Health Bill Would Add 3.8% Tax on Investment Income

http://www.businessweek.com/news/2010-03-18/health-bill-said-to-add-3-8-medicare-tax-on-unearned-income.html

by known • 16 years ago

13 48 16 years ago

raganwald• 16 years ago

What are the startup or hacker implications?

blasdel• 16 years ago

Less worrying about staying insured if you quit your job to found a company, which is a huge barrier for a lot of people (especially with dependents).

More wanking over "oh noes I might not invest in your startup now that my payday would be taxed slightly more", followed by handwringing about a perceived slide into socialism, but nearly no change in investment behavior. Maybe a few people cash out earlier than they would have to avoid the tax increase.

Xichekolas2• 16 years ago

Wanking is a good word for it. I've never understood how people looking for upside measured in the hundreds to thousands of percent can complain about a 3.8% tax with a straight face.

If you invest $100k in a startup, it goes well and you walk away with a million ($900k profit), are you really going to cry when the tax man comes and gets his $34,200? I guess you might, but it didn't suddenly make the investment not worth it.

Then again, those people aren't likely the ones complaining. It's the people who have a hypothetical model in their head of what "investors" are like and want to use it as a talking point to attack health care reform.

tptacek16• 16 years ago

A day-long argument between otherwise very intelligent Hacker News denizens on different sides of the political aisle, who would otherwise be arguing about 37signals vs. Mahalo or JSON vs. XML.

yardie• 16 years ago

37signals > Mahalo, JSON >> XML. So what's the debate?

hzlz3• 16 years ago

It may be because I am currently dealing with a tax error that's causing a nightmare from a previous startup, but I feel like the government keeps saying to me through all these complicated tax rules and increases, "Please don't do another startup. Please don't build things for people or create jobs. Yeah, we'll let you, but we'll make your life a huge annoyance if you try."

I like to hack and I like building things for customers, but last week I spent most of the week filling out government forms. Another 3.8% on investment income (plus the proposed 5% cap gains increase for a total of 8.8%) won't kill me, but it's starting to feel like the straw the broke the camel's back. I'll probably do the next startup. At the same time, I angel invest in 3-4 companies a year. I like to find kids who were like me at some university labs, invest in their ideas, and what them create cool companies. I may give that up.

Since this isn't a political forum, I won't say which side I'm for. But I will say that I'm angry at both sides for the $1T giveaway to the investment bankers and now to the way the CBO numbers have been gamed.

(tmp acct, b/c I don't want to discuss my tax issues under the regular acct)

tptacek16• 16 years ago

How is the government asking you not to create jobs? I'm unclear on that.

kiba2• 16 years ago

The health care bill would seem to increase demand for healthcare services without actually increasing supply for healthcare.

Doctors takes years to train, drug trial are still expensive, amongst other thing.

All what we're doing is adding million of individuals into the healthcare system without balancing the supply side equation.

It would also seem to treat health care insurance as a sugar daddy of healthcare, instead of being treated as a mechanism that reduce risks through incentive and such. This make insurance companies big juicy targets for healthcare providers. If people were to spend their money on the daily cost of healthcare, they would be more conscious of the cost, thus use it only as neccesary. Insurances would only be used in high cost emergency measures such as cancer and other diseases, which are preventable and can be reduced by individuals.

This reduce the demand for healthcare and give people incentives to lower their cost their healthcare cost through insurance's discounts, thus less strain on the supply of healthcare.

The taxation scheme also rob people incentive of saving for emergency measures, an alternative or complement to insurance spending, which may have the side effect of impacting long run productive growth or simply maintenance of current productive capacity(Capitals need to be maintained or replaced), as saving are in effect fund the production of capitals, which eventually lead to consumer goods and services.

tptacek16• 16 years ago

Those millions of individuals are already in the health care system. The primary impact of the bill seems to be whether their contact with the system bankrupts them or not. Either way, the hospital isn't getting $3,500 for the MRI they just ran.

Your concerns all seem very reasonable. In particular, the distortion of the concept of "insurance". But, two things.

First, that distortion already took place. Providers and insurers have spent the last two decades colluding on pricing and process in ways that transformed Blue Cross from an insurer to a poorly-regulated utility.

Second, your concerns are orthogonal to the debate. We should train more doctors, and we should create more tiers of service (nurse practitioner clinics in particular). That has little to do with whether we should allow de facto monopolies to lock consumers out of the healthcare market.

mattchew5• 16 years ago

The health care bill takes this to a whole new level, and then sets it in stone.

Insurance and health care delivery was already a mess in the U.S. But prior to this bill, we might have evolved or legislated some solution that was not a stupendous giveaway to Blue Cross and Aetna. Too late now. They will never give up the privileges they get today. They get to be toll collectors on our outrageously overpriced health care system forever.

Meanwhile, I read articles with people celebrating because they think this bill protects them from the health insurance industry. It's all just too depressing.

jraines• 16 years ago

I have deliberately not followed this debate because I feel like it would take a lot of reading to really form a nuanced and correct opinion on it, which would then be useless because in most arguments you'd be facing a talking-points opinion (from either side).

