What is the Biden Medicare tax plan? White House proposes tax hikes for richest Americans
The President is poised to release his 2024 budget, with key changes to the program that provides health insurance for 65 million people.
President Biden has proposed some key changes to the tax system that he hopes will extend Medicare’s solvency by up to 25 years. The changes would see the wealthiest Americans pay a slightly higher rate of Medicare tax and would close several loopholes in the existing tax system.
Biden’s message is that the richest in society should contribute more to ensure the security of a program that provides health insurance for tens of millions of low-income Americans. Full details will be announced in the upcoming budget, released on Thursday, which draws a direct line between tax changes and funding for Medicare.
In anticipation of the budget announcement, Biden penned an op-ed in The New York Times entitled ‘My Plan to Extend Medicare for Another Generation.’
He wrote: “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.”
What changes is Biden proposing to the tax system?
The scale of Medicare, with more than 65 million people currently enrolled, is so vast that the current annual cost to taxpayers is roughly $900 billion. Funding is a major concern with the Medicare fund likely unable to cover the full cost of benefits by 2028 unless signficant changes are made.
The White House announced this week that Biden wants to increase the Medicare tax rate from 3.8% to 5%, but only on income above $400,000 per year. Estimates from the Tax Policy Center suggest that this would boost tax revenues by more than $117 billion in the first decade alone.
During campaigning for the 2020 presidential election, Biden was repeatedly asked if he intended to raise taxes to fund the various social programs that he was advocating. Each time, he answered by saying that any tax increases would be reserved for those making more than $400,000 per year.
Will the tax changes help Medicare solvency?
Medicare, first introduced in 1965, has become a vital component of the US social safety net and Biden is determined to ensure its funding for decades to come. In his budget for the 2024 financial year, Biden has pledged to extend the life of the Medicare Trust Fund by 25 years.
Increasing the tax rate to 5% to high earners is the headline measure, but Biden has also forwarded other proposals.
A White House press release states that the budget would work to close loopholes that exist in the Medicare taxation system. It would prevent high earners from shielding “some of their income from tax by claiming it is neither earned income nor investment income.” This would increase tax revenue substantially and is billed as a way to improve fairness in the US tax system.
There will also be an effort to lengthen the solvency of Medicare by making the program more cost-effective. The budget will provide additional negotiating powers for Medicare to bring down drug prices in the long term. Companies would also be forced to pay rebates into the Medicare fund if they are found to have increased prices faster than inflation. It is thought that this will save roughly $200 billion over the next decade.
We will have full coverage of President Biden’s 2024 budget when it is formally announced on Thursday.