Vail Daily letter: Get your facts straight
May 5, 2011
In response to Mr. Butler’s letter of April 26 entitled “Obama’s Promises”:
Ever since Obama was elected president, substantially all of Mr. Butler’s letters have been factually unverified and/or distorted rants against anything the Obama administration has done. Even the quotes he uses are too often out of context with respect to the subject matter and/or the timing of the quoted statement. In a prior letter to the editor I used the saying (source unknown, possibly Cyril): “You are entitled to your own opinions, but not your own facts.”
Before Mr. Butler writes his next letter, it might serve him well, and certainly anyone who reads his letters, to read this saying 20-30 times before sending his next letter in. His current letter provides too much to respond to in this reply, thus I am going reply to only one portion/issue, as I believe it to be to more important as well as the most factually distorted and legally incorrect issue he has offered, to wit:
“A little-known provision in the health care act that was signed into law by Mr. Obama in fact imposes a 3.8 percent tax on unearned income, (this is actually in a separate bill) including sales of single family homes, townhouses, co-ops, and condominiums.” (This statement is misleading and incorrect.)
“In fact, the act levies upon the American taxpayers over $500 billion in new taxes over the next 10 years in addition to the 3.8 percent tax imposed on the sale and transfer of real property holdings.”
“This 3.8 percent surcharge against real estate takes effect on Jan. 1, 2013, and will be devastating to the equity savings of the American middle-class whose base wealth is tied up in their homes, notwithstanding the fact that the majority of those homeowners make less than $250,000 per year.”
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This canard advanced by the right wing, has been around for some time. This letter is as inaccurate, misleading and incorrect as was a letter written last year by Mr. Butler in which he stated in part: “Congress and the president of the United States artfully and surreptitiously inserted a provision in the health care bill that allows Muslims and/or their employers to exempt out of the mandatory provisions of the bill requiring the purchase of insurance by simply establishing that religious affiliation to the IRS, and in turn procuring a certificate of exemption,” to which I responded in detail laying out his numerous inaccuracies and misrepresentations.
Here are the facts and the relevant law: As a result of the passage of the health care act, a new section was added to the IRC, “Chapter 2A, Unearned income medicare contribution, Section 1411, imposition of tax.” This section is actually a part of a separate act titled the “Health and Education Reconciliation Act of 2010 Public Law 111-152 (H.R. 4872).” This act does impose a 3.8 percent Medicare tax on “net investment income” or an upon an individuals modified adjusted gross income (AGI) if this income exceeds the “threshold” amount of $200,000. For married couples filing a joint return, the threshold amount of the AGI is $250,000. Net investment income (NIC) is passive income, i.e., not income earned from a trade or business. Thus it is not imposed on all earned income. NIC is generally defined as income from interest, dividends, annuities, royalties, the trading in financial instruments or commodities and some rents; i.e., if your business is renting houses or buildings, etc., it is not included. It may include gain/income from the sale of nonbusiness property, which I will discuss below.
This Medicare tax is not a sales tax and it does not apply to all real estate transactions, as Mr. Butler has falsely led one to believe. It is not intended to be and it is not a tax on middle income earners as Mr. Butler incorrectly alleges. This tax is aimed at the so-called “high earners” and it may affect the top 2-5 percent at most. One of Mr. Butler’s few accurate statements is that this bill will take effect on January 1, 2013.
With respect to the sale of certain specific real estate, the relevant section of the U.S. Code, Title 26, Section 121, “Exclusion of gain from sale of principal residence,” is more significant and applicable.
With some minor exceptions, every individual is entitled to a $250,000 exemption or $500,000 exemption if filing jointly, from any gain/profit from the sale of their principal residence. If the gain is greater than the $500,000, the 3.8 percent tax will apply to any amount/gain over the $500,000 only. The great majority of people who sell their houses (95-98 percent) will not be affected by Section 1411. The few who are, can afford this small tax which will have no impact on their lifestyle, whatsoever, let alone a “devastating” impact.
According to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau in a joint release (April 25), the median sales price for single-family homes for the U.S. was $213,800 and the average sales price was $246,800. The National Association of Realtors Median Sales Prices for homes for the last quarter of 2010 for the US was $240,400. The median sales price for Boulder was $355,000 and for the Denver-Aurora area was $229,800.
Thus, Mr. Butler’s unsupported and unsupportable opinion that “this 3.8 percent surcharge against real estate takes effect on Jan. 1, 2013, and will be devastating to the equity savings of the American middle-class whose base wealth is tied up in their homes … ” is simply wrong. We will all be better off if Mr. Butler researches his facts, without bias and more carefully and thoroughly before he asks that they be printed for public consumption.