On Obamacare, Taxes, and Urban Legends

Posted by Ryan Ellis on Monday, October 25th, 2010, 3:26 PM PERMALINK

"Urban legends" come up in many spheres of life, including politics.  Unfortunately, several urban legends have cropped up recently in relation to the two-dozen new or higher taxes in Obamacare.  Sometimes, these urban legends are attributed to Americans for Tax Reform.  There's no need to make up new tax hikes--the dozens of them in Obamacare are quite enough.  This posting is to set the record straight on two urban legends we've seen a lot:

  1. "There's a new 3.8 percent Medicare surtax on home sales."  This refers to a new, 3.8 percent surtax on investment slated to begin in 2013.  This will be assessed on taxable capital gains, dividends, interest, etc. in households making more than $250,000 per year. 

    The reason this urban legend is misleading is because most home sales are excluded from capital gains taxation.  If a married couple has owned and lived in their primary residence for at least 24 of the 60 months prior to sale, they can typically exclude up to $500,000 in capital gains from taxation.

    Certainly some home sales will face this surtax, but it's not every home sold by any stretch.  It will in fact be a small fraction of all homes sold.
  2. "All workers will have to pay taxes on their employer-provided health insurance benefits."  This springs from an Obamacare provision which requires employers in 2011 (recently moved to 2012) to report the value of employer-provided health care on employee W-2 forms.

    There's no doubt that this is a setup for a future tax hike down the road.  But it's inaccurate to call this a tax hike in and of itself.  As it is, it's merely information reporting, and the JCT associated no higher tax revenues with it.

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