WASHINGTON -- The typical family would be spared higher taxes from the House Democratic plan to overhaul health care, and their low-income neighbors could come out ahead.
Their wealthy counterparts, however, face big tax increases that could eventually hit future generations of taxpayers who are less wealthy.
The bill is funded largely from a 5.4 percent tax on individuals making more than $500,000 a year and couples making more than $1 million, starting in 2011. The tax increase would hit only 0.3 percent of tax filers, raising $460.5 billion over the next 10 years, according to congressional estimates.
But unlike other income tax rates, the new tax would not be indexed for inflation. As incomes rise over time because of inflation, more families -- and more small business owners -- would be hit by the tax.
"Twenty years from now, we're going to see more and more small businesses ensnared into paying higher taxes," said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee.
The tax would hit only 1.2 percent of taxpayers who claim business income on their returns, according to the estimates by the nonpartisan Joint Committee on Taxation. But that percentage would grow as business owners' nominal incomes rise with inflation.
In 2011, a family of four with an income of $800,000 a year would get a $24,000 tax increase, when the new tax is combined with an increase in the top two tax brackets proposed by President Barack Obama and other scheduled tax changes, according to an analysis by Deloitte Tax. That's a 12.5 percent increase in federal income taxes.
A family of four making $5 million a year would see a $434,500 tax increase, about a 32 percent increase, according to the analysis.
"These are very big numbers and very high effective tax rates," said Clint Stretch, a tax policy expert at Deloitte Tax.
The new health care tax would come on top of other tax increases for the wealthy proposed by Obama. The top marginal income tax rate now is 35 percent, on income above $372,950. Obama wants to boost the top rate to 39.6 percent in 2011 by allowing some of the tax cuts enacted under former President George W. Bush to expire.
House Democrats said they are proud that they found a way to finance the health care package largely from a tax on the wealthy. There is, however, little appetite for a millionaire's tax in the Senate, and some tax experts think it is a mistake to tap only rich people to pay for services used by all.
"If health care is a benefit that is worth having, then it's worth paying for," said William Gale, who was an adviser to President George H. W. Bush's Council of Economic Advisers and is now co-director of the Tax Policy Center. "This gives the impression that it's only worth having if someone else pays for it." - FOX News Story
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