Taxes on the wealthy in the U.S. will be used to maintain the Medicare program, Biden explains in an article.
President Joe Biden’s budget will propose raising payroll taxes on Americans earning more than $400,000 a year and give the government new power to negotiate drug prices as part of an effort that the White House says will extend the solvency of a key Medicare program for another quarter century.
His plan has little chance of becoming law, especially after Republicans took control of the House of Representatives this year, but the proposal is an important signal for negotiations over government spending and offers the president a chance to publicly outline his priorities.
The president’s budget, to be released Thursday, proposes raising Medicare taxes from 3.8 percent to 5 percent on annual income above $400,000, and eliminating a loophole that business owners and higher-income earners can exploit to avoid additional taxes, according to a White House fact sheet. Biden’s plan would also help bolster Medicare reserves through about $200 billion in prescription drug reforms over the next decade by allowing the insurance program to negotiate the costs of more drugs and before they hit the market.
The Medicare portion of the budget plan was announced by the White House Tuesday and reported earlier by the Washington Post.
The moves are part of a concerted effort by the White House ahead of impending debt ceiling and government funding negotiations, where Republicans vow to seek deep cuts to federal spending.
House Speaker Kevin McCarthy pledged that the GOP will not touch Medicare or Social Security, programs that share bipartisan support, particularly among older voters. But Democrats, including Biden, have repeatedly highlighted past GOP efforts to overhaul entitlement programs by reducing eligibility or benefits. Ahead of the budget’s release, White House officials have challenged McCarthy to specify where he would look for cuts.
Democrats hope Biden’s budget, which would reduce the deficit by $2 trillion over the next 10 years, will provide political leverage by keeping benefits intact, with higher taxes on the wealthy helping to offset rising costs. The Medicare Hospital Insurance Trust Fund, also known as Part A, pays for hospital, nursing facility and hospice stays. It is currently projected to reach insolvency as soon as 2028, according to the most recent report from the Medicare trustees.
Ending the loophole
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 revenue 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 affect the overall federal deficit, since it amounts to diverting an existing revenue stream, the proposal allows the administration to say it is extending the program’s solvency.
The proposed changes to Medicare’s ability to negotiate prescription drugs would also benefit seniors on Medicare by reducing their out-of-pocket costs, the White House says. Biden’s budget would specifically propose capping the cost of certain generic drugs, such as those used to treat hypertension and high cholesterol, at $2 per prescription per month. The budget also eliminates the fee patients have to pay for up to three mental or behavioral health visits per year.
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