One of the most discussed parts of Obama’s health care reform lately has been possible affects on the Medicare tax. Currently Medicare taxes are only taken out of payroll wages, but Obama has proposed levying Medicare taxes on investment income as well. CNN Money wrote a great, in-depth piece on the proposed tax, and what it would mean for Americans, checkout a section of their article below.
Since its conception, the Medicare tax has always been tied to payrolls. Every paycheck, employers and employees each chip in 1.45%, regardless of how much someone makes. Under Obama's proposal -- which should be very close to what Congress winds up enacting -- a Medicare tax would now be applied to investment income too: Individuals who earn more than $200,000 and couples over $250,000 would pay an additional 2.9% surtax on unearned income from interest, dividends, annuities, royalties and rents.
Two things happen here. The first one is that the Medicare tax would go from being a payroll tax (like Social Security) to an income tax.
"You can certainly make the argument that [payroll is] really not appropriate anymore and we may as well tax all income," says Howard Gleckman, a senior research associate at the Urban Institute and editor TaxVox, the center's tax and budget policy blog. "But this is kind of a back-door way to do it."