Monday, June 14, 2010

The Coming Property Tax Revolt

Buried in the entrails of the reconciliation bill (H.R. 4872) that resulted in the passage of healthcare reform, is this insidious provision: Net investment income defined as “gross income from interest, dividends, annuities, royalties, and rents … attributable to the disposition of property” will be assessed 3.8% “Unearned Income Medicare Contribution”.

BusinessWeek estimates, “Overall tax rates on income from interest, annuities and royalties would rise to as much as 43.4%.” By taxing investment income, the new law launches an assault on capital formation and growth. It is also an ambitious reach by the federal government, beyond the current capital gains tax, into revenue sources heretofore reserved to the local communities: personal property.

Defenders of the tax will venture that it applies above the threshold income level of $250,000, therefore hits only the rich; but the fact remains that without indexing or other protections, the new tax may affect more Americans over time, just as Congress’ neglect will subject 30 million this year to the alternative minimum tax -- originally intended for only 155 taxpayers.

If an increasing number send a portion of the proceeds of the sale of their homes to Washington, the new Medicare “contribution” could be viewed as a broad property tax, and the seeds of conflict between local and the federal governments will have been sown.