On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act, also known as Obamacare. In addition to health care exchanges and a personal mandate to have health insurance, one of the most visible features of Obamacare is the 3.8% surtax on net investment income for wealthier taxpayers. This health care legislation mobilized great resistance and led to Republicans gaining dozens of seats in Congress and control of the House of Representatives in the 2010 midterm elections. “Repeal Obamacare” continued to be the rallying cry of Republican resistance to President Obama and the Democrats. The Republican-controlled House of Representatives voted dozens of times to repeal Obamacare.
When Republicans gained control of the White House, the House of Representatives, and the Senate after the 2016 elections, it appeared Obamacare’s days were numbered. Republicans in the House of Representatives, led by Speaker Paul Ryan, put together a replacement plan, the American Health Care Act, which would have removed the personal mandate and the 3.8% surtax on net investment income, as well as dismantling much of Obamacare.
The legislation was steered through committee after committee in the House. It was scheduled for a vote on Thursday, March 23, 2017, the seventh anniversary of the signing of Obamacare. However, the vote was pushed back to the next day to give time to solidify a majority. President Trump issued an ultimatum that this would be their only chance to repeal Obamacare. However, Republicans could not agree on the measure. So, minutes before a re-scheduled vote on Friday, March 24, Speaker Ryan pulled the legislation from consideration. So, the 3.8% surtax, and the rest of Obamacare, are here to stay, at least for now.
In this era of high drama, nothing seems certain anymore. Up is down and down is up. It appears that health care reform, which has confounded countless lawmakers over the decades, both Democrats and Republicans, has now been moved to the back burner. It’s not clear what will now take center stage.
But, at least for now, planning must take the 3.8% surtax into consideration. So, for wealthier taxpayers, those with income above $200,000 ($250,000 if married filing a joint return) the 3.8% surtax will be part of the analysis. This means that strategies to avoid or defer large gains, such as Charitable Remainder Trusts, will still be strategies to contemplate.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128