The Return of the Inflation Tax (tax surcharge in Pelosi health bill)

Wall Street Journal ^ | November 6, 2009

[reaganaut1]

...

Buried in Nancy Pelosi's health-care bill is a provision that will partially repeal tax indexing for inflation, meaning that as their earnings rise over a lifetime these youngsters can look forward to paying higher rates even if their income gains aren't real.

In order to raise enough money to make their plan look like it won't add to the deficit, House Democrats have deliberately not indexed two main tax features of their plan: the $500,000 threshold for the 5.4-percentage-point income tax surcharge; and the payroll level at which small businesses must pay a new 8% tax penalty for not offering health insurance.

This is a sneaky way for politicians to pry more money out of workers every year without having to legislate tax increases. The negative effects of failing to index compound over time, yielding a revenue windfall for government as the years go on.

...

[T]his surcharge has also been sneakily written to apply to modified adjusted gross income, which means it applies to both capital gains and dividends that are taxed at lower rates. So the capital gains tax rate that is now 15% would increase in 2011 to 25.4% with the surcharge and repeal of the Bush tax rates. The tax rate on dividends would rise to 45% from 15% (5.4% plus the pre-Bush rate of 39.6%).

As for the business payroll penalty, it is imposed on a sliding scale beginning at a 2% rate for firms with payrolls of $500,000 and rising to 8% on firms with payrolls above $750,000. But those amounts are also not indexed for inflation, so again assuming a 4% average inflation rate in 10 years this range would hit payrolls between $335,000 and $510,000 in today's dollars.

[JerseyHighlander]

bump

[ripley]

One wonders if those brilliant independents will feel even more brilliant if they vote for more democrats in the 2010 elections. (Question: Does merely touching a copy of the New York Times make an independent “feel” like a brilliant intellectual or does it just send intellectual tingling up up his leg?)

(Maybe all of you independent schmucks did everyone a favor by voting for “brilliant” progressive intellectuals in the last election. You made them feel overconfident and behave like the totalitarian scu&bags that they are.)

IMHO

[jiggyboy]

I’m putting this on my John Nash “Beautiful Mind” board as another indication that hyperinflation is not just a possibility, not just inevitable, but a process to be implemented.

[SES1066]

Ever since the Alternative Minimum Tax (AMT) was introduced (1969), the lack of inflation adjustment has been clear in our tax code. The AMT came out of a Democrat Congress reacting 'in rage' to punish 155 taxpayers who, in spite of incomes greater than $200k ($1.3+ Million in 2009), paid no income tax that year. Now, in spite of various 'fixes' and adjustments, AMT threatens 30 MILLION taxpayers and almost every year Congress passes temporary suspensions of SOME AMT rules to avoid what they rightly fear to be an outright taxpayer revolt!

Thus there should be absolutely NO DOUBT that Congress knows the effect of failing to index in this area. This is SMOKE AND MIRRORS in operation. They are DESPERATE to technically meet Obama's stated goal of no increase in the deficit and to avoid too sudden an increase in noticeable taxation that would endanger their overlordship. What is worse is that at some time in the very near future, the Progressives of both parties are going to absolutely need the tax revenues from both AMT and this ObamaCare and the American Taxpayer is going to get such a sticker shock as you would not believe!

The one single most effective change that I can think of to rein-in this monster spending would be to MOVE INCOME TAX DAY TO NOVEMBER 01 of every year!!! First you PAY and THEN you VOTE! Anybody care to give me odds on Congress permitting this to happen?

[dearolddad]

I’m putting this on my John Nash “Beautiful Mind” board as another indication that hyperinflation is not just a possibility, not just inevitable, but a process to be implemented.

I wonder why the WSJ and other publications very seldom mention the exact section and paragraph contained in the bill(s) being referenced.

[Pearls Before Swine]

The one single most effective change that I can think of to rein-in this monster spending would be to MOVE INCOME TAX DAY TO NOVEMBER 01 of every year!!! First you PAY and THEN you VOTE!

Not bad. My fave change would be to eliminate payroll tax with-holding. Send in your taxes out of the money you've pocketed every week or quarter, just like the self-employed do, and you'll feel like you're spending that tax money rather than working for a lower salary.

Milton Friedman said (or did) two things of interest in this regard. First, he pointed out that the true burden of government isn't how much it taxes, but rather how much it spends. After all, if it runs consistent deficits, you have to pay later in either higher postponed taxes or through currency devaluation and inflation. The second item is that, as a young economist in the 1940's, he was instrumental in instituting the payroll tax to make it easier for the government to raise money in WWII. Later he said he'd repeal that if he could.

[jiggyboy]

Laziness. Another big story today is the extension of the First Time Homebuyer Tax Credit, and that doesn’t have the bill number either. Once I found it at the Congress web site, I did a google search for that bill number — I don’t think a “popular” article anywhere in the world today mentions it.

[socialismisinsidious]

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[Dajjal]

Buried in Nancy Pelosi's health-care bill is a provision that will partially repeal tax indexing for inflation, meaning that as their earnings rise over a lifetime these youngsters can look forward to paying higher rates even if their income gains aren't real.... This is a sneaky way for politicians to pry more money out of workers every year without having to legislate tax increases. The negative effects of failing to index compound over time, yielding a revenue windfall for government as the years go on.

This WSJ article is very important. Please read it and ping your lists.

Let me quote my brother:

Even I was stunned to see that the House is eagerly anticipating inflation in the same way Renfield is filled with glee at the coming of Count Dracula!!!