Biden’s budget proposal would increase Medicare tax for earners over $400,000
WASHINGTON — President Joe Biden wants to increase tax rates for people making more than $400,000 a year to extend Medicare’s ability to pay, the White House said Tuesday in a preview of its budget proposal.
The Medicare tax rate would rise from 3.8% on earned and unearned income to 5% for wealthier Americans, according to the White House. Biden will release its budget on Thursday.
Biden will also propose benefit changes, including a $2 cap on how much a Medicare beneficiary must pay out-of-pocket for certain generic drugs, such as those used to treat chronic conditions like high blood pressure and high cholesterol. And he wants to expand Medicare’s ability to negotiate lower prescription drug costs.
The Medicare tax increase, along with other proposed changes, would extend the solvency of Medicare’s hospital insurance fund by at least two decades, the administration said.
According to Medicare trustees, the fund, which is funded primarily from payroll taxes, is unlikely to be sufficient to pay all expected costs in 2028.
In recent months, Biden has slammed Republicans over Medicare and Social Security, programs that are wildly popular but account for large — and growing — chunks of the federal budget.
“Let’s ask the wealthiest to pay just a little bit more of their fair share to strengthen Medicare for all long-term,” Biden wrote in an op-ed piece published Tuesday in the New York Times.
- Medicare and Social Security are big drivers of the federal budget due to an aging population and rising healthcare costs.
- While Biden has been saying for weeks he has a plan to shore up Medicare, he has yet to say so for Social Security, which may not be able to pay full benefits until 2033.
- Top Republicans have said cuts to Medicare and Social Security are off the table as they demand budget cuts in exchange for agreeing to vote to keep the federal government from defaulting on payments. But they haven’t offered a plan to keep the programs concise enough to continue paying full benefits.
How Would Biden Support Medicare?
Biden would raise the top rate of the Medicare payroll tax and net capital gains tax to 5% for high-income taxpayers. He would also expand the net capital gains tax to apply to more types of income and redirect revenue to help Medicare. This tax, created under the Affordable Care Act 2010, currently brings in general funds. The White House claims it was always meant to boost Medicare. But while this change will help Medicare, it would reduce revenue for other state programs.
Biden also wants to reduce Medicare costs by lowering what the government pays for prescription drugs for beneficiaries.
How much are Medicare taxes?
Wages are taxed at 2.9%, with salaried and manual workers paying half each. Taxpayers earning over $200,000 owe an additional 0.9%. They also owe 3.8% on capital gains and capital gains, a general income tax that Biden wants to divert to Medicare.
How would Biden improve Medicare benefits?
Improving the government’s ability to negotiate drug costs beyond legislation passed last year could reduce out-of-pocket expenses for seniors. Biden also wants to cap cost-sharing on certain generic drugs. And it would eliminate the expense of three mental health or other behavioral therapy visits per year.