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Member Questions of the Week of April 26, 2010

Karl Jones of Allenhurst, GA asks: Will there be tax increases as a result of the Health Care Bill? If yes, will it be on the gross or net income? OUR ANSWER: Yes, there will be tax increases as a result of the Patient Protection and Affordable Care Act, though not all immediately or transparently. By 2019, taxpayers can expect the bill to have cost $503 billion. The bulk of payments will come from 3 main taxes: a new 40 percent tax on health insurance plans (effective 2018), an increase in the Hospital Insurance portion of the payroll tax (2013), and payroll taxes on investment income like capital gains (2013). Another controversial de facto tax increase takes effect in 2016 in the form of an individual penalty for not purchasing health insurance (the individual mandate). Also, employers with more than 50 employees will face a fine of between $2000 and $3000 per employee if health coverage is not offered. Employees will see their gross wages fall by the amount of the tax as employers struggle to pay the fine. Various other PPACA tax increases are also outlined in this Heritage Backgrounder.

Terry Courtwright of Charles Town, WV asks: Have the Bush tax cuts, set to expire this year, been extended by this Congress and signed by Obama? OUR ANSWER: All of the 2001 and 2003 tax cuts are still scheduled to expire at the end of this year. If Congress does not act soon, everyone will experience a huge tax increase. Under Mr. Obama’s plan, the top marginal tax rates would return to the Clinton-era levels of 36 percent and 39.6 percent, up from 33 and 35 percent. Capital gains rates, now 15 percent, would rise to 20 percent. If the Obama Administration wants to stimulate the economy, extending the tax cuts for all taxpayers would be a great way to do so. The 2003 tax cuts under President Bush were successful based on the Congressional Budget Offices 2006 assessment. Increased savings and investment helped create 5.4 million new jobs and unemployment remained low. The economic growth that resulted the tax cuts should not be forgotten especially in light of our current slow economic recovery.

Darrell Lee of Agoura Hills, CA asks: What does the General Welfare Clause mean? OUR ANSWER: The General Welfare clause gives Congress the power To lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States. This clause is not a grant of power to Congress (as constitutional law professor Gary Lawson has shown). It is a limit to a power given to Congress. It limits the purpose for which Congress can lay and collect taxes. Any other interpretation of the general welfare clause as a positive grant of power would mean that the other grants of power in Article I, section 8 are superfluous. For it would be silly to place a general welfare power in the Constitution, and then list specific powers such as the power to coin money, establish a uniform rule of naturalization, and establish post offices and post roads. Those would already be entailed in a broad general welfare power.

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