Obamacare’s Hidden Tax

In The Federalist, No. 62, James Madison wrote, “It will be of little avail to the people that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood.” Right he was, and in the over 200 years since his solemn warning, it has become an unspoken tradition that congressional legislation should be both before reaching the Oval Office for approval. The Obama Administration has passed its fair share of unreadable, incomprehensible legislation. But the flagship of this administration’s legislative catastrophes is, and has always been, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act – Obamacare.

The 2500+ page behemoth passed through the House of Representatives in 2010 in the two separate bills listed above. After the election of Republican Scott Brown to the US Senate in early 2010 to replace the late Senator Ted Kennedy, it became clear to the Democrats that any hope of pushing healthcare reform through the Senate without a filibuster was not possible (especially after the President promised that the Senate would not vote on the issue again until Scott Brown had been sworn into office). However, the Senate had already passed a bill – the Patient Protection and Affordable Care Act. If the House passed it without amendment, it would not need to return to the Senate and face a filibuster.

Thus, Democratic Party leaders devised a plan to pass the bill before the Republicans broke the Democrats’ “filibuster-proof” Senate:  pass the bill in the House without amendments with the promise of passing a second bill to remedy any problems House Democrats may see in the current bill. The scheme worked, leading to not one but two unintelligible bills. In fact, the bills were so large that Justice Scalia joked during oral arguments regarding Obamacare’s constitutionality that it would violate the 8th Amendment (that’s the one about cruel and unusual punishment) to ask the Supreme Court to read through each law in entirety to differentiate between parts which are and are not constitutional.

But however the Supreme Court rules on Obamacare this summer (hopefully overturning the law in no uncertain terms, despite presumed and temporary political implications), the media, the general public, and most politicians continue to be completely in the dark about the contents of the bill. Besides the provisions openly touted by the Administration (which are abhorrent enough), the majority of the bill remains largely unknown.

Just today, I learned of a provision within the Obamacare that I had never known of before now. This particular provision has been severely underreported by the media and politicians alike. Whether through ideological agreement or fear to challenge it, this provision has not received the attention it deserves. At a time in which President Obama is pushing for an increase on capital gains taxes, most the public remains totally unaware that he has already increased them.

Albeit, the tax has not taken effect as of yet. Like most provisions of the bill, this particular tax increase will go into effect in 2013, following the 2012 presidential election. Next year, all individuals making over $200,000 of annual income and couples making over $250,000 will be slapped with a 3.8% capital gains tax on all “unearned income.” But what qualifies as “unearned income?” As reported by Jeanne Sahadi via CNN Money, “Capital gains, dividends, interest, annuities, royalties and rents are some examples.” For those affected by the new tax, it would apply to either one’s modified adjusted gross income (modified AGI; one’s gross income after excluding qualified expenses) or unearned income, depending on which is less – e.g. if one’s modified  AGI is $40,000 and one’s unearned income was $50,000, the taxpayer would be forced to pay $1,520 on his modified AGI but the tax would not apply to the unearned income. The revenues from the taxes would go toward funding Medicare, and the law did not invalidate current tax exemptions.

In 2010, a chain E-mail floated around the web asserting that the bill had established a 3.8% sales tax on home sales. Though home sales would count as “unearned income,” the idea that it was a general sales tax was an exaggeration. As such, it was shrugged off and the issue was dropped.  In response to the E-mail, the Tax Foundation wrote the following analysis:

“First, there is no ‘sales’ tax on home sales in the health care bill. The bill would impose essentially a capital gains taxes [sic] on some home sales made by a limited number of taxpayers. (The health care law contains a new 3.8 percent tax on ‘unearned income’ for high-income taxpayers. Unearned income includes capital gains.) To be hit by the 3.8 percent capital gains tax, you first have to be a married couple making more than $250,000 in adjusted gross income or $200,000 if you are single. The capital gain on the home sale must also exceed $500,000 if this is a primary home and you are a married couple ($250,000 for singles). So for example, even if you and your spouse make $300,000 in wages and you bought a home that you lived in for a while for $600,000 that you now sell it for $1 million, your capital gains tax on that home sale would be zero. Even if the home sold for $1.2 million, thereby resulting in a capital gain of $600,000, only $100,000 of that capital gain would subject to the new tax (because of the $500,000 exclusion).”

