income thresholds don’t change, in the year 2060 a $500,000 annual income won’t be rich but taxpayers will still have to pay both the AMT and the health care surtax.

For example, without changes, the CBO now estimates that “three-quarters of households would pay the AMT.”  The math for the potential surtax is just as frightening.

BlackBook Legal’s Sam Greenberg does the math on the new health care surtax and it’s not pretty.  Eventually, the 5.4% surtax could end up hitting millions of households.  Even if wages grow at the same rate as inflation (unlikely unless the economy continues to stagnate), the surtax will end up hitting at least 5 times as many households as was intended by House leaders.  Greenberg concludes, “A non-inflation linked tax is a convenient way to pass future tax hikes without any legislative action.”

This is just another unintended consequence of federal tax policy.  For those who remain confident that the surtax will eventually be indexed to avoid middle-class taxpayers, just look at the AMT.  Of course, when tax time arrives, you won’t have to look for it; the AMT will find you.

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