Archive for Medicare
Obama’s Medicare UnPayroll Tax
Posted by: | CommentsThe Tummy Tax & More: How Senate Dems Would Pay for Health Reform
Posted by: | CommentsSenate Majority Leader Harry Reid (D-Nev.) has pulled together a health bill that relies on three major revenue sources (and many smaller ones) to help support the cost of new insurance subsidies for those with low- and moderate-incomes.
Redi proposes $370 billion in new tax revenues over the next decade. $150 billion would come from a 40 percent excise tax on high-cost employer-sponsored insurance. Fees on makers of branded drugs and medical devices and on insurance companies would raise another $100 billion. Boosting the Medicare payroll tax by 0.5 percent on wages in excess of $200,000 ($250,000 for couples) would bring in another $55 billion. Among the cats and dogs: $15 billion from an increase in the floor on deductible medical expenses from 7.5 percent to 10 percent, and $6 billion from an excise tax on cosmetic surgery (the tummy tuck tax).
Reid picked very different revenue sources than the House. It would raise far more in taxes—about $540 billion through 2019. And 85 percent--$460 billion-- would come from a 5.4 percent surtax on incomes in excess of $500,000 ($1 million for couples).
A few thoughts on these proposals:
As I have written in the past, the House bill troubles me because it requires a few hundred thousand taxpayers--fewer than 1 percent--to pay for the bulk of health reform. That is bad economics and even worse governance. The Senate bill divides the burden somewhat more. While insurers would pay the excise tax on expensive employer-sponsored insurance, they would pass on much of the cost to workers. And the JCT estimates that middle-class employees would bear a substantial share (at least in an earlier version of the bill). Similarly, those taxes on drug and device makers as well as insurers will also be passed on, at least in part, to their customers, who are us.
The higher Medicare rate in the Senate bill is merely another way to tax the wealthy. I’m a bit surprised that senators who so strongly opposed the income surtax are so quiet about the Medicare surtax. Thus, we’ve learned that the Senate is OK with a $55 billion tax hike on the wealthy but not with a $460 billion increase. It doesn’t take a rocket scientist to figure that the tab for the top brackets will come in somewhere between those two numbers when the final law is written. The neighborhood of $200 billion sounds about right.
The Senate would raise the floor on deductible medical expenses to 10 percent, except for seniors who’d get to keep the 7.5 percent floor. Anybody want to explain why catastrophic health costs are harder on a retiree than on a working family?
Finding the revenue to pay for health reform was always going to be a huge challenge. It still is, but we are beginning to see the outlines of a deal—a little income tax surcharge here, a dollop of insurance premium excise tax there, and more than a few cats and dogs. It may not really pay for the cost of insurance reform over next decade, but it will pass muster with the scorekeepers. And in Washington these days, that’s all that matters.
Paying for Health Reform With the Medicare Payroll Tax
Posted by: | CommentsIn the ongoing search for money to pay for health reform, Senate Majority Leader Harry Reid (D-Nev.) reportedly wants to raise the Medicare payroll tax rate for high earners. It is not the best way to generate revenue, but it is not the worst either.
Today, Medicare collects a 1.45 percent tax on wages (plus an equal amount from employers). Unlike Social Security, there is no cap on wages subject to the Medicare tax. One idea floating around: Raise about $50 billion over 10 years by hiking the Medicare rate by 0.5 percent for those making more than $250,000. You’ll recall that President Obama has foolishly exempted income below a quarter of a million dollars from any tax increases.
On paper some of this money may be allocated to the Medicare Trust Fund (due to be exhausted by 2017, according to the most recent trustees’ report). But with general fund money and payroll tax funds flying between Medicare and the rest of the budget at warp speed, this is mostly an accounting fiction. In truth, raising the payroll tax rate is little more than a backdoor tax hike on the very wealthy.
The idea of making payroll taxes progressive is interesting, to say the least. Today, the highest earning 20 percent pay a lower average payroll tax rate (6.9 percent) than those in the bottom 20 percent (7.3 percent). In recent years, Congress has raised Medicare premiums for high-earning seniors. Now, Reid may try to raise Medicare taxes for high-earning workers.
And he might do even more. For years Democrats have toyed with the idea of imposing the payroll tax on income other than wages--capital gains and dividends, for example. Among other things, this would make it harder for high-earners to avoid the tax hike by changing the way they are compensated. But besides rendering the label “payroll tax” meaningless, this would be a big step towards making social insurance taxes indistinguishable from income taxes.
For years, the idea of hiking payroll taxes has been resisted by many on the left, who fear this step would break the social compact that has protected Medicare and Social Security from the pressures faced by means-tested entitlements. The more Medicare looks like welfare, the more jeopardy it will be in, goes this reasoning.
Now, however, in an effort to save the tax exclusion for employer-sponsored health insurance, unions seem enthusiastic about taxing wages of the rich. They may have noticed in the current health debate that few politicians are willing to risk their skins going after Medicare.
Of course, raising the payroll tax rate today to finance health insurance subsidies for working-age people will make it tougher to raise their tax later for other purposes (such as trimmin the deficit). But that, Reid probably figures, will be someone else’s problem.
The House health bill would pay for reform with a 5.4 percent income tax surcharge on individuals earning more than $500,000. Reid may try to get the cash by raising payroll taxes for many of the same people. No matter how Democrats structure this, they seem intent on making a small number of people pay the cost of health reform. I still think that’s a bad idea.