Senate Republicans’ Better Care Reconciliation Act contains many provisions that cut taxes on some of the most affluent households in America.
The single biggest tax cut of the bunch applies exclusively to individuals earning more than $200,000 a year or married couples with combined incomes of more than $250,000. It’s a 3.8 percent tax on net investment income (basically capital gains or dividends) that applies only if your total income is over those threshold points.
But not only does the bill repeal that tax, it repeals it retroactively, to give rich families a tax break on investment income accrued earlier this year as well as investment income going forward.
The dollar amount involved in the retroactivity provision isn’t all that large in the grand scheme of things, but conceptually it’s very significant. That’s because there are two basic reasons one might object to the net investment income tax.
One is what you might call the moral objection. Some people believe that, morally speaking, it is wrong that rich American families have so little money. The country would be a better, more just place if Congress acted with more concern for the interests of the wealthiest among us and made sure the incomes of the highest-income families went up.
The other is what I’d call the growth objection. Some people believe that, economically speaking, taxes on investment income hurt almost everyone’s interests in the long term. Lower taxes on investment income will lead to more investment, and ultimately more jobs and growth.
The key thing here is that there’s absolutely no reason to think a retroactive tax cut will boost job creation and growth. You’re essentially increasing people’s incentives to travel back in time and create jobs earlier in the year. Or, rather, you’re not increasing anyone’s incentive to do anything. You’re just shoveling money into the pockets of the least needy families in the country.