I heard that the idea of a millionaire tax to pay for health-care reform is back on the table. If that’s the case, I think it is outrageous. Whether it is to pay for health-care reform or any other government program, a surtax that targets 0.3 percent of taxpayers is incredibly unfair. Plus, I can’t believe it would be constitutional.
Of course, the fact that this tax on 400,000 American taxpayers, rather than all of us, is what Nancy Pelosi finds appealing. Not to mention that what we call a millionaire tax today is a rate that is applied to individuals making $500,000, not a million.
To add insult to injury, because the tax isn’t indexed for inflation, over time it will apply to more taxpayers as inflation affects income levels. Sound familiar?
It should, because this is how the alternative minimum tax (AMT) became such a nightmare. The AMT was created in 1969 to prevent just 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes. Because it was not indexed for inflation, it came to affect an ever-growing share of the population, prompting Congress to pass a patch each year limiting its reach; next year, without the patch, it is projected to strike 27.4 million Americans—nearly 20 percent of the country’s taxpayers. And even with the patch, the AMT hits far more than just millionaires: In 2009, it swept up 4 million families living in high-tax states who merely took multiple deductions for dependents and houses.
The same process would happen with the millionaire tax. According to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution (not exactly anti-tax organizations), by 2019 the number of taxpayers subjected to the health care bill’s tax will have doubled. If inflation hits harder than the center’s analysts assume, the number will be even higher. Either way, it will keep climbing, gradually assimilating more and more people who never thought they’d be considered super-rich.
Here is my recent Reason piece on the issue. Also, read this very good article by Alan Viard of the American Enterprise Institute. Viard makes two excellent points: The surtax would penalize saving and investment and the surtax would be an unsustainable way to pay for major new spending programs because it would fall on only 0.3 percent of the population.