This content is provided by the Americans for Tax Reform Foundation.

Current Law

Investors enjoy low tax rates on investment income that were enacted by Title III of the 2003 tax relief bill (JGTRRA). Qualified dividends and long-term capital gains are taxed at a maximum rate of 15%, and investors in the 10% and 15% income tax brackets pay no tax at all.

Scheduled Change

The Health Care and Education Reconciliation Act of 2010 — which amended the Patient Protection and Affordable Care Act — created a 3.8% surtax on investment income applicable to filers who both earn investment income and whose Modified Adjusted Gross Income (MAGI) exceeds certain threshold limits: $250,000 for married couples filing jointly and $200,000 for single filers. These filers will owe the surtax on the lesser of the following: 1) the amount of their investment income, 2) the amount that their MAGI exceeds the set threshold.

ATRF Analysis

The Obamacare tax on investment income takes effect at the exact same time that the capital gains and dividends rates (upon which the investment surtax is added) ratchet upwards, effectively dog piling investors with simultaneous tax increases. With the surtax added, the top effective rates for dividends and capital gains will become 43.4% and 23.8%, respectively. According to one source, investors could see their tax liability increase over 200% between 2010 and 2013.

The administration has euphemistically called this a new tax on “unearned income,” to hide the fact that it is a $123 billion drain on much-needed capital and the act of investing. This move will have negative economic ramifications, leading investors to sell assets in late 2012 (as some financial advisors are already counseling their clients to do) and to avoid new investments after 2013.

Whatever you call it, the Obamacare surtax on investment income is ultimately $123 billion in new revenue to abet the government’s spending addiction. More fuel should not be added to the fire.

10-Year Cost to Taxpayers

$123 billion

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