The Washington Update from Andrew Friedman
Published: May 16, 2012
If the Supreme Court rules that the health care reform law is unconstitutional, will the new 3.8% tax on investment income nonetheless take effect next year?
Last month, the Supreme Court heard oral arguments on the constitutionality of the health care reform law’s “individual mandate”, which requires Americans to have health insurance or pay a penalty. The Court is expected to render its verdict in June.
The health care reform law is financed in part by a new tax on investment income scheduled to take effect in 2013. Beginning next year, families whose overall income is above $250,000 (individuals with income over $200,000) will pay an additional tax of 3.8% on taxable investment income such as interest, dividends, capital gains, rents, and royalties.
If the Court strikes down the entire health care reform law, then the 3.8% surtax, which is part of that law, presumably would not take effect. If, however, the Court invalidates only a portion of the law — such as just the individual mandate — then the 3.8% tax will go into effect next year. In that case Congress at some point presumably will have to revisit the law to determine whether the health care reform regime still works. But Congress is unlikely to do so in an election year — and, given the contentious nature of health care reform, may not agree on changes for quite a while afterward.
Of course, it is impossible to predict the outcome with certainty without reviewing the final opinion from the Court.
