President Biden fired the opening shots of the battle over spending and taxes that will consume Capitol Hill this year when he proposed on Tuesday a 5 percent Medicare surtax on people who earn more than $400,000 a year.
The White House is hailing the proposal, which is part of Biden’s budget plan, as something that will extend Medicare’s solvency by 25 years, but Republicans are slamming it as a “massive” tax hike and key Democrats are ducking for cover, declining to say whether they will back it.
The proposal reopens the fierce political battle that wracked Capitol Hill more than a decade ago when Democrats included a 0.9 percent Medicare tax on earnings and a 3.8 percent tax on investment income for wealthier individuals in the Affordable Care Act.
That bill sparked a huge controversy ahead of the 2010 midterm election and lawmakers are girding for another intense fight over Biden’s Medicare tax plan and other proposed tax hikes in the White House budget, which is expected to be released on Thursday.
“You know the president’s budget is replete with what they would do if they could — thank goodness the House is Republican — massive tax increases, more spending,” said Senate Republican Leader Mitch McConnell (Ky.).
McConnell said “the American people can thank the Republican House” that Biden’s proposed tax increases “will not see the light of day.”
Asked about Biden’s tax proposal, Sen. John Cornyn (R-Texas), an adviser to the Senate GOP leadership, said “that’s his answer to everything, raise taxes.
He said “we’ll let” vulnerable Democrats “explain why that makes sense.”
Sens. Joe Manchin (W.Va.) and Jon Tester (Mont.), two Democratic centrists up for reelection in Republican-leaning states next year, declined to comment on the proposal, which received wide media attention Tuesday.
“I haven’t heard anything about it, I haven’t heard a word about it,” Manchin said as he headed to the chamber to vote around noon.
Tester said he didn’t have a chance to review the proposal either after spending the morning in an Appropriations Committee hearing on military health care.
Tester last week urged Biden to proceed cautiously after the president announced bluntly at a Virginia Beach event: “I want to make it clear. I’m gonna raise some taxes.”
“If it’s about tax equity we’ll take a look at it. If it’s about across-the-board tax increases for everybody it’s probably the wrong time to do it because of inflation,” the Montana senator told The Hill.
Senate Republican strategists say they will use Biden’s proposed tax hikes to ratchet up pressure on Senate Democrats running for reelection in Republican-leaning and swing states such as West Virginia, Montana and Arizona.
Much of Biden’s plan to erase the tax cuts passed under former President Trump faltered in 2021 and 2022 after running into opposition from Manchin and Sen. Kyrsten Sinema (Ariz.), who left the Democratic Party in December to register as an Independent.
Sinema is up for reelection next year and hasn’t said whether she will run for a second term.
The White House said in a fact sheet that the president wants to increase the Medicare tax rate on earned and unearned income above $400,000 from 3.8 percent to 5 percent.
Senate Democratic aides on Tuesday weren’t certain whether that threshold applied to individuals or couples and said they would await clarification from the White House.
Sen. Bob Menendez (D-N.J.), who represents a state with a high cost of living and is an outspoken proponent of lifting the cap on state and local tax deductions in expensive areas of the country, also declined to comment on Biden’s proposal.
“I haven’t seen that and I wouldn’t have made an decision yet on it,” he said.
Liberals, however, praised Biden’s Medicare tax plan, even without knowing all of its granular details.
“Let me examine it but I think it’s a step in the right direction,” said Sen. Bernie Sanders (I-Vt.), the chairman of the Senate Health, Education, Labor and Pensions Committee.
Senate Majority Leader Chuck Schumer (D-N.Y.) on Tuesday touted Biden’s proposal as something that would extend Medicare’s solvency by 25 years “without costing a penny in benefits.”
“That is great. Americans are going to love to hear that,” he predicted.
But Republicans wasted little time in going on the attack.
Sen. Mike Crapo (Idaho), the top-ranking Republican on the Senate Finance Committee, said Biden’s call to raise Medicare taxes without also proposing reforms to curb the program’s cost will only result in more federal spending and delay what he says is the future fiscal crisis Medicare beneficiaries face.
“We’ve been expecting that the president will try to claim he’s doing deficit reduction or trying to save some of these funds that are in jeopardy by proposing tax increases rather than reforms. My first feeling is that is not the first direction we should go in trying to deal with the Medicare Trust Fund,” he said. “I think it will run into some trouble here.”
He predicted “it will be just one of what we expect to be a bunch of different tax increase proposals” Biden will bring into any negotiation with Speaker Kevin McCarthy (R-Calif.) over raising the debt limit.
Crapo said the 3.8 percent Medicare surtax included in the 2009 Affordable Care Act didn’t do much to extend Medicare’s solvency because “it was utilized as a tool not to reduce the deficit or shore up the trust fund, it was utilized as a tool to justify more spending.”
Sen. Ron Johnson (R-Wis.), a member of the Senate Finance Committee, charged that Biden is perpetuating Medicare as a “welfare” program.
“I’ve never liked the fact that the Medicare surtax is unlimited. Social Security based on income because it’s supposed to be a self-funding mechanism,” he said. “Medicare has turned into a complete welfare program the way it’s done. It’s not taxing you to pay for your benefits. It’s taxing people and provides it to everybody.”
He noted the top 1 percent of Americans are paying more than 40 percent of income tax revenues.
“You’re only going to be able to tap into the rich so much before you completely disincentivize them and that cash cow stops producing,” he said.