Health reform’s tax bite

Posted at 7:46 AM, Mar 30, 2012
and last updated 2012-03-30 08:20:41-04

WASHINGTON, D.C. (WTVR) — No one knows for sure what the Supreme Court will do with health care reform. The justices will meet Friday morning to take a preliminary vote on the law, but unless they decide to strike down the whole law, millions of wealthy families can expect a tax increase come January.

Two big Medicare tax changes were enacted to help pay for the new federal subsidies that millions of Americans will get when they buy health insurance. The tax changes themselves were not among the specific provisions of the law being challenged at the court.

The new increases in Medicare taxes will apply to individuals making more than $200,000 a year, or $250,000 for married couples.

The measure, set to go into effect next year, is estimated to raise more than $200 billion over 10 years.

Roughly 4 million households will be initially affected by the increase, according to new estimates from the Tax Policy Center. By 2022 that number will grow to 8.3 million.

Households subject only to the Medicare tax increase on earnings will pay an estimated $2,430 more on average next year. But amounts vary widely depending on one’s income level. Those making between $200,000 and $500,000, for instance, will only pay about $633 extra while households making $1 million or more would pay another $11,242.

By contrast, millionaires subject only to the new investment income tax will see a much bigger tax bill, paying $38,149 more.

Households subject to both versions of the Medicare tax increase will get hit the hardest. More than 90% of those with incomes over $1 million fall into this group, according to Tax Policy Center estimates. Their average tax increase would top $45,000 next year. By 2022, they’ll pay $57,125 more.

While it can be argued that the wealthy are much better equipped to absorb these kinds of increases, that argument may not hold up so well over time as lawmakers seek to raise more revenue from the $250,000-and-up crowd to pay for future endeavors, including reducing deficits.

(CNNMoney & Tax Policy Center)