Apply Medicare tax to investment income

As the president and congressional Democrats try to resolve differences over the proposal to tax so-called Cadillac health insurance plans — differences that threaten to shatter labor union support for health care reform — a new tax idea is emerging.

Some Democrats want to increase the Medicare tax for wealthy Americans and apply it to the investment income of those who make more than $200,000 a year.

It’s an idea we believe has merit. Those who earn their living strictly from wages pay the Medicare tax of 1.45 percent on every dollar they earn. (Their employers pay an equal amount, for a total Medicare tax of 2.9 percent on workers’ wages.)

Why should those who derive all or most of their income from investments, such as stock and real estate, not contribute at least an equal amount to Medicare?

The proposal being discussed would exempt retirement savings based on stocks and bonds, such as 401(k) accounts, according to the Wall Street Journal.

It would apply a Medicare tax of 2.35 percent to investment income and wages for those who make more than $200,000 a year, or $250,000 a year for couples.

The proposal to place an excise tax on Cadillac health insurance plans provided by employers to their workers — plans valued at more than $23,000 a year for a family — has been controversial since it was suggested. That idea has now become a political liability that Democrats may soon have to jettison if they are to hold their coalition together.

Meanwhile, according to the actuary for Medicare and Medicaid, both the House and Senate versions of the health bills will require billions more dollars over the next decade to cover increased costs for those two programs. Expanding the Medicare tax for wealthy investors and wage earners is one reasonable way to help cover those costs.


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