President Joe Biden said he plans to propose an additional tax on those earning more than $400,000 a year to shore up the Medicare program, which is projected to hit insolvency by 2028.
The president’s budget, which is scheduled to be released Thursday, will propose raising Medicare taxes from 3.8% to 5% on annual income above $400,000. The budget proposal would also eliminate a tax loophole that business owners and higher-earners use to avoid paying higher taxes, he wrote in a New York Times op-ed yesterday..
“The budget I am releasing this week will make the Medicare trust fund solvent beyond 2050 without cutting a penny in benefits. In fact, we can get better value, making sure Americans receive better care for the money they pay into Medicare,” Biden said in his guest commentary, entitled “My Plan to Extend Medicare for Another Generation.”
Medicare’s Hospital Insurance Trust Fund, also known as Part A, covers hospital stays, nursing facilities and hospice care. It could reach insolvency in just five years, according to the most recent Medicare Trustees report.
Biden’s plan is also designed to help bolster Medicare reserves by $200 billion over the next 10 years by allowing insurers to negotiate down costs on more prescription medications and at a sooner date when they come to market.
“This modest increase in Medicare contributions from those with the highest incomes will help keep the Medicare program strong for decades to come,” Biden wrote in his op-ed. “My budget will make sure the money goes directly into the Medicare trust fund, protecting taxpayers’ investment and the future of the program.” Bloomberg and The Washington Post were first to report details of Biden’s plan.
While the tax increase has virtually no change of passing with a GOP majority in the House, it provides both Biden and Democrats the opportunity to hone their message about shoring up Medicare by putting the burden on the wealthy.
Democrats hope that Biden’s budget, which would reduce the deficit by $2 trillion over the next 10 years according to preliminary scoring by the Congressional Budget Office, will provide election year talking points about their desire to keep Medicare benefits free from benefits cuts, while requiring only the wealthy to pay higher taxes to offset rising costs.
“Let’s ask the wealthiest to pay just a little bit more of their fair share, to strengthen Medicare for everyone over the long term," Biden wrote. "As I proposed in the past, my budget will also ensure that the tax that supports Medicare can’t be avoided altogether. This modest increase in Medicare contributions from those with the highest incomes will help keep the Medicare program strong for decades to come.”
House Speaker Kevin McCarthy has said since January that he wants to take cuts to Medicare and Social Security off the table until an accord on the debt ceiling is reached. He is stressing, however, that Republicans do want commitments on spending cuts.
The White House, however, is challenging McCarthy to pinpoint exactly where he would make cuts to shore up Social Security and Medicare benefits.
“For years, congressional Republicans have advocated for slashing earned benefits, using Washington code words like ‘strengthen,’ when their policies would privatize Medicare and Social Security, raise the retirement age or cut benefits,” White House spokesman Andrew Bates told The Hill.
“House Republicans refuse to raise revenue from the wealthy, but insist they will ‘strengthen’ earned benefits programs,” Bates added.
A debt ceiling showdown is looming because the federal government will run out of cash to pay its bills sometime between July and September unless the statutory debt limit is raised, the CBO reported last month.
McCarthy has said he doesn’t want a “clean” debt limit increase without also negotiating a cut in the current fiscal year’s overall spending. Democrats, however, have vowed that they won’t negotiate around the country’s borrowing limit.
The CBO reported that deficit projections over the next 10 years have grown 20%, or $3.1 trillion, since just last May because of a surge in government spending due to new laws, inflation and interest payments. The fiscal 2023 deficit is now expected to come in at $1.41 trillion, or $426 billion higher than the agency's forecast last year.
McCarthy told CNBC Monday morning that growing interest costs—like the $10.5 trillion on interest the government will spend over the next decade—are his primary concern. “This is what will break America,” he said. “Every great society collapses when they overextend themselves. And this is why it’s so critical.”