New “Fees” on Investments…and Not from Mutual Funds

Beginning in 2013, the recently passed health care reform bill will impose new Medicare  taxes on unearned income for single filers with adjusted gross incomes of  $200,000 a year or more and joint filers with AGIs of $250,000 a year or more.  The new 3.8 percent will apply to any rent, royalties, dividends or capital gains above those income thresholds.  This is in addition to regular capital gains and dividends taxes.  In a new brief analysis, I show the implications of the Medicare tax as well as Obama's proposal to raise the capital gains tax for high-income earners (better known as the “wealthy”).   The bottom line is that these taxes will have the potential to reduce the after-tax rate of return on an investment by nearly one percentage point, or more than 10 percent.

As much as I hate using cliches, this is a prime example of the pot calling the kettle black.   For at least two years now, there has b

een a steady drumbeat from George Miller (D-Ca.), chairman of the House Committee on Education and Labor, calling for more clarification of fees on 401(k) plan mutual funds.  Why?  Because mutual fund fees have the potential to gobble up 401(k) plan assets, ultimately lowering an investor's  rate of return.   While it may or may not be true that fees are excessive, more competition, not more regulation, is the answer.  (Save that debate for another day).

So where am

I going with this, you might ask?  Simple…here is a Congressional committee wildly concerned about fees that are reducing the investment returns  of hard-working Americans, while the Obama administration signed a bill that will essentially do just that — reduce the investment returns of hard-working Americans by imposing a “fee” (new Medicare tax) on capital gains.   Like mutual fund fees, this tax will reduce the rate of return on any capital investment.   Does anyone on Capitol Hill have an answer to this?


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