Health Care Fix Bill Taxes ‘Unearned’ Income, Capital Gains Rate Soars

(CNSNews.com) – The package of fixes to the health care bill passed by the House on Sunday includes a tax on “unearned” income, which House Speaker Nancy Pelosi (D-Calif.) says will help keep Medicare solvent a bit longer and improve affordability for the middle class. Conservatives, however, say the new tax will hurt the stock market and will not save Medicare.

The Health Care and Education Affordability Reconciliation Act of 2010 — the package of fixes House members require to make the Senate health care bill acceptable—includes a chapter titled “Medicare Tax.” That chapter provides for the government to level a 3.8 percent surtax on any “unearned” income for individuals making over $200,000 and couples making over $250,000.

Section 1411 of the bill, “Imposition of Tax,” also provides that the surtax would be applicable to any estates or trusts held by taxpayers falling into those brackets.

Unearned income is comprised of funds gained outside of a paycheck from an employer—largely from capital gains, dividends, annuities, and rental income.

Ryan Ellis, tax policy director at Americans for Tax Reform (ATR), said that while the designation of “unearned income” is nothing new in tax code, it is relatively novel to tax all of the money under that umbrella. “I can’t really think of an instance it has been taxed all at once,” he said.

Pelosi said last week that the new tax was a “victory” for her caucus, who disliked the Senate’s proposition for raising money – a steep excise tax on so-called “Cadillac” (high cost) insurance plans.

House Democrats, many of whom lean more liberal than their Senate counterparts, disliked the Cadillac tax, because it would affect a significant number of union members, whose leaders had bargained for top-notch health insurance plans instead of additional income.

In that way, Pelosi claimed, the tax would hurt the middle class and had to be partially replaced.

“One of the victories that we have in the House is that our members did not like the excise tax on insurance plans. We thought it hurt the middle class. There was a debate about that,” Pelosi explained at a press conference last Thursday. “So the higher end of that is left in the plan. I call it the platinum Rolls Royce piece of it. The rest will be covered by a Medicare fee on unearned income

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