Earlier this week, President Joe Biden announced a budget proposal to increase Medicare taxes on high earners—those making more than $400,000 per year— to fund the program for the foreseeable future. It’s a laudable goal, but his administration is going to have to actually follow through on these policy proposals at some point. Otherwise, they’ll join the 25% proposed tax on billionaires and others on the boulevard of bygone Build Back Better economic packages.
Given the current Congress, any tax on high earners is likely to be a nonstarter. But there are benefits to announcing what you’d like to do if you had the ability. You commit to the record your position on a given policy, how you’d act if you were given the political power to do so, and you carve out a potential bargaining position. There are also some non-zero benefits for campaign purposes, a sort of “if you’d only give me the chance, here’s what I’d do” argument.
We’re not very good at ascertaining where we are and where we’re going, so when dead-end proposals are planned to be paid for with a new or hiked tax, it isn’t only the impacted that are displeased. It’s all the people who imagine themselves to one day be subject to that tax.
Sixty-three million people are enrolled in Medicare, which is about 20% of the total population—a full order of magnitude more than there are making $400,000 or more per year. About 56 million adults in the US are over 65, the qualifying age for Medicare, which also covers individuals with disabilities.
Thanks to Medicare, just 0.7% of people 65 and over are uninsured, as against 9.7% of people of all ages. It’s a socially valuable and vital program, and choosing who among the readers of this article will eventually be covered by Medicare is just a game of predicting who will live to at least 65.
And yet, it has its detractors. While “socialized medicine” as a vague bogeyman phrase has mostly fallen out of fashion, Americans’ views on redistributing wealth via taxation have only recently just barely ticked above 50% approval.
To a casual follower, there may seem to be a lot of big-ticket items being paid for on the strength of a new tax on higher-income earners—and Biden throws the $400,000 or more number with some frequency. If you aren’t keeping track of outcomes, you probably don’t realize most never make it through.
For instance, Biden’s once-again proposed billionaire minimum tax has been spoken of before in multiple addresses, but a bill has never made it to the floor of Congress. He’s also proposed raising the corporate income tax rate to 28% from 21%. That has been proposed once again, like we’re living in some billionaire’s fanfiction rewrite of the movie “Groundhog Day.” Calls to tax the wealthy have become de rigueur, but taxing the wealthy has not.
In 2021, Medicare cost the government about $900 billion, which is good for about 20% of the federal budget. I’ve written about some of the tax schemes undertaken by billionaires to avoid massive tax bills, and specifically about one $5 billion scheme that, taxed at a 20% capital gain rate, would net the government $1 billion. A billion dollars doesn’t sound like much, but that’s more than 1% of the cost of Medicare for a single year.
Perhaps, then, the secret to funding vital programs like Medicare isn’t rolling out bespoke taxes, but instead simply ensuring that billionaires pay in at the same rates you or I would. Closing loopholes and making certain that preferential treatment isn’t being given to those with access to interesting investment vehicles comes with all the revenue generation and none of the baggage of announcing dead-on-arrival tax plans.
About 1.5% of tax returns would be considered high earners and subject to the tax on income over $400,000. Nonetheless, the percentage that can imagine themselves at some point being fortunate enough to be subject to the tax is quite a bit higher.
There’s a cost to continually announcing plans to have the wealthy foot the bill for this or that social program, in front of a crowd of folks who plan themselves to be wealthy. It’s a little like polling the line for lottery tickets to inquire whether winners of more than a million dollars should be subject to an additional tax—the strength of the resounding “no” will be proportionate to the shouter’s belief that they’ve got the winning numbers.
This newly proposed tax, along with the rest of the more ambitious aspects of the budget proposal, will almost certainly never see the light of day, but that has no bearing on the vicariously aggrieved. The absence of a tax increase doesn’t tell them that the policy was never implemented, and they’ve heard once again that wealthy Americans, a group they hope to join one day, are being asked to foot the bill. When the time comes, they’ll simply join the cacophony of voices trying to tell us about their own current lived experience, and a new generation will take up the mantle in assuming they’ll become rich and remain ageless, rather than becoming poor and old.
This is a regular column from tax and technology attorney Andrew Leahey, principal at Hunter Creek Consulting and a sales suppression expert. Look for Leahey’s column on Bloomberg Tax, and follow him on Mastodon at @firstname.lastname@example.org.