Biden proposes tax hike on high earners to fund Medicare

US President Joe Biden will propose raising the Medicare tax on high earners to help keep the federal insurance program solvent as part of his budget to be released on Thursday, the White House said.

The tax increase is part of a package of proposals aimed at extending the solvency of the Medicare’s Hospital Insurance (HI) Trust Fund by at least 25 years, the White House said.

Biden has sought to link Republicans to the idea of cutting funding for Medicare as part of negotiations over increasing the United States' $31.4 trillion debt limit. Biden has pledged to offer his vision for funding Medicare and challenged Republicans to offer their own.

The president is expected to unveil his budget on Thursday, including a speech in Philadelphia to highlight his plan. The budget will likely face opposition from Republicans who control the House.

What would the proposal do?

Under Biden's proposal, he would raise the tax rate on earned and unearned income above $400,000 from 3.8 percent to 5 percent. He would also seek to close loopholes that allow high earners to shield some of their income from the tax, the White House said.

The Inflation Reduction Act (IRA), passed by Democrats last year, gave Medicare the authority to negotiate prices for high-cost drugs. The budget proposal boosts some of those provisions and allows Medicare to negotiate prices for more drugs and bringing drugs into negotiation sooner after they launch.

These additional prescription drug reforms amount to $200 billion in savings over 10 years, the White House said.

While the most recent Medicare Trustees Report projected that the trust fund would be insolvent in 2028, Biden's budget would extend solvency at least into the 2050s, the White House said.