Truth in Taxes — Don’t Call It a ‘Medicare’ Tax
Politico reported earlier this week on the “unusual day-long negotiating session” at the White House between President Obama and top Democratic congressional leaders — an eight-hour “de facto conference committee” held in private. Those involved in the talks “sought to keep details of their progress under wraps,” but:
Boosting the Medicare payroll tax — either by increasing the rate or extending it to unearned income — is still a live option, according to sources familiar with the talks.
The tax would open the door to significantly more revenues, according to Joint Committee on Taxation.
The next day, after a long meeting with union representatives, there was an announcement that Obama had agreed to modifications to the “Cadillac tax” on health care plans, producing what Jennifer Rubin has called the “Collective Bargaining Kickback” — a special exemption until 2018 for union plans. Added to the Cornhusker Kickback for Nebraska and the various other special deals that will probably remain unknown until after the bill is finally in print (a day or two before the vote), the Collective Bargaining Kickback will require the administration to find another $60 billion in more revenues. So the Medicare payroll tax changes are probably not only still alive but perhaps even more likely.
It is thus important to recognize that what is being discussed in private is the conversion of the Medicare tax from a payment for Medicare benefits into an unlimited add-on tax on all income — a move presenting significant policy issues inadequately understood by the public. It represents another potential major shift not simply in Medicare policy but tax policy as well, slipped under the radar in private negotiations and simply announced thereafter.
In order to understand what is at stake, it is necessary to review briefly the history of the Medicare tax.
The tax was originally one bearing a direct relationship to the Medicare benefits to be received by the taxpayer. The tax was intended as a yearly premium-equivalent for old-age medical insurance — a payment made each year by workers and their employers that would pay for the medical insurance to be received at age 65. Since each person would eventually receive the same Medicare benefits, each person paid the same maximum Medicare tax each year.
When the Clinton administration came into office, the Medicare tax was 1.45 percent on the employer and 1.45 percent on the employee (2.9 percent on self-employed persons) on the first $135,000 of earned income. The maximum tax was thus capped at $3,915 per year — the annual maximum “premium” for the medical insurance to be received in the future. The cap on the income subject to the tax made the tax function as a payment for Medicare insurance, not an income tax.
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.
Amazing the transparency that was promised by our President. This is outrageous that taxes are being heaped on taxes and Medicare will be cut significantly even thought he party line is that you will lose no benefits, but your benefits will be better. Balderdash!
lies and liars, but really both the Dems and Republicans are to blame on this, at least to some extent. Daybydaycartoons depicting Obama et al as French nobility is rather excellent …
But to the point, this tax being extended to “unearned”income targets not just the person with the investment income, but more particularly those with retirement income. Be it social security, supplemental soc security, military retirement, railroad retirement, state gov’t retirement, you-name-it retirement, disability income or whatever it all becomes targeted for their “significant more” source of revenue.
We’d better start small at first by getting rid of all the hypocrisy that’s wormed its way into things since the PC crap started. First, we need to shed the Handicapped Parking spaces all over the place. They were intended for the mobility impaired but in reality are for anyone who can snag a handicapped mirror hang-up by hook or by crook. Either their doctor gives them one for the asking or they use the one grandma has, but however they get one, three-forths of those taking up the spaces folks who are mobility impaired actually need are in no way impaired by anything other than their own selfish belief that they should have anything and everything they think is an available perk. Next, the “Speed Limit” signs on the highways have to go. They’re nothing of the sort and the posted limit is seldom enforced. Just change all of them to “Suggested Minimum” signs and be honest about it.
After starting with the little things like those above, then we might get people ready to expect a government (one that is supposedly staffed by public servants rather than ruling nobility) that doesn’t hide the majority of what it does behind deliberately deceptive wordings.
Regards
I predict that the Democrats will pass health care reform legislation and improve Medicare this year. Big insurance spent billions to stop it but they failed.
Taxes and Spending will be reduced for some and be increased for others based on their income (average bank/insurance pay? about one million a year) which they should have no problem paying while still sittin on their butts sippin champagne…..so I would’nt be shedding too many tears for them.
And since Poor Citizen has no income – he’s too busy sitting on his ass drinking food-stamped purchased beer all day. Not as good as banker champaigne but it does the trick.
But he won’t see his taxes go up at all because he doesn’t pay taxes! He’s a human sponge! Everything he has is due to work from others.
4. Nobody’s taxes are going down this year. Everyone will be receiving a tax hike if this bill passes, and there’s more tax hikes coming next year when the Bush tax cuts expire.
Calling this increase – indeed, calling the present level of so-called “Medicare Tax” – an ‘income tax’ misses the point too.
I just checked: every month, over $600 is taken out of my paycheck by the government and used to feed the constantly increasing, inept bureaucracies that comprise Social Security and Medicare. This is nothing short of a wealth redistribution tax, where my income is confiscated and handed to a bunch of government bureaucrats, who keep some of it (“operating expenses”, don’t you know), pass some of it to retirees, some of it to Medicare beneficiaries, and an alarming amount of it to SSDI recipients – former drug addicts, people who are “too depressed” or “too obese” to work, etc. None of these people earned that portion of my income that was confiscated. I did. Nowhere does the U.S. Constitution give government the authority to redistribute my income in this way.
“Income tax” is too benign a term – it implies a tax that is used to run the federal and State governments. The sooner we recognize income confiscation – i.e., to fund Social Security and Medicare – as a Wealth Redistribution Tax that is ALREADY taking place, the better.