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Ending Obamacare would be a big tax cut for the rich

Posted November 7, 2020 3:50 p.m. EST

— Wealthy Americans would enjoy a big tax cut if the Supreme Court overturns the Affordable Care Act.

That's because the landmark health care law included two taxes levied specifically on higher-income folks. Those would disappear if Obamacare comes to an end.

The Supreme Court is scheduled to hear oral arguments Tuesday in a case that could decide the Affordable Care Act's fate. A coalition of Republican state attorneys general led by Texas and joined by the Trump administration are arguing that the individual mandate is unconstitutional because Congress reduced the penalty for not having health insurance to zero as part of the 2017 Republican tax cuts -- and that, as a result, the entire law must fall.

As part of the Affordable Care Act, which was enacted 10 years ago, the wealthy were hit with a 3.8% tax on net investment income -- including interest, dividends and capital gains -- and a 0.9% Medicare tax on wages. Both are levied only on individuals with modified adjusted gross incomes above $200,000 and on married couples with incomes above $250,000. And both apply only to income above those thresholds.

Overturning the law would provide a substantial tax cut for the rich, said Gordon Mermin, senior research associate at the Tax Policy Center, a nonpartisan think tank.

If the net investment income tax disappeared, those in the top 1% would pay $20,250 less in federal taxes a year, on average, and see their after-tax income rise by 1.2%, according to the center's calculations. Those in the top 0.1% would get a tax break of roughly $133,500 and enjoy a 1.8% boost in their after-tax income.

Meanwhile, ending the additional Medicare tax would mean a $7,120 tax cut for the top 1% and a roughly $26,500 reduction for the 0.1%. Both groups would see a bump in after-tax income of 0.4%.

Those in the top 1% have incomes above $788,000 and those in the top 0.1% earn more than $3.5 million a year, according to the center.

In addition to levying taxes on the rich, the Affordable Care Act has had a widespread impact on the nation's health care system. It has brought coverage to about 20 million Americans, allowed children to stay on their parents' health plans up to age 26 and provided free preventive care and contraception to millions of people, among other provisions. Among its most popular measures are its strong protections for those with preexisting conditions.

The court is expected to issue its decision in the first half of 2021.

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