Some individuals can expect a Medicare tax increase under the new budget proposal scheduled to be unveiled this week by the Biden administration.
Medicare, a federal health insurance program intended for senior citizens, is partially funded by a 3.8% tax on investment income for individuals earning more than $125,000 or married couples filing jointly and earning more than $250,000. The White House contended in a Tuesday statement that “modestly increasing” the tax rate to 5% for those earning more than $400,000 would extend the solvency of the Medicare Hospital Insurance Trust Fund by at least 25 years.
“Since Medicare was passed, income and wealth inequality in the United States have increased dramatically,” the statement said. “By asking those with the highest incomes to contribute modestly more, we can keep the Medicare program strong for decades to come.”
The White House additionally vowed to close loopholes in the Medicare tax system because “some high-paid professionals and other wealthy business owners have managed to shield some of their income from tax by claiming it is neither earned income nor investment income.” The Medicare Hospital Insurance Trust Fund is expected to deplete in 2028, according to a report issued last summer by trustees for the program.
The announcement comes as Republicans and Democrats discuss mechanisms to reduce the budget deficit and mitigate increases to the national debt, which now surpasses $31.5 trillion. President Joe Biden and House Speaker Kevin McCarthy (R-CA) are negotiating to decrease spending after the debt ceiling, an arbitrary cap on the national debt established by Congress, exceeded the statutory limit of nearly $31.4 trillion earlier this year.
Each official has said that they will not consider reforms to Social Security and Medicare, raising questions as to whether meaningful spending cuts will be possible since the two programs constituted 46% of the federal budget during the last fiscal year, according to data from the Treasury Department. Biden administration officials have asserted that Republicans are seeking to reduce benefits from Social Security and Medicare despite repeated statements from McCarthy and other lawmakers to the contrary.
Biden vowed during his State of the Union address that his budget proposal would “lower the deficit by $2 trillion” even as no reforms are made to Social Security and Medicare. “If anyone tries to cut Social Security, I will stop them. And if anyone tries to cut Medicare, I will stop them,” he declared. “When I offer my fiscal plan, I ask my Republican friends to offer their plan. We can sit down together and discuss both plans together.”
Runaway federal spending has been a problem under Republican and Democratic administrations: former President Donald Trump added $7.5 trillion to projected debt levels through his legislative agenda and executive orders, while President Joe Biden has added $5 trillion to projected debt levels. Not considering the stimulus measures passed by both chief executives during the lockdown-induced recession implies an added debt burden of $4 trillion for the former and $2.5 trillion for the latter.
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Biden also claimed during his State of the Union address that he oversaw “the largest deficit reduction” in the nation’s history during his first two years in office. Although he witnessed a decline in the deficit from $3.1 trillion in fiscal year 2020 to $1.4 trillion in fiscal year 2022, according to data from the Office of Management and Budget, he neglected to mention that the record spending came as a result of legislation passed in response to the lockdown-induced recession. The deficit last year still exceeded those witnessed in the years before the crisis.