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Higher Medicare Tax Latest Proposal to Fund Health Care Takeover

Posted By Curtis Dubay On November 18, 2009 @ 3:37 pm In Economics | Comments Disabled

The latest proposal to pay for a government takeover of the health care system is to increase the Medicare tax for those that earn more than $250,000 a year [1]. This latest proposed tax hike shows Congress is desperate to find more revenue to pay for its excessively expensive health care plan.

The current Medicare tax is 2.9 percent. Workers and employers pay 1.45 percent each. It is unclear at this point whether both workers and employers would pay a higher rate, or just workers. Unlike the Social Security tax, the Medicare tax is not capped, so every dollar of wages earned by workers is subject to the tax.

Taxpayers pay the Medicare tax during their working years and receive coverage for hospitalization during their retirement. It already takes in less revenue than necessary to pay for the hospitalization coverage of current retirees. Raising the tax and using the revenue to fund a new entitlement does nothing to fix this shortcoming.

Using new revenue from the Medicare tax to fund health care reform would be as illogical as raising the federal gas tax, which sensibly funds highway construction and maintenance, to pay for a new welfare entitlement.

At this point, the deeper economic damage imposed by this take hike is difficult to analyze because the proposal lacks specifics. But there is little doubt the tax hike would legally fall on those earning more than $250,000 a year so it remains in accordance with President Obama’s campaign pledge.

Nevertheless, those earning much less than $250,000 a year will feel the negative impact of the tax [2]. Higher taxes on high earners will cause them to take fewer risks and cut back on investment. This will lower wages and reduce the number of jobs created. And much of the tax increase is likely to fall on small businesses, which will cause them to create fewer jobs and pay lower wages. Workers earning much less than $250,000 a year will bear the full brunt of these jobs lost and lower wages.

Slowing economic growth with higher taxes during this severe recession will only serve to prolong the suffering of those already hurt by the downturn. Congress should go back to the drawing board and come up with health reform that actually lowers costs instead of desperately seeking for new ways to raise taxes to fund an expensive government takeover of the health care sector.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2009/11/18/higher-medicare-tax-latest-proposal-to-fund-health-care-takeover/

URLs in this post:

[1] proposal to pay for a government takeover of the health care system is to increase the Medicare tax for those that earn more than $250,000 a year: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aquRIJDTszc0

[2] Nevertheless, those earning much less than $250,000 a year will feel the negative impact of the tax: http://www.heritage.org/Research/Taxes/bg2306.cfm

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