WASHINGTON — Senate Democrats will push for raising taxes on some high-earning Americans and direct the money toward improving Medicare solvency, according to officials briefed on the plan, while offering a modest version of the tax stalled tinkering with President Biden’s spending package.
The proposal is expected to raise $203 billion over a decade by imposing an additional 3.8 percent tax on income earned from owning a piece of what is known as a pass-through business, such as a law firm or medical practice. . The money that would be generated by the change is estimated to be enough to extend the solvency of the Medicare trust fund that pays for hospital care—currently running out of money in 2028—to 2031.
It is the most recent agreement to emerge from private negotiations between Senator Chuck Schumer of New York, the majority leader, and Senator Joe Manchin III of West Virginia, a conservative-minded Democrat who has demanded that his party support its sweeping ambitions for a domestic policy plan. In December, Mr. Manchin torpedoed attempts to hit Mr. Biden’s $2.2 trillion social safety net, climate and tax package over concerns about costs and the impact on the economy at a time of rising inflation.
His support is critical because, since Republicans are expected to be uniformly opposed, the only way the Democrats can get the package through the evenly divided Senate is to get unanimous support from their caucus and do so under special budget rules. who would protect it from a filibuster and let it pass a simple majority.
Mr. Schumer has worked to salvage key components of the plan that could pass that test, including a: plan released on Wednesday to cut prescription drug costs† Mr Manchin has repeatedly said that such legislation should focus on tax reforms and drug pricing, as well as efforts to reduce national debt. The bill is also expected to include some climate and energy provisions, a top priority for Democrats, although these are yet to be agreed upon.
Democratic leaders, who hope to get the legislation through the Senate this month, are expected to formally release the Medicare plan in the coming days, according to officials, who released preliminary details about the condition of anonymity.
The accelerated budget process the party plans to use for the total package, known as reconciliation, requires legislation to adhere to strict budgetary rules imposed by the Senate MP. The prescription drug legislation has been submitted to the MP and Democrats plan to file the tax hike and Medicare piece in the coming days.
The portion of Medicare that pays hospital bills is funded through a special trust fund, funded largely by payroll taxes. But with rising health care costs and an aging population, current revenues won’t be enough to pay all of Medicare’s hospital bills forever. According to the most recent report from Medicare’s trusteesthe fund will be exhausted by 2028 with no new income or cutbacks.
The Democrats’ plan would extend an existing 3.8 percent net investment income tax to so-called pass-through income earned by companies that distribute profits to their owners. Many people who work in such companies, such as law firms and hedge fund managers, earn high incomes but avoid the 3.8 percent tax on most of it.
The new proposal would only apply to people earning more than $400,000 a year, and joint petitioners, trusts and estates bringing in more than $500,000, in line with Biden’s promise that he would not raise taxes on people. earning less than $400,000 a year. The proposal is similar to a tax hike Mr Biden proposed in 2021 to help offset the costs of a series of new spending programs designed to help workers and families, such as home health care and childcare.
Imposing the new tax on pass-through revenue would bring in about $202.6 billion in a decade, according to a Joint Committee on Taxation estimate provided to Senate Democrats and reviewed by The New York Times. . Those funds would be funneled directly into the Hospital Insurance Trust Fund, which covers inpatient hospital care, some home care and hospice care.
The actuary’s office at the Centers for Medicare & Medicaid Services informed Democratic staff that the additional revenue would extend the solvency of the hospital trust fund from 2028 to 2031.
“Medicare is a lifeline for millions of American seniors, and Senator Manchin has always supported avenues to ensure it remains solvent,” said Sam Runyon, a spokeswoman for Mr. Manchin. “He remains optimistic that there is a way to do that.”
She warned that a general agreement on a broader climate, tax and spending package is not yet to be reached. Some Democrats also hope to include an extension of the extended grants of the Affordable Care Act, which passed a party vote in 2021 in the $1.9 trillion pandemic aid package.
“Senator Manchin still has serious unresolved concerns, and much work remains to be done before it is conceivable that a deal can be reached for him to sign,” said Ms Runyon.
While Mr. Manchin has said he would support additional tax increases, any changes to the tax code also need the support of Arizona Senator Kyrsten Sinema, a centrist who opposed many of her party’s original tax proposals.
And while many Democrats are eager to tackle climate change ahead of the midterm elections, which could change the balance of power in Washington, Mr. Manchin, who has protected his state’s coal industry, continues to negotiate that issue.
The core of the climate plan is expected to be about $300 billion in tax credits to expand development of clean energy such as wind, solar and battery storage, a significantly smaller plan that reflects concessions to Mr. Manchin, according to several people known. are with the negotiations.
Negotiators are also considering tax cuts to boost electric vehicle purchases, although it is unclear whether Mr Manchin will support such a provision.
Lisa Friedman reporting contributed.