In 1993, the Clinton administration removed the cap, making the tax applicable to all earned income without limitation — converting it into an unlimited 2.9 percent earned income tax. The administration argued it was only “fair” that each person pay the tax on all his or her earned income — not just some of it. But since the additional tax payment did not bring any additional Medicare benefits, the move broke the connection between the tax and the benefit received for it, and turned it into simply an add-on tax on earned income.
Periodically, commentators assert that the tax should be on all income, not just earned income — it’s not “fair” that people with investment income are spared the tax. But the real point is that the “Medicare” tax was supposed to be tied to (and limited by) the benefits received, and thus is already way too high.
The Obama administration, by extending the tax to all income and raising the rate, would complete the transformation of the Medicare tax into an “open door” for “significantly more revenues” for the government — funding not Medicare, but rather legislation that dramatically reduces Medicare benefits and creates an entitlement for a different group of citizens.
From a policy standpoint, this is incoherent — but there is an obvious attraction to creating a vehicle for “significantly more revenues” that will automatically expand in the future based on income, rather than health benefits — and then calling the vehicle a “Medicare” tax. Moreover, if the government were to call it by its proper name — an increased and expanded income tax — it would be harder not only to pass it but, even more importantly, harder later this year to impose still another new massive income tax (to be disingenuously called merely letting the Bush tax rates “expire”).
No wonder all this is not being put on C-SPAN. It is best done in private, and then rushed to a vote without adequate time for public discussion and debate, with a bill that will barely be in print by the time the people’s representatives are required to vote on it.