President Biden is set to formally release his 2024 budget proposal later this week and is already offering previews on what he plans to do with Medicare.
In new details released Tuesday to keep the program afloat into the 2050s, Biden says he can extend the solvency of the program without any benefit cuts via three moves: an increase on the tax rate on both earned and unearned income above $400,000; the closing of loopholes that shields some “pass-through” income from Medicare taxes; and allowing Medicare to negotiate on a wider array of prescription drugs.
And overall, the president is looking at least five different tax changes for wealthy Americans and corporations to pay for his myriad ideas — both for Medicare and his larger push to “invest in America” and pay down the deficit. And while the proposal isn’t likely to get a vote on Capitol Hill, it will serve as an important marker of Biden’s priorities.
The early focus on Medicare — as well as Social Security — underlines just how “deeply embedded” the twin programs have become in Biden’s political identity, Alex Lawson, the executive director of a group called Social Security Works, recently noted in an interview. The president talks nearly every week about the program and also released a New York Times op-ed on the topic Tuesday morning.
Defending the programs now “seems to be one of the defining characteristics of Biden-world,” Lawson added.
What the White House appears to be doing with this week’s choreographed multi-day rollout — culminating in a formal unveiling on Thursday in Philadelphia — is an attempt to shape the conversation as both the debt ceiling fight heats up this summer and a likely Biden 2024 re-election campaign kicks off.
President Joe Biden addresses the International Association of Fire Fighters' 2023 Legislative Conference in Washington on March 6. (REUTERS/Leah Millis) ·Leah Millis / reuters
How Biden proposes to shore up Medicare
In the op-ed released Tuesday morning, President Biden wrote that “Medicare is more than a government program. It’s the rock-solid guarantee that Americans have counted on to be there for them when they retire."
The issue is top of mind with a key Medicare trust fund likely to run low on funds as early as 2028, according to a recent government trustees report. Meanwhile, Social Security likely has the funds to continue paying out current benefits for only a few years longer, through 2034.
Biden’s proposal would increase the Medicare tax rate from 3.8% to 5% on all income above $400,000.
It would also target what is known as net investment income - an additional fee on the returns for high-income earners as well as “pass through” business for Americans above $400,000 per year.
The White House aims to change the rules and close loopholes around that income, which it notes can be shielded from the taxes that fund the Medicare program because it is classified currently as “neither earned income nor investment income.” The proposal would close loopholes in that area and also change the government's rules to allow that money to be sent to Medicare’s crucial Hospital Insurance Trust Fund.
Douglas Holtz-Eakin, President of the American Action Forum, noted in a Yahoo Finance Live interview on Tuesday that the net investment tax piece is "really using a tool that has never been used in Medicare before [and] it's not a particularly good piece of tax policy."
Holtz-Eakin, a Republican and former director of the Congressional Budget Office, added that the way to get these programs under control fiscally is to control growth, and "you can't tax your way out of this."
The budget will also propose savings via new prescription drug reforms by giving Medicare the authority to negotiate prices for additional higher-cost drugs. The White House estimates these changes will save $200 billion over the coming decade.
“There are ways in which the program can be operated more efficiently,” said Paul Van de Water, a Medicare specialist at the Center on Budget and Policy Priorities, who also listed other options for the years ahead like lowering payment rates to healthcare providers and limiting payments to Medicare Advantage. But even with all that, “it's still going to be essential we think to raise additional revenues,” he said.
Van de Water also noted that Biden has previously proposed changes to the net investment income tax during a previous budget proposal. Thursday’s release will be Biden’s third since taking office.
3 other tax changes Biden could propose to pay for it all
Tuesday’s unveiling is just the first step in what is much more detail to come about Biden's ideas and how he’ll pay for it all.
In a recent online video, Biden’s budget director, Shalanda Young, outlined the overall priorities, including expanding the economy, lowering costs, protecting Social Security and Medicare as well as reducing the deficit by $2 trillion over the coming decade.
So what other tax increases could be proposed? Administration officials say that both wealthy Americans and corporations will be the focus.
In his State of the Union, Biden called to quadruple the excise tax on stock buybacks and to institute a new "billionaire minimum tax" on wealth. Both appear set for repeat appearances on Thursday.
The president could also call to raise the top corporate tax rate, which would come in addition to a corporate minimum tax instituted last year as part of the Inflation Reduction Act.
While House Republicans have pledged that all tax increases are off the table and won't be considered in the House. But the move will increase the pressure on Speaker Kevin McCarthy (R-CA) to release his own plan, something he has promised is coming soon.
House Speaker Kevin McCarthy waits before President Joe Biden arrives to deliver his State of the Union address at the U.S. Capitol on Feb. 7. (AP Photo/Patrick Semansky) ·ASSOCIATED PRESS
What Speaker McCarthy has discussed in the past is creating the “path” to balance the budget. House Republicans have already floated some small-scale proposals — targeting things like Medicaid and what they term as “woke waste.”
What’s unclear — and Democrats and some budget experts charge is impossible — is how that plan takes a significant bite out of the deficit if Social Security, Medicare, and tax increases are all off the table.
“We’re not going to sit here and be lectured by those folks about fiscal responsibility,” Biden said recently in a preview of the likely debate to come, adding of the GOP, it will “be interesting to see what they want to cut and what their numbers add up to.”
This post has been updated.
Ben Werschkul is Washington correspondent for Yahoo Finance.
