• Wealthy fighting to duck taxes
    September 29,2012

    Wealthy fighting to duck taxes

    The answer is: math. The question is: Why are so many wealthy people adamantly opposed to what they call “Obamacare”?

    Section 1402 of the Affordable Care Act raises revenue to help make the act work. Included is the removal of a tax reduction entitlement for taxpayers with incomes over $200,000. Starting in 2013 they will have to pay a 3.8 percent Medicare tax on their unearned income.

    Currently, a Medicare tax of 2.9 percent applies to all earned income. So, the game for people with the means and desire to do so becomes one of figuring out how to get as much of their income as possible as “unearned” income. They create certain kinds of corporations and legal structures to get their income as dividends or interest — anything but earned income.

    Two recent examples are Newt Gingrich and John Edwards. According to a USA Today story (Jan. 24, 2012) tax experts said Gingrich avoided “tens of thousands of dollars” and Edwards “more than $591,000 in Medicare tax” by taking their income through the use of their Subchapter S corporations.

    Therefore, the people who love this tax reduction entitlement must kill “Obamacare” and they will give any number of reasons for killing the act but the real one.

    More math: Mitt Romney says he never paid less than 13 percent of his income as income tax. Most of his income was “unearned,” not subject to the Medicare tax. The small 3.8 percent tax in the act will therefore result in a 29 percent increase in federal taxes on his unearned income. Not surprisingly, Romney and Ryan have said their first priority in office is to kill “Obamacare.”

    It comes down to which entitlement is more important — one that allows people to have good health care or one that reduces taxes for those most able to pay. We’ll find out in November.

    Norm Etkind


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