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Inside the ACA #4: Who foots the bill?

August 20, 2012

My last few posts on President Obama’s Affordable Care Act have gone into some detail about the potential positives of the law and who is likely to benefit. Unfortunately, it’s not all good news—far from it. There are some very real reasons to be concerned about how this law is going to be paid for and what the impact of the costs will be on the lives and finances every American, particularly those at the higher end of the income spectrum.

The estimated cost of this legislation is an extraordinary $938 billion dollars. The financial good news, such as it is, is that closing costly Medicare loopholes should finance nearly half the cost ($416 billion). Unfortunately, a significant part of the remaining cost will be picked up by taxpayers, most notably through a higher Part A tax on wages that goes into effect on January 1st, 2013. That tax rate rises by 0.9% (from 1.45% to 2.35%) for single people making over $200,000 a year, or couples earning over $250,000. That nearly 1% tax increase for high income earners accounts for another $210 billion of the program’s price tag.

Perhaps even more worryingly, 2013 will also see the unveiling of a much larger tax hike: a 3.8% surtax on unearned income for those same high earners. That tax applies to investment income, interest, dividends, rental income, capital gains, annuities and royalties. Needless to say, that is a relatively broad swath of income categories that will impact a large number of taxpayers. While the constitutionality may no longer be an issue, my suspicion is that the long-term economic ramifications of this legislation are significant enough—both for the nation and for many families and individuals—that the debate over who will pay for it is far from over.

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This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

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