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Reid ponders Medicare tax increase for high earners.

The U.S. Senate majority leader, Harry Reid, is considering a proposal to increase the Medicare payroll tax on high-income workers to help offset the costs of providing health insurance to millions of Americans, aides said Thursday. The proposal is part of a legislative package that Mr. Reid has put together in secrecy and submitted to the Congressional Budget Office for analysis. Mr. Reid, Democrat of Nevada, has said the Senate could begin debate on the legislation as soon as this week, although members of his own party do not yet know details of the bill he has assembled from pieces approved by two Senate committees. The Medicare payroll tax is the primary source of financing for Medicare's hospital insurance trust fund, which pays hospital bills for beneficiaries. Employers and employees each pay a tax equal to 1.45% of wages. Unlike the payroll tax for Social Security, which applies to earnings up to an annual ceiling ($106,800 in 2009), the Medicare tax is levied on all of a worker's earnings without limit.

Mr. Reid is apparently considering an increase in the Medicare payroll tax rate for workers with incomes of more than $250,000 a year, Senate aides said. One idea is to increase the tax rate by one-half of a percentage point, to 1.95% for high-income people, with an expectation that the government could raise $40 billion to $50 billion over 10 years. As a presidential candidate, Barack Obama repeatedly said that under his administration, people making less than $250,000 a year would not see any of their taxes increased. Mr. Reid has several reasons for considering an increase in the payroll tax. He is seeking money to provide more extensive subsidies to help low- and moderate-income people buy insurance. A bill passed the week prior by the House would provide $602 billion in subsidies over 10 years, while a measure approved last month by the Senate Finance Committee would provide $461 billion.

Economists and politicians pointed out several possible objections to Mr. Reid's proposal. It does nothing to slow the growth of health spending, as would the tax on high-cost insurance contained in the House bill. And, as the Congressional Budget Office pointed out recently, "higher tax rates on earnings reduce people's incentive to work." Moreover, the higher payroll tax would not be sufficient in the long run. Payroll tax revenues generally grow with payroll, which is expected to increase more slowly than health costs under even the most optimistic projections.

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Title Annotation:TOP STORIES; United States. Congress. Senate
Geographic Code:1USA
Date:Nov 16, 2009
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