Thursday, March 25, 2010

Brownback Amendment (#3697) Indexing Investment Tax for Inflation

Below please find a summary from my colleague Jon Lieber regarding the Brownback amendment (#3697) indexing the investment tax to inflation…


Senator Brownback is expected to offer this morning an amendment #3697 to index the new investment tax for inflation.  Please note this is subject to change.


  • Section 1402 of the reconciliation legislation adds a new 3.8 percent tax on investment income for Americans whose AGI is above $200,000 if single and $250,000 if married.
    • Investment income is defined as interest income, dividends, annuities, royalties, or rents, business income derived from a passive activity, and net capital gain unless derived from disposition of property held in the ordinary course of business.
  • This tax is not indexed for inflation, so more and more Americans will become subject to the tax on their investment income over time, just like the Alternative Minimum Tax.
  • This tax raises $123 billion over ten years, and was included to fill the revenue hole left when Democrats scaled back the high-cost plans tax at the behest of unions.
  • Brownback #3697 would index these thresholds for the cost-of-living-adjustment that applies to all other income tax bracket thresholds, CPI inflation.


Without an inflation adjustment, Democrats have created in this bill another Alternative Minimum Tax (AMT).  The AMT was originally created in the late 1960s to apply to a very small group of wealthy taxpayers who were believed to not pay any income tax.  Since it was not indexed for inflation, as incomes grew the AMT became a burden on more and more middle class families.  Because of this, Congress now has to act every year to “patch” the AMT so it doesn’t hit the middle class – when Congress is forced to do the same with this new investment tax in 20 or so years, this budget gimmick will expose that the health reform bill is significantly worse for the deficit than Democrats claim it is.

Brownback #3697 gives Congress an opportunity to prevent the same mistake it made in the 1960s.

The investment tax is a permanent new tax on capital gains and investment income – along with taxes on income, taxes on savings are among the most damaging taxes for long-run economic growth.

Brownback #3697 would help to mitigate the harmful economic and social impact of what the Wall Street Journal called “ObamaCare’s Worst Tax Hike.”