Financial advisers welcome demise of investment tax to fund health care law

One aspect of the effort by congressional Republicans to scrap the health care reform law is being embraced by financial advisers — the demise of the investment tax that funds part of the program. The law imposes a 3.8% tax on net investment income, including capital gains, interest and dividends for couples with combined income of more than $250,000 or a single person above $200,000. As Republicans move to take the health care reform law off the books, they don't intend to let taxes such as the investment-income levy survive to fund whatever they come up with as a replacement. “After spending seven years talking about the harm being caused by these taxes, it's difficult to switch gears now and decide that they're fine so long as they're being used to pay for our health care bill,” Sen. Orrin Hatch, R-Utah and chairman of the Senate Finance Committee, said in a Feb. 1 speech at the U.S. Chamber of Commerce in Washington. “All of the Obamacare taxes need to go as part of the repeal process,” Mr. Hatch added. That message resonates with financial advisers. “I'm happy to see it go,” said Herbert Schechter, managing director at Minneapolis Portfolio Management Group. “It does complicate the tax return and creates another layer of administration.” Peeling back the taxes to support health care reform will give a break to clients who feel as if the tax code is “creeping” deeper into their financial life, according to Kerrie Debbs, a partner at Main Street Financial Solutions. “Any reduction in taxes is welcome by my clients,” Ms. Debbs said. “There's multiple places from which you're getting charged more. It's like an invasion of your savings and your investments.” If the 3.8% levy on investment income is eliminated, investors will feel less inhibited about making moves in their portfolios, said Tim Steffen, director of financial planning at Robert W. Baird & Co. “People who were afraid of selling investments because of the tax should be less afraid,” Mr. Steffen said. They also may give dividend-generating investments another look rather than relying on growth stocks. “Without the tax, people may be more willing to structure an income-oriented portfolio,” Mr. Steffen said. Some kind of funding will be required for whatever replacement health care plan Republicans propose. Ms. Debbs hopes they can find it without creating or raising taxes. “I'm an optimist," she said. "There's a way to figure this out with the money they already have so that that would not happen."