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November 13, 2009 |
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Senate Eyes Medicare Tax Hike |
(Dow Jones) Senate Democrats are weighing increasing Medicare payroll taxes on
wealthy Americans to plug a financing gap in a health-care overhaul
bill, say people familiar with discussions.
Senate Majority Leader Harry Reid (D., Nev.) is considering
increasing the 1.45% employee share of the Medicare tax on wages by
0.4% to 0.5%, according to a Senate aide.
Such an increase could raise around $40 billion, the aide
said, as 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. That is intended to stay in line with President Barack Obama's
pledge that he wouldn't increase taxes on the middle class.
The Associated Press first reported that Reid is considering a Medicare tax increase late Wednesday.
Reid spokesman Jim Manley declined to comment.
The current Medicare payroll tax rate is 2.9% of wages, with the employee paying half and the employer paying the other half.
Reid is waiting for cost estimates from the Congressional
Budget Office on the health bill, before making some key final
decisions about the package.
He is combining an $829 billion plan from the Senate Finance
Committee and a $645 billion bill from the Senate Committee on Health,
Education, Labor and Pensions.
Democratic leaders want to hold a December Senate vote on the health bill.
The final bill is expected to not add to the deficit, as new
spending will be offset by a combination of cuts to existing programs
and new taxes.
Some changes Reid is considering would require additional
revenue. For instance, a proposal favored by Reid to scale back an
excise tax on expensive health insurance plans would leave the bill as
much as $30 billion short, according to one Senate aide.
In addition, Reid is expected to beef up subsidies in the
bill for low-income and middle-income people to purchase health
coverage.
The Medicare payroll tax increase being weighed by 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.
The group 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.
"While still an improvement, this proposal is not as
advisable as the proposal we put forward on investment income," Wamhoff
said. "The more you exacerbate the disparity between wage and
investment income, the more you encourage people to hide their income
as capital gains."
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