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DEROY MURDOCK: Obama's Medicare tax takes deep bite

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March 9, 2010

By Deroy Murdock

Scripps Howard News Service

U.S. companies are gasping for cash like beached fish fruitlessly flapping their gills. Rather than help these firms find financial oxygen, President Obama would accelerate their asphyxiation.

Specifically, Obama's Feb. 22 health reform proposal would sic the 2.9 percent employer-employee Medicare tax onto "income from interest, dividends, annuities, royalties, and rents." This spanking-new investment-income tax would slam individuals who make more than $200,000 and north of $250,000 for married couples.

This 2.9 percent tax may sound picayune, until its 10-year cost emerges: $234 billion -- Americans for Tax Reform reckons -- or $334 billion, if it smacks capital gains.

So while unemployment hovers near 10 percent, and the economy reeks of a relentless hangover, Obama would vacuum up to one third of a trillion dollars from the productive sector and pump it into an increasingly hated entitlement scheme.

Every dollar that "ObamaCare" would suck out of investors is one fewer dollar that could help fund a new patent application, charter a new company, hire a new sales representative, or export a new product.

Investors who face diminished returns on capital will spurn potential opportunities. This new tax will frustrate those whose promising innovations lack financing.

These negative repercussions would reverberate beyond the "idle rich" who supposedly fan themselves with dividend checks between swings of their croquet mallets.

"With a less productive economy, there would be fewer job opportunities," predict the Heritage Foundation's Dr. Karen Campbell and Guinevere Nell. "Thus, wages and salaries are estimated to fall by an average of $14 billion per year nominally." They add: "Taxing the investment income of high-income individuals is estimated to reduce the economy's potential by an average $10.2 billion per year. That is $102 billion of real accumulated lost opportunities over 10 years."

Heritage's analysts further forecast that this "ObamaCare" tax would "lose $1.37 in gross domestic product (GDP) for every dollar of additional revenue collected."

Obama's policy of capital deformation could not be more ill timed. Weary entrepreneurs and managers are scrounging for cash as billions fester on the sidelines.

Obama also would slap a $22 billion tax on pharmaceutical companies, atop their existing 35 percent corporate tax liability. Democrats relentlessly rail against the "greed" of Merck, Novartis, and other drug companies.

Obama's plan similarly would stick a senseless $19 billion tax on medical-device makers, heretofore hailed for creating prosthetic limbs, insulin pumps, pacemakers, and similar life-enhancing and life-saving technologies.

"We should be focusing our efforts on policies that will promote innovation, patient care, and job creation in the US," Medical Device Manufacturers Association president Mark Leahey told the Utah Technology Council. This new tax, Leahey added, "will result in companies laying off employees, moving jobs outside the US, cutting research and development, and slowing the introduction of breakthrough therapies."

Washington Democrats should stop smothering American enterprise. These $375 billion in new taxes may brighten "ObamaCare's" balance sheet. But they cannot simultaneously finance the productive, job-launching activities of those from whom this cash would be squeezed.

(Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University. Contact him at deroy.Murdock(at)gmail.com)

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