By: The Editorial Board – wsj.com – March 7, 2023
The White House in a fact sheet previewed a proposal for “extending Medicare solvency” in its budget outline for fiscal 2024, set for release Thursday. Mr. Biden says he’ll extend “the life of the Medicare Trust Fund by at least 25 years,” without “benefit cuts” while “lowering costs for Medicare beneficiaries.” The program’s hospital insurance trust fund is set to start coming up short in 2028.
This Medicare miracle will come mainly from raising taxes and diverting the money into what was supposed to be a self-financing trust fund. The Administration would extend the Affordable Care Act’s 3.8% surtax on investment income to business income. Pair that with jacking up the rate to 5%, but putatively only for those earning north of $400,000. The current net investment tax kicks in at $250,000 for married couples, so call the new bracket a surtax on the surtax.
This is a classic story of how destructive taxes inevitably expand. The ObamaCare investment tax was sold as a nibble paid only by the richest—you’ll never even know it’s there—but now government can dial it up to pay for this or that. The investment tax wasn’t indexed to inflation, which means over time it has ensnared more Americans, and all the faster with high inflation. The Biden plan would also increase the top Medicare payroll tax on wages to 5% for those earning $400,000.
In other words, Mr. Biden is proposing a top federal tax rate of roughly 42%, and higher if he succeeds in his aim to raise the top rate on wages to 39.6% from 37%. Add state taxes in Democratic enclaves and earners could pay well above 50% of what they earn to Uncle Joe.
The plan is also a tacit admission that Medicare for All is a fiscal fantasy, since even current Medicare needs a giant tax increase. Imagine the rates required if Medicare covers those under age 65. The White House also disposes with the fiction that Medicare is a benefit Americans earn by paying into it.
As bad as the new taxes is the de facto rationing of therapies through drug-price controls. The Inflation Reduction Act under the guise of “negotiation” allowed Medicare to cap the price of certain drugs, and we warned that Democrats would never stop at only drugs that are especially expensive or lack competition.
Sure enough, the White House now wants Medicare to control “more drugs” and bring “drugs into negotiation sooner after they launch.” The end game is to control the prices and access to all pharmaceutical treatments. Note how the public-health left is already demanding Medicare not cover new treatments for Alzheimer’s because of their cost. The Inflation Reduction Act is already dampening investment, particularly in cancer drugs, but the Biden crowd is betting Americans won’t notice the cures that never happen.
Mr. Biden’s progressive whiz kids would also extend to commercial markets a provision that requires drug makers to pay Medicare rebates when they raise the price of a drug beyond inflation. Drug makers will deal with this ceiling on their investment returns by launching drugs at higher prices initially.
The price controls are supposed to raise $200 billion for the illusory trust fund, but don’t count on it. Ditto for taxes that always produce less revenue than expected, as earners change their behavior to avoid the wallop.
The White House proposal doesn’t address any of Medicare’s fundamental cost drivers, and even pretends it can rescue the program while charging seniors less. The fact sheet says the Administration will “lower out-of-pocket costs for drugs subject to negotiation,” limit some prescription out-of-pocket costs to $2, and lower costs for mental-health visits. More subsidies mean more costs, which mean more taxes and price controls.
The only good news is that this plan is a political document with no chance of passing this Congress, and exists mainly to bludgeon Republicans as wanting to push seniors off their retirement ice floes. But partial points to Team Biden for the preview of the punitive taxes a European entitlement state requires.
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