Democrats and Republicans agree: People with higher incomes must pay more.
Democrats want upper-income people to pay more in taxes, but don’t want upper-income people to pay more for their Medicare benefits.
Republicans want upper-income people to pay more for their Medicare benefits, but don’t want them to pay more in income taxes.
A House-Senate conference committee is looking to upper-income people as it tries to find the money to offset the cost of a payroll tax cut package, which includes extended unemployment benefits.
A compromise that combines a bit of each (higher income taxes on the rich and higher Medicare premiums) seems unlikely.
For the Democrats, Sen. Bob Casey, D- Pa. has proposed a surtax on the rich to help pay for the payroll tax cut package.
Last year Casey’s proposed 3.25 percent surtax on incomes over $1 million failed to get the 60 votes it needed to advance in the Senate. He has now lowered his threshold, calling for a 1 percent surtax on any income over $1 million, which he said would raise about $76 billion, offsetting almost half the cost of a payroll tax cut package.
“It’s a way to break some of the logjam we’re seeing here” on the conference committee, Casey said.
His surtax would affect roughly 250,000 out of more than 140 million total tax filers.
The bill which the conference committee is working on would keep the Social Security payroll tax at its lower 4.2 percent rate. It would also extend payments to the unemployed for another ten months, and prevent a scheduled 27 percent cut in payments to doctors who treat Medicare patients.
Led by House Ways and Means Committee chairman Rep. Dave Camp of Michigan, Republicans want upper-income people to help pay for the package by paying higher premiums for their Medicare coverage.
Adopting the proposal President Obama made last September to the deficit reduction “super committee,” Republicans want higher premiums to apply to Medicare Part B, which pays for visits to the doctor’s office, and Medicare Part D, which pays for prescription drugs.
Under current law, people on Medicare who have annual incomes over $85,000 (or $170,000 for couples filing jointly) must pay higher premiums.
If you have income of $85,000 or less, your Medicare Part B premium is $99.90 a month; the premium increases as your income goes up; the highest premium is $319.70 a month. The median income for people over 65 is about $25,000.
About 5 percent of Medicare beneficiaries now pay the higher premiums. But under the Obama proposal, which Republicans have adopted, by 2019, 25 percent of Medicare recipients would pay higher premiums.
What’s maybe most significant is why the Democrats now oppose the idea of making upper-income people pay more for Medicare benefits.
One possible reason: they may not want to impose another burden on Medicare recipients, who are mostly over age 65 and who -- one must recall in an election year – have a high likelihood of voting. In the 2008 election, 70 percent of people over 65 voted, compared to only 49 percent of those 18 to 24.
Referring to the part of the package that would prevent that 27 percent cut in Medicare payments to doctors, Senate Finance Committee Chairman Max Baucus said at Tuesday’s meeting of the conference committee, “It doesn’t make much sense to pay doctors more, but (then) to take it out of the hide of beneficiaries.”
Baucus added, “I don’t know if the American people would think it was fair” to ask higher-income people to pay more for Medicare benefits.
Other Democrats on the committee see the GOP proposal as a dire threat to the future of Medicare itself.
“This will end Medicare as we know it,” said Rep. Allyson Schwartz, D- Pa.
Sen. Ben Cardin, D- Md. pointed out that workers who earn more money pay more in Medicare taxes, right up to the last dollar of income they earn. Unlike the Social Security payroll tax, which applies only to the first $110,000 of earned income, the Medicare payroll tax applies to all earned income.
“We ask those who make more money to pay more -- for the same benefits,” Cardin explained. “Medicare benefits are comparable for all seniors, but we ask those who... have higher income to contribute more” by paying higher Medicare taxes while they’re working.
Cardin also noted a Medicare tax increase that Democrats rarely mention: Obama’s 2010 health care overhaul imposes an additional 0.9 percent tax on higher-income people starting next year and another 3.8 percent on tax on their investment income.
So, Cardin argued, if you add all that up, higher-income Americans are already paying enough for their Medicare benefits.
Medicare Part B is voluntary and “the more that we put these types of payment structures in place, the more that people who are well off will choose to not enter the Medicare Part B system,” Cardin said.
“This is a slippery slope,” changing Medicare into a means-tested safety net program, he warned. “I think that it is a dangerous path for us to go down.”
“When higher-income people decide to opt out (of Medicare Part B), rather than paying so much of their Part B premium out of their own pockets, they’ll go elsewhere and buy some private insurance policy,” said Rep. Henry Waxman, D- Calif.
“Those are the healthier, wealthier people. You’ll leave Medicare with the sicker, lower-income people and that means the whole Medicare system will increase in cost,” he said.
But Senate GOP Whip Jon Kyl rejected those arguments and, like Baucus, invoked “fairness” saying it “seems only fair that we ask some of the people at the very high end to be willing to pay a little bit more” for their Medicare benefits.
He said, “I thought we all agreed that high-income beneficiaries who are eligible for medical programs paid for by the taxpayers could afford to make some sacrifices here… in paying a little bit more for what they receive” from Medicare.
“This is not a new idea; this is something the president has proposed,” Kyl said. “I don’t know why all of a sudden people who want to put a surtax on millionaires don’t want them to have their Medicare benefit cuts at all.”