Biden plans to raise taxes for Americans earning more than $400,000

President Joe Biden will propose raising taxes on Americans making more than $400,000 to increase funding for Medicare and expand the program’s ability to negotiate lower costs for prescription drugs in an attempt to address a looming funding crisis.

Biden, who will unveil his full budget proposal Thursday in Philadelphia, said he will propose three key changes, including raising taxes and new rules to cut prescription drug costs.

The Democratic president outlined his plan in an invited essay in The New York Times on Tuesday, writing that ‘Medicare is more than a government program. It’s the solid guarantee Americans have counted on to be there for them when they retire.’

Biden’s proposal would increase the Medicare tax rate, created by the Affordable Care Act, from 3.8 percent to 5 percent for all Americans who earn more than $400,000 per year, including wages and earnings from capital.

“This modest increase in Medicare contributions from those with the highest incomes will help keep the Medicare program strong for decades to come,” Biden writes in the Times. The plan also seeks to close what the White House describes as loopholes that allow some revenue to avoid Medicare taxes.

With forecasters warning that Medicare won’t be able to pay promised benefits in just five years, Biden says his proposal will bolster the program for at least another 25 years.

“The president’s budget extends the life of the Medicare Trust Fund by at least 25 years,” the plan states, according to the Washington Post. ‘He achieves these gains without cuts in benefits; in fact, at the same time that it reduces costs for Medicare beneficiaries.’

In addition to taxes, Biden wants to expand Medicare’s ability to negotiate drug costs, which began with the Cut Inflation Act. He signed the sweeping legislation last year.

The changes would help shore up a key trust fund that pays for Medicare, which provides health care for seniors. According to the White House, the changes would keep the fund solvent until the 2050s, about 25 years longer than currently anticipated.

More changes would be made to Medicare benefits. Biden wants to limit the cost sharing of some generic drugs to just $2. The idea would reduce out-of-pocket costs for treating high blood pressure, high cholesterol and other ailments.

In addition, the budget would end cost-sharing for up to three mental health or behavioral health visits per year.

On Monday, Biden had hinted that tax increases for the wealthy would be at the center of his budget plan.

Addressing a group of firefighters as representatives of the Americans who work every day, he said: “A lot of what we’re doing is about your right to be treated fairly, with dignity and with respect.”

‘Part of that is making a tax system that is fair. We can make all these improvements and still reduce the deficit if we start making people pay their fair share,” he said in his remarks to the International Association of Firefighters.

Democrats and Republicans are now competing to show the public which party is the most fiscally responsible. It’s a key test, as the White House and Congress will need to agree to increase the government’s borrowing authority this summer, or else the US could default and send the economy into a severe recession.

House Budget Committee Chairman Jodey Arrington, R-Texas, who is writing his party’s tax plan, has said Biden’s plans will send inflation soaring.

“We’re going to see a budget that continues to raise taxes, and continues to spend taxpayer money, and continues to have this 15th straight month of persistent inflation as a result of that,” Arrington said.

Biden laid the groundwork for his next budget in his State of the Union address last month and in other recent speeches. He pledged to cut deficits by a combined $2 trillion over 10 years, strengthen Social Security and Medicare, and limit tax increases to people who earn more than $400,000.

His plan is, in some ways, much more ambitious than what he proposed in 2021, when his budget would have reduced debt by $1 trillion over 10 years relative to projections.

House Budget Committee Chairman Jodey Arrington (pictured), R-Texas, who is drafting his party’s tax plan, has said Biden’s plans will cause inflation to skyrocket.

House Speaker Kevin McCarthy, R-Calif., has called for putting the country on a path toward a balanced budget, leaving Social Security and Medicare intact. But McCarthy has kept a poker face about how the GOP could do that.

House Republicans have fought to unite behind a budget proposal of their own, and are unlikely to release a plan unless they have 218 votes to go to a majority.

The far-right Freedom Caucus, setting its own scoreboard, must present its priorities that would reduce spending to fiscal year 2022 levels and put the federal budget on a path toward balance. He pushed those policies as part of McCarthy’s long-running fight for House speaker, but his plan would require painful cuts that are too severe for other Republicans.

In brief remarks last week, McCarthy said it could be two months before House Republicans have a budget proposal, telling The Associated Press: “We were delayed because of the president.”

So instead, congressional Republicans this week will highlight tax hikes that Biden will outline in his budget proposal, betting that his arguments will sway voters at a time when inflation continues to hit consumers’ pocketbooks. That’s according to Republican aides who insisted on anonymity to discuss his strategy.

With his sights set on 2024, Biden will showcase his election-year budget plan this week in Pennsylvania, where he must win, rather than the usual White House setting.

Biden’s trip to Philadelphia on Thursday is a sign that the president’s budget proposal is part of a larger political push to connect with voters. He’s telling them that taxing the rich can reduce federal deficits and save cuts to popular programs like Social Security and Medicare.

Pennsylvania is strong evidence of the two competing ideological visions for the country. Biden carried the state by roughly one percentage point in 2020, a decidedly narrow victory. His appearance on Thursday will be his 23rd trip since he became president.

In the 2022 Pennsylvania Senate race, Democrat John Fetterman won by roughly five points despite voter concerns about the US economy linked to high inflation.

White House press secretary Karine Jean-Pierre said Pennsylvania is very “close to Biden’s heart” and that the president, who was born in Scranton, sees it as a “second home” after Delaware, where he served as a senator.

When Biden travels to Pennsylvania and elsewhere, Jean-Pierre said, “it’s an opportunity for the president to speak directly to the American people.”

In addition to taxes, Republican lawmakers are pointing to a White House promise to further reduce the deficit, pointing to massive spending measures passed by Democrats during the first two years of Biden’s presidency. In particular, the Republican senators plan to argue that since government revenue is already so high, Democrats should cut or reduce programs rather than raise taxes to pay for even more spending, according to one of the Republican advisers.

Jim Carter, director of the conservative America First Policy Institute, said Congress generally ignores presidential budgets and expects Biden’s plan to be more of a “liberal message paper.”

“The federal government doesn’t have a revenue problem,” Carter said. “He has a spending problem, and Joe Biden’s budget will do nothing to stop him.”

House Budget Committee Chairman Jodey Arrington, R-Texas, released a list of more than $750 billion in potential spending cuts last month. High on the list was the repeal of Biden’s executive order providing for student debt forgiveness, which would restore roughly $400 billion to federal coffers.

Arrington also included rescinding money tied to what he called a “wake-up” agenda, as the GOP’s cultural messages have merged with economic ones. She would remove $60 billion from the EPA that would go to environmental justice programs and recover $3.6 million intended to extend the Michelle Obama Trail in Georgia.

Phillip Swagel, director of the nonpartisan Congressional Budget Office, issued guidance Monday saying projected deficits should shrink by $5 trillion over the next decade to match the 50-year historical average.

“Returning primary deficits to their historical average is not a CBO recommendation,” Swagel wrote as a warning.

As Swagel described it, the political trade-offs are clear. Between $670 billion and $1.2 trillion could be raised by removing caps on the payroll taxes that fund Social Security. But that would be a tax increase. The Republican Party opposes the tax increases, and the increase would also violate Democrat Biden’s promise to raise taxes only on those who earn more than $400,000.