Biden plans new taxes on the rich to save Medicare

Biden proposed raising the Medicare tax rate from 3.8% to 5% for incomes over $400,000 a year.

WASHINGTON — President Joe Biden on Tuesday proposed new taxes on the wealthy to help fund Medicare, saying the plan would help extend the insurance program’s payability by 25 years and provide some middle-class stability for millions of older people.

In his plan, Biden openly states that the rich should bear the heavier tax burden. His budget will draw a direct link between these new taxes and the popular health insurance program for people over 65, essentially asking those who do well in the economy to subsidize the rest of the population.

Biden wants to raise the Medicare tax rate from 3.8% to 5% on income above $400,000 a year, including wages and capital gains. The White House did not provide specific cost savings estimates from the proposal, but the move is likely to increase tax revenue by more than $117 billion over 10 years, according to earlier estimates from the Tax Policy Center in February.

“This modest increase in Medicare contributions from those with the highest incomes will help keep Medicare strong for decades to come,” Biden wrote in an essay in the New York Times Tuesday. She called Medicare “the safety net that Americans look forward to when they retire.”

More than 65 million people rely on the program, which costs taxpayers an estimated $900 billion annually. Medicare enrollment is expected to continue to grow as the US population ages. But funding the program is a problem, as federal officials warn that without tax cuts or increases, Medicare will only be able to pay 90 percent of benefits by 2028.

Biden’s proposed changes to Medicare are part of a more comprehensive budget proposal he plans to release Thursday in Philadelphia. Getting the bill through Congress is likely to be difficult as Republicans control the House of Representatives and Democrats have only a slim majority in the Senate.

The proposal is a direct challenge to GOP lawmakers who argue that economic growth comes from tax cuts like those introduced by former President Donald Trump in 2017. These cuts disproportionately benefited the richest households and businesses. They contributed to widening the budget deficit when economic growth didn’t explode as Trump had promised, and then the economy was derailed in 2020 by the coronavirus pandemic.

Conflicting worldviews about how taxes will affect the economy are part of a larger reckoning. Biden and Congress must reach an agreement to increase the government’s lending power this summer, or the government could default and plunge the United States into a debilitating recession.

Grover Norquist, chairman of Americans for Tax Reform and a supporter of the types of tax cuts that Republicans typically support, said the US economy would be hurt by the president’s plan.

“Biden’s tax hikes will raise the cost of goods and services for everyone and make American workers and businesses less competitive internationally and with China,” Norquist said.

But Maya McGuineas, chair of the Committee on a Responsible Federal Budget, welcomed the plan, though she had some reservations about it.

“The president’s plan will bring in hundreds of billions of dollars — perhaps even close to a trillion dollars — to shore up Medicare,” said McGuineas, the deficit-reducing finance body.

Ahead of expected budget wrangling and the 2024 election season, Democrats have stepped up Medicare talk, vowing to reject any Republican attempt to cut the program, though the GOP has so far vowed to avoid any cuts. However, Republican lawmakers have not agreed on how to deliver on their promise to put the government on track to balance the federal budget over the next 10 years.

Last year, members of the House Republican Research Committee proposed raising the Medicare eligibility age to 67, which is in line with Social Security. But that idea didn’t move forward in a divided Congress.

Republicans deny they plan to cut the program. A proposal by Florida Republican Senator Rick Scott, which would require Congress to review all federal laws every five years, including Medicare, failed to gain support.

According to polls conducted in recent years by the non-partisan League of Senior Citizens, higher taxes for Americans who earn more than $250,000 in Medicare pays have broad support among older Americans. However, raising the age for Medicare eligibility is largely unpopular, says Mary Johnson, the organization’s policy analyst.

“It’s very clear that they were strongly opposed to expanding eligibility,” Johnson said of recent polls.

Politicians trying to go down this path can “lose supporters and that can backfire. You can also lose your office,” Johnson warned. “A very high percentage of older people vote in elections.”

Biden’s plan also aims to close what the White House calls loopholes that allow people to avoid paying Medicare taxes on some incomes. Beyond taxes, Biden wants to expand Medicare’s ability to negotiate drug costs, which began with the Inflation Reduction Act. Last year he signed a broad bill.

The White House said its budget plan would expand the Inflation Reduction Act’s drug provisions. More medicines will be subject to price negotiations, more medicines will be included in the negotiation process earlier, and the volume of discounts will be expanded.

Collectively, Biden’s new proposals will help support a key trust fund that pays for Medicare, which provides health services to the elderly. These changes will keep the fund solvent until 2050, about 25 years longer than currently planned, according to the White House.

Changes will also be made to Medicare benefits. Biden wants to limit the cost-sharing of some generic drugs to $2. The idea would cut the out-of-pocket costs of treating high blood pressure, high cholesterol and other illnesses.

In addition, the budget will no longer share the cost of up to three psychiatric or behavioral health visits per year.

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