Congress Quarterly (subscribers only):
The House’s main revenue source for its health care bill is not indexed for inflation, meaning that more and more people each year will face a tax originally designed for millionaires.
It’s a significant change that will help align revenues and costs in the latest version of the bill, but it also will invite criticism and comparisons to the alternative minimum tax, which has affected far more people than it was supposed to.
Starting in 2011, the House bill (HR 3962) would impose a 5.4 percent tax on adjusted gross income above $500,000 for individuals and above $1,000,000 for married couples. Because some Democrats expressed concerned about the potential effect on small businesses that pay through the individual side of the tax code, the party’s leadership scrapped an earlier plan that would have imposed a smaller surtax on individuals making more than $280,000 and married couples making above $350,000.
However, the earlier version (HR 3200) did include annual inflation adjustments designed to make sure that the tax’s reach did not expand as nominal incomes grew each year. The lack of such adjustments in the alternative minimum tax (AMT), which was originally designed to affect only the wealthiest Americans, forces Congress to routinely pass “patches” to prevent the tax from hitting tens of millions with more moderate incomes.