Wednesday, March 17, 2010

The Health care bill, a Stealth Tax on Your Wealth

Obama's health care bill proposal includes an increase in medicare taxes on unearned income. Somehow, Obama thinks this fools Americans into the "saving money and reduced costs" illusion for health care and honors his campaign promise for the 95% of Americans who won't have to pay tax. Ah, the whitehouse calculator is at it again with their fuzzy math.

What does this mean to the average citizen? How will this work and impact you?

For starters, anyone that has gotten a paycheck knows that they have to pay payroll taxes, including those that are self employed. Either way, the employee pays social security and medicare taxes on their wages and earned income.

Under current law:
- the social security tax rate is 6.2% of wages (paid on wages up to $106,800)
- the medicare tax rate is 1.45% of wages (no wage limit for the medicare tax)

Most people may not realize that the employer also has to match both those taxes and pay the same amount that the employee pays. In other words, if you pay $100 for these taxes, your employer also pays $100, resulting in the government collecting $200. So if you think about how much you pay, the employer is also paying an equal amount. Higher taxes impact and impair the company's ability to give you a raise or hire more people, or force them to lay people off because they cannot afford the tax.

For those of you who are so inclined, you can read about this tax law here.

The important point here is that by law, wages are subject to employment taxes. Wages are also subject to income tax, in addition to the employment taxes. Your unearned income (i.e. interest, dividends, capital gains) is subject to income tax. Your unearned income is not wages, and is therefore not subject to employment taxes.

Obama's health care bill changes all that. Now he wants you to pay medicare tax, which is an employment tax, on your non-payroll income. They snuck this change to the tax law into the health care bill.

Of course, Obama sells this as "only" taxing the "wealthy". This is one of those big lies. As with any socialistic policy, eventually the government will run out of other people's money, and start tapping into others to satisfy it's expanding spending addiction. To prove this point, I invite you to look at this social security and medicare tax chart of rates and wage limits from 1937 to 2006.

In 1937, the wage limit was $3000 and the tax rate was 1%. Gradually the wage limits and the rates were increased. Up until 1990, the wage limit was the same for both taxes. Then, all that changed. The government needed more money, so they raised the medicare wage limit to more than double the social security tax wage limit. A few years later, the medicare wage limit was removed and there is no limit.

So maybe you are thinking, so what, I don't make that much money. Remember that the government just keeps spending. The government doesn't cut back on expenses, it just taxes you more. Go back and look at the chart. The chart shows how they keep taxing you more. Regardless of how much you make, you are subject to higher taxes every year.

So if you think Obama's health care bill adding a payroll tax on non-payroll income is only taxing the wealthy and won't impact you, think again. Eventually, the government will have their grubby hands in your pockets.

Keep in mind that the health care bill takes your hard earned money from you to give services to others for free. So in the government's eyes, if you have anything to take, you fall into the wealthy category. Eventually, there won't be anyone to take it from or anything left to take. This doesn't stop the whitehouse calculator with their fuzzy math though, as they continue to project savings and reduced costs. But if they keep taxing you more, how is that a savings and reduced costs for you? It isn't. The health care bill contains a stealth tax on your wealth, whatever that may be or lack thereof, until you have have nothing.

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