The Library of Congress
Health Care and Education Reconciliation Act of 2010
SEC. 1402. UNEARNED INCOME MEDICARE CONTRIBUTION.
(a) Investment Income-
(1) IN GENERAL- Subtitle A of the Internal Revenue Code of 1986 is amended by inserting after chapter 2 the following new chapter:
CHAPTER 2A--UNEARNED INCOME MEDICARE CONTRIBUTION
Sec. 1411. Imposition of tax.
(a) In General- Except as provided in subsection (e)--
(1) APPLICATION TO INDIVIDUALS- In the case of an individual, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax equal to 3.8 percent of the lesser of--
(A) net investment income for such taxable year, or
(B) the excess (if any) of--
(i) the modified adjusted gross income for such taxable year, over
(ii) the threshold amount.
(2) APPLICATION TO ESTATES AND TRUSTS- In the case of an estate or trust, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax of 3.8 percent of the lesser of--
(A) the undistributed net investment income for such taxable year, or
(B) the excess (if any) of--
(i) the adjusted gross income (as defined in section 67(e)) for such taxable year, over
(ii) the dollar amount at which the highest tax bracket in section 1(e) begins for such taxable year.
(b) Threshold Amount- For purposes of this chapter, the term `threshold amount' means--
(1) in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000,
(2) in the case of a married taxpayer (as defined in section 7703) filing a separate return, 1/2 of the dollar amount determined under paragraph (1), and
(3) in any other case, $200,000.
SEC. 1409. CODIFICATION OF ECONOMIC SUBSTANCE DOCTRINE AND PENALTIES.
(a) In General- Section 7701 of the Internal Revenue Code of 1986 is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:
(o) Clarification of Economic Substance Doctrine-
(1) APPLICATION OF DOCTRINE- In the case of any transaction to which the economic substance doctrine is relevant, such transaction shall be treated as having economic substance only if--
(A) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer's economic position, and
(B) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.
The New Republic
July 16, 2008
Is Single-Payer Health Care The Best Option?
By Don McCanne
Because of our very high costs, we must accept the fact that the insurance function is no longer simply a transfer from the many who are healthy to the fewer with health care needs, but it now must also include a partial transfer from the wealthy to middle- and lower-income individuals with needs. There is no alternative to this wealth transfer.
Comment: The traditional role of health insurance has been to transfer funds from the many who are healthy to the few who are sick. But now health care costs in the United States are so high that if we expect everyone to have the health care that they need, a transfer of funds from the wealthy down would be absolutely mandatory if we are to be able to finance that care.
The easiest way to accomplish that transfer would be to establish a single national risk pool that covered everyone, and fund that pool through progressive taxes. Unfortunately, Congress and the President selected a much more complex financing scheme for their health reform program. Nevertheless, there was no way that they could escape the necessity of including a wealth transfer mechanism. So what did they do?
The most obvious transfers are contained in the bill signed yesterday that is now law. Individuals purchasing their health plans from the state exchanges will receive federal subsidies in an amount inversely related to their incomes. Individuals with very low incomes will be enrolled in Medicaid and will not have to contribute any premium. Since the taxes collected to support these programs are progressive, the wealth transfer is automatic.
The Reconciliation Act that is still under consideration in the Senate provides additional measures that acknowledge the need for a wealth transfer, including the unearned income Medicare contribution, and the codification of the economic substance doctrine.
Our current tax policies extract both income taxes and payroll taxes from hard-earned wages, but passive unearned income such as interest, dividends and capital gains may receive favorable treatment for income taxes, and totally escape payroll taxes. It seems unfair to tax individuals who are contributing to society by their personal work effort at a higher level than wealthy individuals who contribute little more than conversation at the nineteenth hole of the golf course. The common argument that those funds shouldn't be taxed so that they can be invested in the economy holds little water when you consider that increased productivity comes from the workforce and not from passive investors.
In recognition of this imperative of wealth transfer, the Reconciliation Act includes a Medicare tax of 3.8 percent on passive income over $200,000 for individuals or $250,000 for couples. Although that is a relatively modest tax for wealthy individuals, it is a giant step forward in solidifying the principle of wealth transfer.
The codification of the economic substance doctrine is simply locking into law the principle that wealthy individuals can no longer establish sham transactions that have the sole function of reducing income tax liability. Although this is not a wealth transfer in the same sense as the Medicare tax on passive income, it does ensure that the rightful transfer can no longer be avoided by these devious transactions, subject to an extra 40 percent penalty if attempted.
Although the decision of Congress and the President to continue to use private health insurers to finance health care was a terrible decision that we will continue to attempt to upend by pushing for a single payer system, nevertheless we can celebrate some of the beneficial features of the legislation such as the expansion of community health centers and the reinforcement of primary care.
One of the most important beneficial features of all is the firm establishment of the principle that the transfer will not come only from the healthy but must also come from the wealthy. That is a policy bridge that we will have already crossed on our march to an improved Medicare for all.