The ACA Proves It Can Be Done
by Bill Barclay
The news item that has excited many economists –- you can be excused for missing it –- was the release by the IRS of the data on income and taxes for the 400 highest income filers in 2013. Of course it was interesting to learn that the income needed to be admitted into this select group dropped to a mere $105 million (AGI), down from $135 million in 2012, undoubtedly letting in a lot of riff-raff.
But, the big number was the effective tax rate: 22.9%. Now, you may be thinking, “What? … Why was it so low?” But in 2012 it was only 16.7%. The revenue difference? More than $6.5 billion or about $16.5 million for each of the 400 filers.
Did the 400 simply decide to come clean and pay up? Hardly. The increase came about for two reasons: first, the expiration of the Bush tax cuts on the highest income groups and, second, the Affordable Care Act (ACA, aka Obamacare).
I see the perplexed look on your face –- Obamacare? Yes, because the ACA contained two little-noticed, by many, very progressive tax regulations designed to finance Medicare. The first is a 2.35% tax on wage income above the usual cut-off for Social Security and Medicare, $118,500 in 2016. This tax raised only a modest amount from our 400 because most of their income is not in the form of wages and salaries. But a second Medicare tax of 3.8% that covers both investment and wage income did raise a lot of money from this group. And all of us should welcome a tax that doesn’t privilege unearned income over wage income because it reverses the trend in tax policy that goes back to the Reagan days.
And you wonder why they want to repeal the ACA.