ACA Taxes Generate More Revenue Than AMT

Annette Nellen

In reviewing some IRS stats for 2014 returns, I was surprised to see that two taxes added by the Affordable Care Act (Obamacare), generated more revenue in 2014 than was generated from the individual AMT. Here are the stats:

Net Investment Income Tax (NIIT)
   (3.8% §1411 tax)
$22.5 billion
Additional .09% Medicare tax $7.3 billion
  Total $29.8 billion

As opposed to the Alternative Minimum Tax (AMT) = $28.6 billion.

For 2013 returns, the AMT generated $4.6 billion more than the two ACA taxes.

[IRS 2014 stats, Figure E on page 27]

These ACA taxes only apply to individuals with income over $200,000 if single or over $250,000 of income if married. The AMT applies to individuals with over $52,800 of income if single and over $82,100 if married (and if they have sufficient preferences and adjustments such as state tax deductions and mortgage interest on a home equity debt or incentive stock option income).

The AMT threshold amounts are adjusted annually for inflation while the NIIT and Medicare tax thresholds are not adjusted.

Data from the Tax Policy Center estimates that for 2016, only individuals in the top 10% paid the NIIT. They estimate that if the NIIT were repealed for 2016, the average benefit to individuals in the top 1% of income level would save on average almost $24,000. I’m glad to see they break that down further to show what the top 0.1% benefit because not only do we have an income gap between the top 10% of income earners and the bottom 90%, but there is a big gap within the top 1% for the top 0.1% and the other 0.9% in that top 1%. The benefit of repeal for the top 0.1% is about $154,000 per year. [Tax Policy Center, T16-0169, 8/16/16]

So, if Republicans repeal Obamacare, how will they address not only the increase in uninsured but the loss of about $30 billion of revenue per year? Don’t be surprised if they keep the tax (at least until tax reform occurs) or they phase it out over a few years to reduce the revenue loss impact.

We’ll see.

What do you think?

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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