Dems propose increasing taxes on high-earners to preserve Medicare

According to Democratic aides, Senate Democrats are seeking to increase taxes on high-earners and to use the money for Medicare solvency.

07 July 2022 Thursday 10:24
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Dems propose increasing taxes on high-earners to preserve Medicare

According to Democratic aides, Senate Democrats are seeking to increase taxes on high-earners and to use the money for Medicare solvency. This is the latest step in their election-year effort to craft a reduced version of the economic package that fell last year.

According to aides, Democrats are expected to submit legislation on their Medicare plan to Senators' parliamentarians in the coming days. This was the latest sign Majority Leader Chuck Schumer (D-N.Y.) and Senator Joe Manchin (D-W.Va.) could be moving closer to a compromise that the party hopes will pass Congress this summer, despite strong Republican opposition. Manchin defeated the bill last year.

The latest proposal would see couples earning over $500,000 and people making more than $400,000 per year subject to a 3.8% tax. This tax will be on earnings earned from tax-advantaged companies called pass throughs. Many of them used a loophole to avoid this levy until now.

This would bring in an estimated $203 trillion over a decade. Democrats believe it would be used to delay, until 2031, a shortfall of the Medicare trust fund that covers hospital care. Currently, the fund is projected to run out of money by 2028. This happens three years before.

Pass throughs are the majority of U.S. businesses. These include sole proprietorships or partnerships. They can range from small law firms to large corporations. The owners count the profits as income, and pay income tax on their individual income. However, such companies don't pay corporate taxes. This means they can avoid two levels of taxation.

The Democrats also sent the parliamentarian this week a separate, 190-page Schumer-Manchin compromise. This would lower prescription drug prices for patients and the government. These provisions include requiring Medicare negotiate drug prices, limiting beneficiaries’ out-of-pocket expenses to $2,000 per year, and increasing federal subsidies to copays and premiums to some low-income individuals.

The Democrats are hopeful that the two proposed proposals will provide a solution to a campaign season that has been difficult. The House is expected to be won by the Republicans, while the Senate could see the same.

Democrats claim both plans will demonstrate to voters that they are fighting to reduce health care costs and preserve the popular Medicare program. Republicans will find these positions dangerous. The GOP claims that polls indicate widespread concern over the recent high inflation rates, supply chain issues, and other economic issues. These are all factors that, along with President Joe Biden’s low popularity, are driving voters to support Republicans.

Schumer and Manchin have been privately negotiating for several weeks over a package that aides believe could include $500 billion in tax credits and spending, as well as more than $1 trillion in revenue. Schumer described the talks as productive, but admitted that there are still some issues.

Aides say that energy and environment programs, corporate taxes and IRS budget increases to strengthen the tax enforcement are all under consideration. They also discuss a renewal or extension of soon-to expire federal subsidies for those who purchase health insurance under President Barack Obama’s health care law.

It is not clear what outcome will be achieved from the talks. Because they weren't authorized to reveal the information by name, the aides only described the status of negotiations and the latest proposals.

Seven months after Manchin halted a $2 trillion, 10-year social-environment bill, the signs of progress began to emerge. This was a devastating blow to an important part of Biden’s domestic agenda.

In November, the Democratic-controlled House approved the measure. However, Manchin abruptly stated that he couldn't support it due to its high cost and the possibility of inflation. Similar provisions were included in the bill, which included raising taxes and lowering the prices of pharmaceuticals for some people with higher incomes.

In the 50-50 Senate, West Virginia's support is crucial. Democrats are using special procedures to pass the package that is less controversial than the expected unanimity of GOP opposition and the tie-breaking vote by Vice President Kamala Harris.

One Democratic aide stated that Democrats are likely to support the Medicare solvency plan and prescription drug plans unanimously.

"Medicare is an important lifeline for millions Americans, and Senator Manchin supports pathways to keep it solvent." Sam Runyon, his spokesperson, said that he remains positive there is a way to do this.

Elizabeth MacDonough, a senator, will need to confirm that the bill's provisions are in line with the chamber's budget rules. She ruled last year that language that made it easier for immigrants in the U.S. to stay was invalid because it violated the prohibition against the use of special procedures to enact major policy changes.

Medicare has 64 millions beneficiaries. The trust fund that covers hospital services is called Part A and it is funded mainly by taxes taken from the paychecks of people.

The trust fund was granted two years of solvency (until 2028) in the last month's report of the program's trustees. The trust fund attributed the improvements to the recovery of the economy from the recession-spawned coronavirus pandemic.

Both Medicare and Social Security are facing long-term financing issues. The trustees recommended that Congress act "sooner than later" in order to strengthen them. The trustees stated that Medicare's hospital trust fund could only pay 90% of its costs in 2028 without congressional action and even less after that.

According to the information provided by the AP by Congress' Joint Committee on Taxation to Senate Democrats, the proposal to raise taxes on some wealthy Americans would generate $203 billion over 10 years. Another document revealed that federal actuaries informed the Democrats that such financing would delay trust fund's shortfall to 2031.



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