With that being said, it seems to me that it's not increasing demand, but helping meet unmet demand. I'm a really high risk for skin cancer. If getting insured incentivizes me to get more regualar checks at a dermatologist, that's likely to save the system money over the long run. This isn't me falling to moral hazard.

The moral hazard in the system is for doctors and hospitals. My dad is a doctor (opposed to the bill, btw) but his main complaint is always about other doctors coding things like nasal congestion up to an unscrupulous level to pad their take from insurance companies. And don't get him started on hospitals.

Maybe that's something opponents of the bill are aware of and opposing. Maybe the bill does nothing to fix that. But don't blame patients for making rational choices regarding healthcare based on whatever system they find themselves in. Anyway, there's my uninformed opinion without much of a point :-P

kiba2• 16 years ago

Insurance companies, when not treated as healthcare sugardaddies, do not like paying for high healthcare as they want to make more money. They may give you discounts for going to more check up more, to reduce demand for their service later. If you can detect cancer earlier, than you may able to avoid higher cost cancer treatment later as well continue to be a source of revenues to the insurance company. Insurance companies don't make money off dead people, I think.

rdl6• 16 years ago

This is going to hurt startups. (the health care part is theoretically nice, but offset by the tax implications)

Short-term capital gains will be 15% (Fed) + 5% (Fed Increase in 2011) + 3.8% (this) + 10.3% (California). 34.1% capital gains!

This does not compare favorably to anywhere else in the world. For a CA startup founder, capital gains are going to be 1.5-3x higher than most countries.

This is an issue primarily because (half?) of US startups are founded by immigrants. At some point, it becomes more attractive for an immigrant to go to Vancouver, BC (21.5% tax rate, much easier immigration process, better quality of life than SFBA) or even to remain in India or China. The tax advantages might also push for Hong Kong or Singapore startups, with 0% capital gains and very low income tax.

A big number minus 34.1% is still better for an exit than a much smaller number minus a small percentage, but California is definitely not the only place to do a startup.

tptacek16• 16 years ago

Do you see this hurting startups in some way other than reducing immigration?

I think it will help startups, by allowing small shops to bootstrap without having to surrender health insurance for themselves and for their families.

rdl6• 16 years ago

I think the combined CA + US tax burden might reduce marginal angel investments. It probably won't affect VC investments, but doubling my tax burden on a win means I'd need to double the odds of a win, or the size of the wins, and that might not be feasible as an angel, who could otherwise spend the money on a new boat.

I am unconvinced the health care result of this will be good enough for someone with a family to be comfortable going on relatively inexpensive insurance.

As a healthy, single, 20-40 year old guy with no risk of children, I'm fine with an $80/mo catastrophic plan, and I suspect a lot of people starting startups are the same, or have health care from a spouse's job. A single parent is not in a great position to do a startup for a lot of reasons, and someone with a lot of chronic health issues requiring expensive medical care probably isn't either.

antpicnic• 16 years ago

Move to Seattle. Washington state has no income tax or capital gains tax.

rdl6• 16 years ago

I live in Seattle (except I am in Kuwait)

WA kind of sucks for tech businesses due to the B&O tax, which is a gross receipts tax. This doesn't hurt you until you have revenue, but if you're a low-margin business with huge revenue, it means you suffer, even if you're not profitable. (it's something like 0.5% on gross revenue).

NV is probably the best somewhat-viable-for-startup state (Las Vegas or Reno), but I'd rather live in Seattle, Portland, or SF if in the USA.

I kind of prefer Vancouver, WA for a tech startup, too, because then you can take advantage of the huge unemployed market of early-20s developers who moved to Portland, OR for lifestyle reasons, plus all the HP/Intel/etc. talent.

There are a lot of factors other than taxes which affect an individual startup, but taxes affect new business creation in aggregate.

glifshitz2• 16 years ago

What if you moved to a different state to find a smaller than 10.3% tax in US?

leelin• 16 years ago

I thought short-term gains were taxed with rates similar to ordinary income. Do you mean long-term capital gains?

rdl6• 16 years ago

LT Capital Gains are taxed at 34.1% in California once this bill passes. 15% + 5% 2010 increase + 9.3% CA + 1% CA Mental Health + 3.8% Health Care capital gains.

ST Capital Gains will be taxed at 39.6% top income bracket + 5% surcharge + 9.3% + 1% + 3.8% once this bill passes. 58.7%. (A $20m sale of a startup in less than 12 months start to finish is kind of unrealistic, but you could easily be a mezzanine investor, or could have operated a business for a long time before formally doing stock, so it is possible, if not likely for an actual entrepreneur)

The correct thing in both of these cases is probably to hold and write options or something against stock, to avoid realizing the gain, and hope that somehow tax rates rationalize in the future.

20-25% all-in capital gains is probably the limit before it seriously disincents investment.

Health Bill Would Add 3.8% Tax on Investment Income

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