On Thursday, President Joe Biden presented his $6.9 trillion budget proposal. It included a spending plan to increase taxes on the rich and large corporations, as well as a spending plan to strengthen social programs and other priorities.
In prepared remarks, released before a scheduled address in Philadelphia this afternoon, the president called the budget a “blue collar blueprint to rebuild America in fiscally responsible ways that leave no one behind”. It proposes spending for fiscal 2024, which starts Oct. 1, 2023. Even if the budget isn’t approved as written, which would be a likely outcome due to the split Congress, the budget still reflects the president’s values, Karine Jean-Pierre, press secretary, said Wednesday. She said that these include lower costs for families, strengthening Social Security and Medicare, and reducing the deficit by nearly $3 trillion over 10 year. “Making the wealthy and big corporations pay their fair shares” she added.
These priorities will be brought up by the administration in budget negotiations with Congress. Biden’s budget proposal, on the other hand, is more focused on revenue growth through tax increases.
Biden proposes to strengthen Medicare’s Hospital Insurance Trust Fund
Medicare is facing the insolvency of its trust funds, which could threaten some benefits for those who depend on it.
The trust will run out of money by 2028 unless Congress acts before then. Biden proposes to raise the Medicare tax rate from 3.8% to 5.0% on earned income over $400,000. This would extend its life expectancy beyond 2050.
The proposal’s earned income component would be raised by the Medicare payroll tax for workers earning over $400,000; the unearned income portion would see an increase in the net investment income tax levied on higher income earners. It applies to interest, dividends and capital gains as well as royalties and certain rents.
Medicare and Social Security, which are mandatory spending items under law, don’t get funding through the annual Congressional appropriations. Discretionary spending, however, must be approved by Congress every year.
Lowering drug prices
Biden’s budget would expand on the powers that Medicare has under the Inflation Reduce Act.
This bill will also grant the seniors’ healthcare program the right to negotiate drug prices. It will penalize drug companies that raise prices by more than inflation.
It would enable Medicare to negotiate the prices of more drugs, and bring them into negotiations soon after their launch. The White House stated this in a factsheet. White House stated that the budget would also expand an Inflation Reduction Act requirement that drug firms pay Medicare rebates if they raise prices faster than inflation for commercial health insurance.
Some proposals would not only save money for the federal government, but also lower costs for Medicare beneficiaries. According to the White House factsheet, the budget proposes to cap Part D’s cost-sharing for certain generic drugs that are used to treat common chronic conditions such as high blood pressure or high cholesterol to $2 per month.
Other taxes increasing
Biden will not only raise or impose Medicare taxes on the rich, but also other taxes. Additionally, the budget would raise taxes on private equity managers’ carried interest income, limit certain retirement benefits for wealthy individuals, and subject cryptocurrency transactions to wash-sale rules applicable to stocks and bonds. Investors are prohibited from selling depreciated securities, realizing a tax deduction loss, and then buying it back right away under wash-sale rules. The budget notes that $24 billion could be raised by extending the wash-sale rules to cryptocurrencies.
Biden also proposes closing what is known as the carried-interest loophole. This allows investment managers to pay 20% tax on certain compensation they receive from managing fund assets instead of the 37% regular income rate.
Budget would also impose a 25% minimum income tax on billionaires. They often pay less than average income tax rates because they have common sources of income that are given preferential treatment under current tax codes.
Boosting tax credits & healthcare subsidies
The budget proposes tax increases for high-income earners but also offers tax breaks to the middle class and lower income Americans. Biden proposes to restore the Child Tax Credit expanded in the American Rescue Plan. This credit was established in 2022 and has been credited with decreasing child poverty rates. The credit was increased from $2,000 to $3,000 for children 6 years and older, and from $3,600 to $3,000.0 per child below 6. Biden proposes that the credit be fully refundable so taxpayers can use any excess to their refund.
The budget would also permanently make permanent the increased premium subsidies for Affordable Health Act marketplace health insurance, which were established under the American Rescue Plan. They were extended through 2025 by the Inflation Reduction Act. The increased subsidies have helped to lower the cost of health insurance for all income levels, even those who were previously too poor to be eligible for government assistance.