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3:40pm December 29, 2012

Happy New Year! (Now Enjoy Your New Taxes)

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As most of us are thrilled to be receiving our new free healthcare plans (wait, do you have free healthcare yet?), few of us have realized the economic effects that have resulted.

That’s because, for the most part, we have yet to feel the brunt of the penalties and fees that are set to go into effect to pay for the Affordable Care Act.  If you think paying for Obamacare is going to be as easy as breaking up a Kim Kardashian relationship, you have another thing coming.

In 2013 alone, taxpayers will pay an additional $36 billion to fund Obamacare.  Will you feel any of it, or will the brunt of the new taxes and fees fall on the shoulders of a small percentage of wealthy individuals?

The increased Hospital Insurance (HI) payroll and investment taxes are the hardest hitting in the new year.  Directly, the tax will affect families who earn a combined $250,000 or more a year ($200,000 alone), but indirectly it will affect our entire economy.

Don’t get me wrong $250,000 is a lot of money.  I’m not one of those who will try to explain how it’s hard to get by in New York City on $250,000.  If you can’t do it, perhaps it’s time you called into a Suze Orman infomercial.

However, those earners will have taxes increased on their income from both payroll and through investments at around 3-4%, which will be at least $8,000 per year.  Several negative repercussions will follow.

First, that’s $8,000 they would normally either save or spend.  If saved, it would be lent to small businesses that will invest, grow, and create jobs.  If spent, a business will use that money to pay workers, invest, grow, and create jobs as well.  Whether spent or saved, it will go back into the economy.

Second, frankly, there are so many loopholes that someone of this income can afford to investigate and implement that many economists doubt the revenues will be as high as expected.  Many will be incentivized to reduce their income below $250k to avoid the tax altogether, or they will find a way to receive compensation through other means.  Where there’s a will (and the means) to avoid taxes, there’s generally a way.

The same goes for investment income.  Since the tax will only be on capital gains and dividends, investors will avoid these types of investments, reduce their investments, or have new buy and sell strategies based on current tax policy.  I recently discussed how the disproportionate tax on dividend income effectively gives the government carte blanche in choosing business winners and losers.

I haven’t even begun to discuss the effect on small businesses.  The majority of small businesses in this country file as sole proprietors, due to the ease and cost to establish, and are taxed the same as individuals.  When a business earns revenues of $250,000, it does not mean the owner takes that much to the bank.  Most businesses, especially small and growing startups who employ the vast majority of new jobs in this country, use most of that money to reinvest in their businesses in order to expand and grow, leading to more jobs.

$8,000 is enough to hire a new part-timer at your bakery or corner store.  Multiply that times the number of bakeries and corner stores around the country and you might find thousands and thousands of potential jobs lost due to the new tax.

In truth, however, we’re not talking about $8,000.  Billions and billions of dollars will be removed from business and individuals that could be reinvested into our economy.  Hundreds of thousands of people will continue to be without work partially due to the new taxes.

But, at least they’ll have health insurance.

JUSTIN VELEZ-HAGAN is Senior Contributing Writer and Commentator for Politic365.com.  He is also an Adjunct Instructor of Economics at the University of Maryland-University College and the National Executive Director of The National Puerto Rican Chamber of Commerce.  He can be reached at Justin@Politic365.com.



About the Author

Justin Velez-Hagan
Justin Vélez-Hagan is Senior Contributing Writer and Commentator for Politic365.com. He is also the National Executive Director of The National Puerto Rican Chamber of Commerce, an international developer of senior living facilities, and is a reservist in the U.S. Air Force. He can be reached at Justin@Politic365.com.




 
 

 
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5 Comments


  1. [...] Originally published by Politic365 here.  [...]


  2. Elections have consequences…


  3. Meanwhile, over on the Senate side, Republican leader Mitch McConnell and President Barack Obama were haggling on how best to avoid the $109 billion in cuts to defense and domestic programs that were set to take effect Wednesday.


  4. Yes, at least they will have healthcare. Overall, a huge savings for all of us in the long-term.



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