President Joe Biden's budget will propose hiking payroll taxes on Americans making over $400,000 per year and allowing the government new power to negotiate drug prices as part of an effort the White House says will extend the solvency of a key Medicare program for another quarter century.
"The budget I am releasing this week will make the Medicare trust fund solvent beyond 2050 without cutting a penny in benefits," Biden said Tuesday in an op-ed published in the New York Times shortly before the announcement. "In fact, we can get better value, making sure Americans receive better care for the money they pay into Medicare."
His plan has little chance of becoming law, especially after Republicans took control of the House in January, but the proposal is an important signpost for negotiations over government spending, and offers the president a chance to publicly outline his priorities.
The president's budget, which will be released Thursday, proposes raising Medicare taxes from 3.8% to 5% on annual income above $400,000, and eliminating a loophole business owners and higher-earners can exploit to avoid additional taxes, according to a White House
The Medicare portion of the budget plan was announced by the White House on Tuesday and reported earlier by the Washington Post.
The moves are part of a concerted effort by the White House ahead of looming negotiations over the debt ceiling and government funding, where Republicans vow to seek deep cuts to federal spending.
GOP pushback
House Speaker Kevin McCarthy has vowed the GOP won't touch Medicare or Social Security, programs that share bipartisan support, particularly among elderly voters. But Democrats, including Biden, have repeatedly highlighted past GOP efforts to overhaul the entitlement programs by reducing eligibility or benefits. Ahead of the budget release, White House officials have challenged McCarthy to specify where he would pursue cuts.
Democratic Senator Elizabeth Warren, in a
"The Republican approach to the debt ceiling will either result in a catastrophic default and an economic recession — or massive cuts to key government programs that destroy millions of jobs," the Massachusetts senator wrote. "I know you are committed to making important investments in American families and to making the wealthy pay their fair share, and I urge you to continue that approach in your budget and stand firm against Republicans' economy — and job-destroying debt ceiling demands."
Democrats are hoping Biden's budget, which would reduce the deficit by $2 trillion over the next 10 years, will provide a political advantage by keeping benefits intact, with higher taxes on the wealthy helping to offset rising costs. Medicare's Hospital Insurance Trust Fund, also known as Part A, pays for hospital stays, nursing facilities, and hospices. It is currently projected to reach insolvency as soon as 2028, according to the most recent Medicare Trustees report.
"This modest increase in Medicare contributions from those with the highest incomes will help keep the Medicare program strong for decades to come. My budget will make sure the money goes directly into the Medicare trust fund, protecting taxpayers' investment and the future of the program," Biden said in his op-ed.
Democratic Senator Amy Klobuchar of Minnesota praised Biden's proposal in a
"This plan lowers prices for MORE prescription drugs just like my Medicare Part D negotiation bill does," Klobuchar wrote. "Bringing prices down for 50 million seniors helps everyone."
Ending loophole
In addition to the higher Medicare tax rate on income above $400,000, Biden's plan would eliminate a loophole that allows certain business owners who receive income through an S corporation, limited liability company, or limited partnership to avoid paying Medicare taxes on some of their income.
The plan would also dedicate the proceeds from a tax created as part of Obamacare — known as the net investment income tax — to the Hospital Insurance Trust Fund. While doing so would not impact the overall federal deficit, since it amounts to diverting an existing revenue stream, the proposal does allow the administration to say it is extending the program's solvency.
Proposed changes to Medicare's ability to negotiate prescription drugs would also benefit seniors on Medicare by lowering their out-of-pocket costs, the White House says. Biden's budget will specifically propose capping the cost of certain generic drugs, like those used to treat hypertension and high cholesterol, to $2 per prescription per month. The budget also eliminates the fee patients have to pay on up to three mental or behavioral health visits per year.
