About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

263 IRET Congressional Advisory 1 (2010)

handle is hein.taxfoundation/iretcgadv0260 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. March 1, 2010 Advisory No. 263 THE OBAMA ADMINISTRATION'S PROPOSED 2.9% HI SURTAX WOULD HARM THE ECONOMY AND LOSE REVENUE President Obama has recommended imposing a 2.9% HI surtax on passive income (income from saving and investment) to help fund his health insurance overhaul. Social Security taxes for retirement and medical programs for the elderly taxes have always been levied on wages, as a form of social insurance. Extending the Hospital Insurance tax to income from savings would be a sharp departure from previous practice and very bad economics. Economic consequences of the 2.9% rate hike On a static basis, our preliminary estimate is that the Obama plan's 2.9% surtax on the capital gains, dividends, interest, and certain other income of upper-middle class and wealthy taxpayers would: Raise approximately $39 billion yearly (at 2009 income levels); Affect only a small number of upper-income individuals. In reality, on a dynamic basis, the 2.9% surtax would, after the economy has adjusted to it: Depress GDP by about 1.3%; Reduce private-sector capital formation by about 3.4%; Cut the wage rate by about 1.1%, and hours worked by about 0.2%; Reduce the after-tax incomes of the people in the income ranges supposedly not touched by the proposed 2.9% surtax by 1.1% - 1.2%; Lose about 70% of its anticipated income tax revenue gain due to lower GDP and incomes across-the-board; Decrease other federal tax revenues, causing total federal receipts actually to fall by about $5 billion yearly (at 2009 income levels). Discussion Capital formation is very sensitive to taxes on capital income, and reduced capital formation reduces labor productivity and wages across the board. We estimate that the proposed surtax will depress capital formation, GDP, and wages. The resulting loss of income, payroll, corporate, excise, and other taxes will offset the assumed revenue gains. The wage depression will affect all income levels, and the tax burden will not be confined to the top income earners. The 2.9% passive income surtax (equal to the Medicare Part A - or Hospital Insurance - payroll tax rate) would be imposed on dividends, interest, capital gains, rents, royalties, and other income from saving and investing. The tax would hit couples with more than $250,000 in adjusted gross income ($200,000 trigger for singles and heads of households). The tax would be triggered by earning even a single dollar above the thresholds, after which all of the taxpayers' passive income would be immediately subject to the tax. This creates a huge tax rate spike or cliff at the thresholds. It would be etmsm I, S I gg~ g Agg

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most