President Joe Biden on Tuesday proposed raising taxes on Americans earning over $400,000 per year, and granting the government new power to negotiate prescription drug prices as part of an attempt to keep Medicare afloat for the next two decades.
“The budget I am releasing this week will make the Medicare trust fund solvent beyond 2050 without cutting a penny in benefits,” Biden(‘s team) said in a Tuesday op-ed in the NY Times shortly before the announcement. “In fact, we can get better value, making sure Americans receive better care for the money they pay into Medicare.”
“If the MAGA Republicans get their way, seniors will pay higher out-of-pocket costs on prescription drugs and insulin, the deficit will be bigger, and Medicare will be weaker,” the statement continues.
Biden’s budget, set for release on Thursday, proposes raising Medicare taxes from 3.8% to 5% for those making above $400,000, and would eliminate a loophole used by business owners and high-earners to avoid additional taxes, according to a White House fact sheet.
In fact, it’s the same loophole the Bidens used to dodge as much as $500,000 in taxes..
In addition to the higher Medicare tax rate on income above $400,000, Biden’s plan would eliminate a loophole that allows certain business owners who receive income through an S corporation, limited liability company, or limited partnership to avoid paying Medicare taxes on some of their income.
The plan would also dedicate the proceeds from a tax created as part of Obamacare — known as the net investment income tax — to the Hospital Insurance Trust Fund. While doing so would not impact the overall federal deficit, since it amounts to diverting an existing revenue stream, the proposal does allow the administration to say it is extending the program’s solvency. -Bloomberg Law
“The Budget’s expansion of Medicare drug negotiations will not only save money for the federal government — it will also cut beneficiaries’ out-of-pocket costs by billions of dollars,” the plan states.
That said, as the Washington Post notes, “The administration is introducing the measures as part of the White House’s broader 2024 budget proposal, but it faces an unlikely path to passage through a Republican-controlled House of Representatives.“
Republicans are sure to rule out all of the new proposed taxes in the administration’s plan, and some budget hawks are adamant that the White House should be pushing spending cuts as well. Biden’s plan is also likely to elicit further rebuke from the pharmaceutical industry, which has alleged restrictions on federal spending discourage research and innovation in groundbreaking medicine. -WaPo
According to House Speaker Kevin McCarthy (R-CA), the GOP isn’t targeting Medicare or Social Security – while conservatives have long said that raising the net investment income tax to fund Medicare is a bad idea.
Kyle Pomerleau, a senior fellow at the American Enterprise Institute, says that a better approach would be to raise what workers pay into the Medicare trust fund from dedicated payroll taxes, vs. relying on investment income which can fluctuate greatly depending on the year.
Currently workers pay 6.2% into Social Security and 1.45% for Medicare, while employers pay the same amounts.
“It can distort savings and investment decisions, which a payroll tax does not do,” said Pomerleau. “And capital gains can be a somewhat unreliable tax base.”
According to the most recent estimate from the Medicare trustees, the program’s “Part A” – which includes reimbursements for hospital care, will be insolvent by 2028, while the Congressional Budget Office said that would occur in 2030.