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Biden previews tax hike on wealthy to boost Medicare funding

The plan to raise taxes on Americans earning more than $400,000 sets up a showdown with Republicans.

WASHINGTON (CN) — Responding to predictions that Medicare will become insolvent in the near future, President Joe Biden's upcoming budget will propose a 25-year source of funding through increased taxes on people earning more than $400,000.

The White House unveiled the framework for a key part of the budget on Tuesday morning ahead of the full spending plan rollout on Thursday. In their last report on the state of Medicare funding, the program's trustees said a hospital trust fund will be insolvent by 2028 without congressional intervention. The nonpartisan Congressional Budget office gave a less dire timeline of insolvency by 2030, but the program would face automatic federal cuts once its spending exceeds its reserves.

Biden’s plan for fiscal 2024, which starts Oct. 1, would extend funding for Medicare’s Hospital Insurance Trust Fund through 2050, according to a fact sheet from the White House. Much of the money will come from an increase on the Medicare tax rate on earned and unearned income above $400,000 from 3.8% to 5%. 

Given the partisan rancor that his budget will likely face in the Republican-controlled House of Representatives, Biden met his challengers head-on Tuesday with a column published in The New York Times

"If the MAGA Republicans get their way, seniors will pay higher out-of-pocket costs on prescription drugs and insulin, the deficit will be bigger, and Medicare will be weaker," he wrote. "The only winner under their plan will be Big Pharma. That’s not how we extend Medicare’s life for another generation or grow the economy."

With a 2024 reelection campaign on the horizon, Biden's play casts him as both a careful steward of the budget and the nation's retirement programs.

“Millions of Americans have been working their whole lives, paying into Medicare with every working day, and want to know that they can count on Medicare to be there for them when they turn 65,” the White House said in the Tuesday fact sheet.

Senate Minority Leader Mitch McConnell said the spending plan is “replete with what they could do,” but ignores the reality of the country’s fiscal state.

“Massive tax increases, more spending, all of which — the American people can thank the Republican House for — will not see the light of day,” the Kentucky Republican said.

In his Times column, the president was critical of Republicans who say the best path forward for Medicare is through spending cuts — "only in Washington," he wrote, "can people claim that they are saving something by destroying it.”

“Let’s ask the wealthiest to pay their fair share so that the millions of workers who helped them build that wealth can retire with dignity and the Medicare they paid into,” he wrote. “Republican plans that protect billionaires from a penny more in taxes — but won’t protect a retired firefighter’s hard-earned Medicare benefits — are just detached from the reality that hardworking families live with every day.”

Senator Steve Daines said Biden’s plan would saddle the next generation with more debt.

“It’s irresponsible, it’s dangerous, it’s a threat to our national security,” the Montana Republican said. “We need to bring fiscal sanity back to DC.”

The White House did not say how much money would be generated by the tax increase or specifically how the plan would fund Medicare for 25 years. Press secretary Karine Jean-Pierre said those topics would be addressed when the budget is released.

“[Biden] will not cut benefits for any seniors,” Jean-Pierre said Tuesday. “But he will make sure that Medicare is there for people who earned it through their work, their hard work.”

Tuesday’s announcement mentioned Social Security benefits, but did not indicate Biden’s plan to fund the program. Jean-Pierre said Biden is open to proposals “that extend the Social Security Trust Fund without cutting Social Security benefits.”

The White House announced additional plans Tuesday to close a loophole for high-income earners who “have managed to shield some of their income from tax by claiming it is neither earned income nor investment income.” The plan would also dedicate revenue from Medicare net investment income tax to the trust fund.

Another $200 billion in savings over the next 10 years would come from Biden’s plan to expand the ability of Medicare to negotiate drug prices, according to the fact sheet.

The proposal seeks as well to lower behavioral health care costs and expenses for generic drugs used to treat chronic conditions.

"Lowering drug prices while extending Medicare’s solvency sure makes a lot more sense than cutting benefits," Biden said in the Times column.

Controversy has been building over Biden's plan to unveil the full budget proposal in Philadelphia on Thursday. The presidential budget is typically sent to Congress on the first Monday of February, although no budget has been submitted on time since former President Barack Obama’s fiscal 2011 spending plan. 

Biden’s first two budgets were not submitted until May, and last year’s proposal was released in March.

Former President Donald Trump did not meet the statutory requirement to submit any of his budgets, although two were only a week late. Obama submitted only one of his eight budgets on time, and three were more than a week late.

According to the Committee for a Responsible Federal Budget, meanwhile, Congress hasn’t passed a budget on time in 20 years and hasn't passed an appropriations bill on time in 26 years.

Maya MacGuineas, the leader of that nonprofit outfit, said the president and Congress need to be held to high standards.

“With every missed deadline, it becomes more and more likely that policymakers fail to abide by any of the regular order and instead just kick the can down the road, waiting until the last possible second to prevent a shutdown or pass a massive omnibus that no one has read,” she said in a press release.

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