Obama wants to apply Medicare tax to investment income

President Barack Obama's health plan proposal would extend Medicare taxes to the investment income of higher-earning households. The health care proposal released today by the White House would extend the existing 2.9% Medicare tax to unearned income — including interest, dividends, annuities, royalties and rent — for taxpayers with income exceeding $200,000 for singles and $250,000 for couples. Currently, the Medicare tax is assessed only on wages or earned income. The president also wants to hit these higher earners with an additional 0.9% Medicare tax on their earned income. The additional Medicare taxes are similar to those proposed in the Senate's health care bill. The new taxes would not affect income from active participation in S corporations, according to the administration.
The White House said the additional revenue from the tax on unearned income would be credited to Medicare's Federal Supplementary Medical Insurance Trust Fund, which pays for non-hospital care. The additional revenue from the tax on earned income would be credited to the HI trust fund, which is used for inpatient care in hospitals. In December, Congress' Joint Committee on Taxation estimated that expanding Medicare taxes — as the president is proposing — would raise $111 billion in revenue over 10 years. The administration's revised health care insurance plan would reportedly cost about $950 billion over 10 years. Spokesmen for the Securities Industry and Financial Markets Association and the Investment Company Institute did not have an immediate comment on the president's plan.