House And Senate Negotiators Ask: Why Shouldn’t Paris Hilton Pay For Health Care Reform?

The Wall Street Journal is reporting that “House and Senate negotiators are considering applying for the first time the Medicare payroll tax to investment income as part of a compromise to pay for a health overhaul.” Medicare taxes are now assessed only on wages and self- employment income and some progressives have long argued that forcing “people living off investments to contribute taxes to the health care system” could be a good way of raising money for health care reform. As Steve Wamhoff, legislative director of Citizens for Tax Justice put it, “If the only income Paris Hilton gets is capital gains, stock dividends, interest and other types of investment income, currently she is completely exempt from the one big tax we have right now that is dedicated to health care.” “We’re saying that probably doesn’t make sense.” The argument is simple: individuals who earn a higher share of their income from investments should pay their fair share. If the Medicare payroll tax applies to all wage income – why shouldn’t it also apply to non-wage income?

The Senate Finance Committee considered the proposal over the summer, and Majority Leader Reid (D-NV) came close to including it in the merged Senate bill. My colleague Pat Garofalo explanis why:

The Medicare payroll tax is the “one important tax we already have that is dedicated to funding health care, but it completely exempts wealthy investors whose income takes the form of capital gains, stock dividends, and interest.”… According to an analysis by Citizens for Tax Justice, if this change occurred, “most Americans would either see no tax increase at all or would see a tax increase of less than $100 a year.” More than 64 percent of the increase would be paid by the richest one percent of Americans, and more than 80 percent would be paid by the richest five percent. And for the tax to not unfairly hit moderate income seniors who live off of investment, some sort of senior exemption would need to be included.

Extending the payroll tax to dividends and other income from investments could “raise $111 billion over 10 years,” but “it remains unclear whether investment income under a final House-Senate deal would pay the same freight as wages, 2.35% in the Senate-passed bill, or whether it would be subject to a lower rate, such as the 1.45% in [Sen. Debbie] Stabenow’s initial proposal.” The Senate health care bill already raises “the worker contribution to 2.35% for individuals making more than $200,000 a year and couples making more than $250,000 a year.”

The new tax would allow negotiators to raise the threshold on the excise tax, an important priority for organized labor, and please House members looking for a ‘get’ in the final legislation.