And even now, there are surely many individuals that would shrug this increase off. If it respects current exemptions and will only apply to a “limited number of taxpayers” who are being taxed for what is “unearned income” anyway, why bother fretting about it? What does it matter if it did not alter previously existing tax exemptions, like the $500,000 exclusion on home sales? Because it is already driving away some of the most brilliant and talented men in this country from our shores Eduardo Saverin, for example. Moreover, it is a matter of right.

I do not want to focus on responding to the non-arguments that the “rich should pay their fair share” – the richest Americans already pay exorbitant amounts of money into the federal treasury, and a 3.8% capital gains tax is no small fee when applied to millions of dollars of capitals gains, all of which rightfully belong to the recipients. The fact that every man, woman, and child in America is already taxed for 2% of their entire cash holdings each year through inflation only adds to this loss. What is fair is letting individuals keep what belongs to them.

I do not intend to stress here the irrationality of a government program like Medicare – when the government offers something for free, price is no object. And when the government begins to regulate price while still offering something for free, then demand further outstrips supply as the producers are unable to pursue their self-interests and earn a profit. If one wants to solve the problems in America’s healthcare system, the one should look to the government – not as the solution, but as the problem

Nor am I even principally concerned about the government notion of “unearned income.” Every man is entitled to that which he produces. If man takes the profits he has produced and multiplies them through lucrative investments, then those too are his. The only time income is unearned is if it is achieved through force – one earns that which he produces by investing his principal.

What does concern me, however, is how flagrantly discriminatory the new tax law is. Though all tax laws are illicit violations of property rights and should be done away with (though I recognize this is a matter for the distant future), the fact that they specifically target a given portion of the population – those making certain amounts of money – is detestable. Tax laws have been crafted in this manner for at least a century in the United States following the enumeration of the 16th Amendment. Those who make the most are targeted and fined for their wealth, lied to by the government that they should feel “proud” to have “given” so much “back” to their country, as if they had illegally taken any of what they earned from their country or countrymen in the first place.

Individuals who make a $200,000 a year are entitled to every penny of that $200,000. Couples who jointly earn $250,000 a year are entitled to every penny of that $250,000. I do not argue this on the basis that, when the government taxes income progressively, people lose incentive to produce more and therefore stop producing more, hurting the economy and everyone else. While this is certainly true, is not an adequate defense against progressive taxation. It leaves unanswered the question of, “Why should that matter?”

The reason that individuals are entitled to their earnings is because it is their right, meaning it is a condition universally required by all men in order to pursue, maintain, and improve their life as an ultimate value. Why should that matter? Because man’s life is the only metaphysical end in itself – it is the one value necessary to pursue all other values. To deny the conditions necessary for another man’s life is to deny the conditions necessary for one’s own.

“They can afford to give up a few thousand dollars!” They should not have to – it is not an expense that they have any obligation to pay. The money is theirs, and they may do with it as they please (and though it should go without saying, this means “within the rights of others”).

“But it only affects a few people!” Though the Tax Foundation asserts itself to be neutral and nonpartisan, this argument implied in the analysis above is perhaps the worse notion yet: the idea that few can or should be sacrificed to benefit the many. The very idea that certain individuals should be picked out from the American public as servants to their fellow Americans for any reason flies in the face of the principles of “justice” and “equality” which the advocates of these taxes so virulently (and falsely) proclaim.

Should it be accepted that Jim Crow laws were acceptable because they only applied to a minority portion of the population? Should it be accepted that laws against homosexuality are valid because there are few who are actually affected by them? Should laws like the USA PATRIOT Act and the NDAA be considered satisfactory because the number of Americans suspected or accused of terrorism is but a minute fraction of percent? So why then is it acceptable that certain men should be robbed of more of their income simply because they are a minority within the larger population?

We have a number of laws on our books that are inimitably unfair, Obamacare just being one of many. A great number of them pass only because they are targeted at a minority faction within society – similar violations of the same rights are often (though not always) not tolerated by the majority.  But the men affected by this law are most certainly a minority. Man is a minority – an individual among billions of others across the globe, and hundreds of millions in America alone. No matter how many millions may vote to violate his rights, they do not have the right themselves to do so. The self-proclaimed champions of minority rights on the left, from the nihilists at Occupy Wall Street to the bleeding-heart humanitarians pondering “why we can’t all just get along,” are not defenders of minority rights in any way. In fact, they are the worst offenders.


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