Wednesday, March 28, 2012

The Trojan Horse of ObamaCare

As is widely known, the Supreme Court is weighing arguments about the Constitutionality of the legislation popularly known as “ObamaCare.”

Of course, to anyone with even a basic understanding of the intent of those who defended and Ratified the Constitution, spending more than two minutes deliberating this issue would be laughable.

But this is not my focus. At his Tea Party Economist website, Dr. North suggests that the compulsory insurance portion of the legislation would be declared unconstitutional:

The vote will be 5 to 4….The fact that four justices will vote for it is indicative of just how far we have moved down the road to tyranny.

I will suggest that the fact than the swing vote of ONE judge can make such a difference to the lives of over 300 million Americans is the better measure of how far America has moved down the road to tyranny, but here too, I digress.

I do not know enough about the politics of this court or this case to comment on whether or not I agree with Dr. North’s assessment. However, I have long believed that the health care portion of ObamaCare was always was the Trojan Horse for something more valuable to government.

“What?” you say. “How can the health care portion of health care legislation be secondary, or be unimportant? That was the entire point.”

I believe the entire point was the tax increase – an increase that is certain to survive, no matter what the court decides regarding the insurance and no matter who is elected in November (except, of course, you know who). However, it isn’t just a tax increase, but a new tax on a new source of income.

As part of the legislation, Medicare taxes will be applied in a new way as explained in this Wall Street Journal piece:

This new ObamaCare bargain would for the first time apply the 2.9% Medicare payroll tax to "interest, dividends, annuities, royalties and rents," so-called passive income that we are told includes capital gains, though the latter wasn't explicitly mentioned in the proposal. This antigrowth investment tax would apply to singles earning more than $200,000 and joint filers over $250,000 and comes on top of the Senate's 0.9-percentage-point increase in the payroll tax, which would bring the combined employee-employer share to 3.8%.

This tax, for the first time, applies Medicare taxes to income earned on capital – a 3.9% increase applicable to those earning over $200,000 / $250,000. As with all newly introduced taxes, rest assured the rate will slowly go higher while the threshold will grow lower (either in nominal, but certainly in real terms).

Such creep has happened quite often in the past. Consider the income tax introduced in 1913. This tax applied to incomes of couples exceeding $4,000, as well as those of single persons earning $3,000 or more, were subject to a one percent federal tax. The maximum rate was 7% on incomes of over $500,000. To put these figures in perspective, $4,000in 1913 is equivalent to $92,000 today; $500,000 is equivalent to $11.5 million today.

Or consider the AMT, originally intended to capture high-income earners that paid little tax due to large deductions. Due to lack of inflation indexing, more and more have found themselves subject to this tax – originally designed to only tax the rich:

Although the AMT was originally enacted to target 155 high-income households, it now affects millions of middle-income families each year. The number of households that pay the tax has increased significantly in the last decade: In 1997, for example, 605,000 taxpayers paid the AMT;[49] by 2008, the number of affected taxpayers jumped to 3.9 million, or about 4% of individual taxpayers.[50] A total of 27% of households that paid the AMT in 2008 had adjusted gross income of $200,000 or less.[51]

The primary reason for AMT growth is the fact that the AMT exemption, unlike regular income tax items, is not indexed to inflation. This means that income thresholds do not keep pace with the cost of living.

Rest assured, whatever the Supreme Court decides, this new surtax will remain. Once in place, the rate will only increase and the income thresholds will only decrease (likely only due to lack of inflation indexing, although even if indexed, the government index always understates true inflation).

This is the Trojan Horse. Everyone was looking at the wrong walnut shell.

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