Obama targets rich to fund health care

It’s probably never a bad time to be rich. But the good times for America’s wealthy could soon be a little less so.

President Obama wants to boost income taxes for the wealthy to pay for tax cuts for everybody else. He wants to limit the deductions that high-income families take for mortgage interest and charity contributions to help pay for providing more people with health insurance.

Meanwhile, House Democrats are planning to hit the wealthy with even higher income taxes to pay for their version of a health care overhaul.

Between the plans, a family of four with an income of $5 million a year would see its annual income taxes skyrocket by more than $440,000. A similar family making $800,000 a year would get a tax increase of $30,000, according to an analysis by the financial services firm Deloitte Tax.

“I still think being wealthy is better than being poor,” Clint Stretch, who heads tax policy at Deloitte Tax, said with a touch of understatement. “But this is a pretty high proposed tax burden.”

Taxing the rich to pay for health insurance would represent a significant departure from the way Americans have financed their safety net in the past.

Both Social Security and Medicare are supported by broad-based payroll taxes. Although the rich pay more — they have bigger incomes — the burden is shared by the middle class and even the working poor.

By contrast, the health care plan working its way through the House would impose $544 billion in new taxes over the next decade on just 1.2 percent of households — joint filers making more than $350,000 a year.

The bill would impose a new 5.4 percent income surtax on couples making more than $1 million a year, starting in 2011. Couples making more than $350,000 would have to pay a surtax of 1 percent, and for those making more than $500,000, it would be 1.5 percent.

If certain savings in the health care system are not achieved by 2013, the surtax would rise to 2 percent for families making more than $350,000 and to 3 percent for those making more than $500,000.

For a family of four making $450,000 a year, the initial tax increase would be $1,000, according to the Deloitte analysis. But for the super rich — a single filer making $5 million a year, for example — the tax increase would be $452,000. The analysis assumes a typical mix of earned income, capital gains and itemized deductions for each income level.

Democrats say that for most of the affected taxpayers, the surtax would be far smaller.

Mr. Obama has tried to make the rich a popular target for tax increases as Democrats struggle to find ways to pay for his plan, intended to assure that virtually everyone gets health care. He regularly portrays the wealthy as big winners under President Bush, noting that their taxes dropped and incomes soared during Mr. Bush’s eight years in office.

“I think the best way to fund [health care] is for people like myself — who have been very lucky — to pay a little bit more,” Mr. Obama said recently.

The argument, however, omits the fact that Mr. Bush also cut taxes for middle- and low-income people. Their incomes didn’t jump as much as they did for the wealthy, but effective federal tax rates for middle-income and low-wage workers are at or near 30-year lows.

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