Health Care Bill – Taxes On The “Rich” Could Include You

blackgirlgrown is proud to feature Shannon King Nash, author of the award-winning book entitled, “For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth.”

With the House of Representative finally passing its version of the health care bill our country is getting closer to a new way of dealing with health care. Although there is still a long way to go, experts believe that even after the Senate and House version are combined, the final bill will include significant provisions that will impact business and high net worth individuals.

Under the current House of Representatives bill, most businesses will have to offer health coverage to their employees or they will face penalties (up to 8% of payroll). Small businesses (those with less than $500,000 on payroll), are exempt from paying a fine if they don’t offer insurance. Also, those with up to 25 workers and an average annual salary of $40,000 may be eligible for tax credits to cover almost half of their contributions towards health insurance premiums.

Also, taxpayers who earn more the $500,000 or $1 million for a married couple will face an additional 5.4 percent tax on their income above these amounts. For these taxpayers their new marginal tax rate could reach as high as 45%. This is mainly due to the fact that this increase in taxes is scheduled to occur around the same time that tax breaks passed during the Bush era are set to expire.

It is reported that the Senate would nix the tax on the wealthy, and focus on insurance companies. Specifically, the Senate Finance Committee bill would impose new taxes on insurance companies, drugmakers and medical device manufacturers. It includes a 40 percent tax on the portion of insurance premiums exceeding $8,000 a year for individuals and $21,000 a year families. But even though the tax is imposed on insurance companies, it is all be a forgone conclusion that this will trickle down to consumers and result in higher health care premiums.

Many in the press point out that these provisions will not significantly impact most Americans and small businesses, but what is missing in most of these news clips, is the impact of inflation. Most of the tax provisions in the House and Senate version are not indexed to take into account that money in todays dollars is worth less ten years in the future. For example, the tax on the wealthy begins at a $500,000 threshold in today’s dollars, but that same tax will apply to someone making close to $350,000 in ten years absence a law that takes into account the impact of inflation.

This is not the first time tax laws have been meant to target the wealthy and wound up impacting the middle class thanks to not indexing for inflation. Such is the case with the Alternative Minimum Tax. Introduced around 1978,AMT was originally created to target high-income taxpayers who claimed large, itemized deductions that resulted in the payment of little or no taxes. The AMT was meant to stop the super wealthy from using tax loopholes by making them calculate their tax liability twice.

So far, this doesn’t sound like a big deal since you’re not super wealthy. Think again. It’s been widely reported that since the 1970s, the number of people subject to AMT has drastically increased; from a couple of hundred people in the 70s to some estimate as high as over fifteen million in 2005. This means the definition of “super wealthy” has now become more like “average.” How did this happen? One explanation is the fact that many of the AMT exemption amounts haven’t been indexed for inflation. Thus even though the exemption threshold defined back in the 70s at around $40,000 equaled wealthy, some 30 years later this amount is very average.

Keep inflation in mind as the various health care bills make there long voyage to becoming law. Thanks to inflation you may be impacted more than you think.

Shannon King Nash is an Attorney, CPA, Author and Entrepreneur. She is the author of the award-winning book entitled, “For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth.” She uses song lyrics and entertaining stories ripped from the headlines to teach readers how to manage their finances and taxes. She’s been featured as a tax, finance and legal expert in Global Finance Magazine, Jet Magazine, Essence Magazine, Ebony Magazine, ABC News Online, Upscale Magazine, The Chronicle of Philanthropy, Bankrate.com, L.A.Parent Magazine and The Washington Times. Currently she can be seen on the cover of the April 2009 issue of Black Enterprise Magazine. In addition, she served as the finance expert on recent episodes of BET’s “The Center” and Style Network’s “Modern Girls Guide.” Shannon is a graduate of the University of Virginia School of Law.

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