Archive for Medicare
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.
Why Are Republicans Opposing Medicare Cost Controls?
Posted by: | CommentsPDemocrats are proposing to control future Medicare costs, and Republicans are trying to stop them. Who knew?/P
PThis could have been the perfect “Nixon in China” moment. Democrats—who created Medicare and for decades resisted GOP moves to curb the program—control Congress and the White House. A Democratic President has embraced modest efforts to slow the program’s unsustainable rate of growth. Drug makers, doctors, and hospitals all swallow hard and buy into the idea. It could be the perfect moment for a bit of desperately needed fiscal responsibility./P
PAnd what happens? Republicans, who only months ago tried to turn Medicare from an entitlement into a voucher, are lined up against slowing the program’s growth. They offer amendments in the Senate Finance Committee to “protect our seniors.” GOP Party Chairman Michael Steele writes a A href=http://www.washingtonpost.com/wp-dyn/content/article/2009/08/23/AR2009082302036.htmlmanifesto/A acknowledging that the long-term growth rate of Medicare is a problem, but insisting that Republicans will go to the barricades to save the elderly from the ravages of Obama-care./P
PAs this depressingly familiar graph shows, the current pace ofnbsp;Medicare spending is not only unsustainable in the long-run, it is politically impossible. /P
Pnbsp;nbsp;nbsp;nbsp; IMG height=147 src=http://taxvox.taxpolicycenter.org/CBO%20healrth%20table.gif width=308/P
PBy mid-century, Washington will be spending nearly 10 percent of Gross Domestic Product on Medicare but, without major policy changes, collecting only about 20 percent of GDP in revenues. That leaves only 10 percent of GDP for Social Security, Medicaid, interest on the debt, national defense, and everything else government does. And lawmakers will face two equally unpalatable choices: Slash all that other spending by more than half, or raise taxes to dangerously high levels.nbsp;nbsp;nbsp;nbsp; /P
PWhat looks increasingly like a missed opportunity to address this looming disaster is no surprise, given the toxic political climate here in Washington. And not too many years ago, Democrats did the same thing to George Bush, who tried to get a handle on Social Security. Dems were happily wringing their hands over massive Bush-era deficits but, given an opportunity to do something about it, chose the partisan low road.nbsp; /P
PNow, the Republicans are taking their turn at irresponsibility. Having lost control of the purse strings, they are howling about the debt we will leave our grandchildren. Yet, given the chance to make the smallest dent in Medicare’s growth rate, they suddenly have become the protectors of seniors. I half expect them to propose naming the Capitol after Claude Pepper.nbsp; /P
PImagine for just a moment an alternate universe: Democrats and Republicans set aside their squabbling and agree to eliminate wasteful or even dangerous Medicare spending. This, however, would require lawmakers to act like adults andnbsp;explain that more health care is not the same as better care, and that Medicare growth could be slowed without jeopardizing the health of seniors.nbsp; /P
PBut that isn’t likely to happen. Democrats and Republicans can agree to hand outnbsp; Medicare dollars they don’t have, as they did with the Part D drug benefit. But when it comes to controlling costs, partisan name calling is so much more fun/P