Health Care Tax Hike Debate: Good or Bad for the Economy?

March 23, 2010 — -- The historic health care overhaul and the taxes that will help fund it have reignited the age-old debate about wealth redistribution and trickle-down economics.

Some opponents of the plan argue that the burden it puts on high-income taxpayers and businesses will depress investment and drag down the economy.

The overhaul will include a new 3.8 percent Medicare payroll tax on some investment income for individuals earning at least $200,000 and couples earning at least $250,000.

The tax will "slow venture capital and investment, and it's going to have an impact on jobs overall," said Michael Tanner, a senior fellow at the libertarian CATO Institute. "If your return is lower, you're less likely to take risk."

High-earning individuals and couples will also see their Medicare payroll taxes on earned income increase by 0.9 percent to 2.35 percent -- an increase that critics say will lead to a decrease in spending by this group, which would also hurt the economy.

The tax changes are scheduled to take effect in 2013.

Health care overhaul supporters argue that the tax hike's economic consequences have been exaggerated. In the 1990s, the taxes on dividend income in particular were far higher than they are today, said Henry Aaron, a senior fellow at the Brookings Institution, the Washington D.C. think tank.

Yet that decade "was not exactly a period of entrepreneurial sloth," he said.

"I won't say decisions are completely insensitive to taxes," Aaron said, "but there's a large variety of other factors" that influence investors' behavior.

Health plan proponents trumpet the plan's fiscal benefits to individuals and families: By allowing millions of Americans access to health insurance and also eliminating lifetime coverage caps, they say, the plan could help many avoid bankruptcies caused by overwhelming medical expenses.

Among experts, arguments for and against the taxes included in the plan tend to break down on ideological lines, but how do high-earning Americans facing the tax hikes feel about the plan? ABCNews.com asked individuals earning at least $200,000 and those with joint incomes of at least $250,000 to weigh in. On the next page, find some of what they told us.-- J. Wilson, Minneapolis, Minn.

"I have no problem with the health care plan. It feels so good that we as a country can now work to improve upon what has been passed (just like we did with Social Security and Medicare). Thank goodness the Congress had the gumption to realize we are more than our selfish fears of higher taxes and bigger govt. Bring on the higher taxes if it helps the collective!"
-- Adrienne, Boulder, Colo.

"(I'm) resentful! It's an easy solution to tax the rich but it is not the answer. Our taxes have gone so high that we are being taxed out of home. Does that make any sense? I have always lived within my means but the government is taking that away from me."
-- Michelle, New York

"We do not meet this income level right now, but we are not far off. My husband and I both have college degrees and worked hard to get where we are financially and have not done it with handouts. My sister who even has a master's degree, recently quit a job with insurance and then chose to be uninsured. She had emergency surgery that was life threatening, and then had a $78,ooo hospital bill that now may be paid for through Medicaid. I have a real problem with taxing hard working responsible people to pay for the bad decisions of others. Free healthcare is not a right!"
-- Anonymous, Gastonia, N.C.

"Nobody likes paying more taxes. However, I would be happy to increase my tax burden if it meant that people who cannot afford health insurance (or who are denied coverage due to "pre-existing conditions") were granted it. I would feel immeasurably better still, and am willing to pay more for a measure that creates a public option. What we truly need is for insurance companies to face real competition for the first time, instead of allowing them to use monopolistic practices to drive up our premiums at will, while denying coverage to the most needy."-- Michael O'Conno, Tempe, Ariz.

"While right now I only make $100K, I'm finishing up my MBA from a top 20 business school and have an engineering degree. I am only 26 years old. $200K is within reach in the next 5-10 years."

"Quite frankly, I am vey upset about the tax. I didn't have many opportunities and worked myself out of my poverty. My parents couldn't help pay for college or anything else for me. So when I hear these stories about a new tax for healthcare for others, it angers me. No one gave me anything. Anything. To think that I'll be punished for future success is ridiculous."-- Charles Briggs, Marlton, N.J.

"My family earns higher than $200,000 a year. I know that this will result in us paying more taxes. However, if this means now that the uninsured will be insured and insurance companies can't turn away people with preexisting conditions, than we are ok with it. No person should ever die because they lack insurance. That's not the society I want to leave to my children."-- John Florez, Manhattan, N.Y..