This is worth reading:
Health Care & Taxes
John Goodman, President, National Center for Policy Analysis
The worst idea candidate Barack Obama had during the presidential campaign was his pledge to finance health reform with taxes on capital. To be fair, he didn't word it that way. Instead, he promised to pay for universal health care in part by rescinding George Bush's "tax cuts for the rich."
Bush didn't cut taxes for the rich, however. He lowered the tax rate on capital gains income and substantially lowered the tax rate on dividend income for all taxpayers, many of whom have high incomes. Bush also lowered the top rate on wage income; but for high-income earners this is also frequently income from capital (pass-through profits to owners of small businesses, for example).
Obama is now proving that he keeps his word and then some. Overall, his new budget includes a slew of new taxes on businesses and investors totaling almost $1 trillion over the next 10 years (and that doesn't even count the $646 billion "cap and trade" tax). He proposes to "bank" a portion of this for health care to be matched by difficult-to-make health care spending cuts and by health care "savings" that virtually all independent analysts agree are unlikely to materialize. The only thing certain so far is the taxes.
What's wrong with paying for health reform by taxing investment income? It is always bad to tax capital to pay for consumption. Capital is the seed corn that grows businesses, creates jobs and generates the income that makes consumption possible. Taxing capital to pay for health care consumption is especially bad, considering that health care spending at the margin is already very wasteful.
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