A report from the Heritage Foundation analyzes a proposal from the Obama Administration to apply the 2.9 percent Medicare tax to unearned income in high-earning households. The report finds that the tax intended to finance health reform would negatively impact the economic recovery.

From the report:

The new White House proposal to impose a Medicare tax on investment income would reduce demand for investment, which is the last thing that the economy needs right now. It would slow recovery, reduce employment opportunities, and hinder wage growth.

A dynamic macroeconomic analysis helps one see how this policy negatively affects all individuals in the economy, including the low-income individuals that the White House plan was designed to help. Analysis by The Heritage Foundation estimates that between 2011 and 2020, this proposal would:

• Result in an average of 115,000 lost job opportunities per year,
• Reduce productivity by an average 0.01 percentage points per year,
• Lose $1.37 in gross domestic product (GDP) for every dollar of additional revenue collected,
• Reduce household disposable income by $17.3 billion per year, and
• Reduce the stock of household real net wealth by an average $267 billion per year.

Full report: http://www.heritage.org/Research/HealthCare/wm2817.cfm

The Heritage Foundation. (2010). The President's health proposal: taxing investments undermines economic recovery. Campbell, K.; and Nell, G.