Investors bemoan tax implications of 'Obamacare'
There's a new incubator in the clash between right and left over "Obamacare."
And it doesn't have marble columns.
From hedge fund row in Greenwich to the massive trading floors of Stamford to the country club set of the Southport section of Fairfield, wealth centers like Connecticut's Gold Coast could now find themselves at the forefront of the national debate over the Affordable Care Act.
It is here, where investment income is a major component of net worth, that impending tax increases on capital gains and dividends for top earners that are needed to help pay for the Medicare component of President Barack Obama's controversial health care reform law have Republicans and Democrats at loggerheads.
With the Bush tax cuts of 2001 and 2003 set to expire at the end of the year, conservatives say the increases amount to an ill-timed spike for the few creators of wealth in the current economic climate.
"The whole scheme is one that's anachronistic, out of touch and potentially devastating to the economy and to business," said state Sen. L. Scott Frantz, R-Greenwich, a venture capitalist and prolific bundler of campaign cash for Mitt Romney.
Now that the constitutionality of the law has been upheld by the Supreme Court, Democrats say the GOP has no choice but to resort to distortions and scare tactics about tax increases and death panels when, in fact, the initiative is better than deficit neutral, expands coverage and protects consumers from the abuses of insurance companies.
"Claims that the very highest income earners in this country are going to get hammered need to be regarded with a certain amount of suspicion," U.S. Rep. Jim Himes, D-Conn., said.
Under the law, individuals earning more than $200,000 and married couples with a household income in excess of $250,000 likely will pay an additional 3.8 percent above the base tax rate on capital gains and dividends starting in 2013.
"I think people tend to forget that Obamacare is a great big tax increase wrapped up with a few health insurance reforms," said Curtis Dubay, a senior tax policy analyst with the Heritage Foundation, a conservative think tank based in Washington.
The current base rate of 15 percent for capital gains and dividends is expected to shoot up to 20 percent and 39.6 percent, respectively, if Congress allows the Bush tax cuts are allowed to expire at the end of the year.
Democrats say the thrust of the GOP assault on the health care legislation is based on some rather significant assumptions, however.
"First of all, we have no idea what's going to happen with the Bush tax cuts at the end of this year. Don't jump to too many conclusions there," said Ned Lamont, a wealthy Greenwich cable executive and Democrat who ran unsuccessfully for the Senate and governor.
Himes echoed those comments.
"The reality is the Congress is not going to allow that to occur as scheduled," Himes said. "That would have the effect of pretty much raising everybody's taxes. There will be a deal struck that I hope looks like Simpson-Bowles as a smarter and better alternative to expiration."
Republican Steve Obsitnik, who is challenging Himes in the November election, issued a statement expressing skepticism over the law.
"The Affordable Care Act is a law of consequences and unintended consequences," he said. "Even though there are potentially negative ramifications for some in our district, I feel everyone, regardless of their income level, will feel some pain. Uncertainty about the future impacts the small business owner the same way as the hedge fund manager."
Top earners can expect to see the percentage of their salary withheld for Medicare taxes to rise from 2.9 percent to 3.8 percent for every dollar they earn above the top-tier threshold, according to Dubay, who said the revenue will go into the General Fund, presumably to pay for the program, but not definitively.
"Payroll tax revenue has always until now been used to fund the programs those taxes were created to fund," said Dubay, a Connecticut native.
The Medicare tax increases for top earners are separate from fines that the federal government plans to impose on Americans who fail to carry health insurance starting in 2014, which Dubay said is part of $500 billion in levies that will result from the legislation over the next decade.
"It's a massive, massive tax increase," Dubay said.
Lamont said he believes the health care initiative brings clarity.
"We have a road map for where our health care is going to be for the foreseeable future," Lamont said. "I think that's good news for the economy and good news for Fairfield County. I think every incremental change matters, but what matters even more is that we as a country are on an unsustainable fiscal path. And people over time want to see that resolved, and this is one step in that direction."
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