Details emerge for possible Medicare payroll tax in Senate health bill

Nov 12 2009

Bloomberg: "White House Budget Director Peter Orszag said a proposal to apply Medicare taxes to capital gains earned by wealthy Americans as part of health-overhaul legislation is 'in play' in order to scale back a proposed levy on high-end insurance plans." Orszag made these comments while speaking at the Bloomberg Washington Summit today. He also said this tax idea "is one of several...'floating around' as the Senate prepares to begin debate on the health bill as early as next week." Senate Majority Leader Harry Reid's aides have been seeking input on the proposal from staffers for key Senators such as Budget Committee Chairman Kent Conrad, D-N.D., and Olympia Snowe, R-Maine. According to aides, "Reid's proposal ... would apply Medicare taxes to non-wage income earned from capital gains, dividends, interest, royalties and partnerships for U.S. couples earning more than $250,000. ... He's also considering an alternative that would simply increase the 1.45 percent Medicare tax on salaries of couples who earn more than $250,000." Either of these approaches would allow "Reid scale back a 40 percent excise tax on so-called Cadillac health benefits. Critics say that tax would hurt rank-and-file workers and violate President Barack Obama's pledge to not raise taxes on couples earning less than $250,000"  (Donmoyer, 11/12).  

The Wall Street Journal: "Reid is considering increasing the 1.45% employee share of the Medicare tax on wages by 0.4 to 0.5 percentage point, according to a Senate aide. Such an increase could raise about $40 billion, the aide said, as Mr. Reid struggles to craft a health bill that will meet the demands of his 60-member Democratic caucus and not add to the deficit. The additional tax would apply only to wage income above $200,000 for individuals, or $250,000 for married taxpayers filing jointly" - a proposal aimed at "stay[ing] in line with President Barack Obama's pledge that he wouldn't increase taxes on the middle class."

"The Medicare payroll tax increase being weighed by Mr. Reid 'would be a progressive change, it would be targeting people who are most able to pay,' said Steve Wamhoff, legislative director for the liberal group Citizens for Tax Justice," a group who "in December proposed raising the employee share of the Medicare tax to 2.5% of wages but also proposed applying the tax to capital-gains income. The Medicare tax now only is levied on wages" (Vaughan, 11/12).