Biden Wants to Close Tax Loopholes and Raise Taxes on Rich People to Protect Medicare

When he was running for president, Joe Biden was very clear that he was not Bernie Sanders – he wasn’t a socialist, and he didn’t believe the American economy and political system did not need to be completely torn down. His latest proposal, though, seems likely to get the approval of Sanders and his supporters. It’s a plan to hike taxes on high incomes in order to further fund Medicare.

For help planning for your own healthcare needs, consider working with a financial advisor.

Medicare Basics

Medicare is one of the cornerstones of the American social safety net – a social safety net that is, admittedly, significantly less robust than other Western nations. Along with Social Security, Medicare is designed to help older Americans live healthy and productive lives after their retirement.

Once you turn 65, you’re eligible to apply for Medicare. There are various programs, covering costs including routine healthcare, prescription drugs and more extensive work.

On the American left, there is strong support for extending the Medicare program to cover all Americans – known as “Medicare For All.” Biden, for his part, has not embraced this plan – but he has frequently asserted his support for making sure that Medicare is funded for years to come, making sure that older people who are no longer covered by workplace healthcare plans don’t wither on the vine.

Biden’s Proposal

In order to make sure that Medicare is funded into the future, Biden is proposing to raise Medicare taxes from 3.8% to 5% on annual income above $400,000 – and getting rid of loopholes frequently exploited by businesses and rich people.

“The budget I am releasing this week will make the Medicare trust fund solvent beyond 2050 without cutting a penny in benefits,” Biden wrote in an op-ed published in the New York Times “In fact, we can get better value, making sure Americans receive better care for the money they pay into Medicare.”

Another part of Biden’s plan is to implement around $200 billion in prescription drug reforms. This includes allowing Medicare to negotiate costs on more medications, and to let these negotiations happen more quickly after the drugs come to market.

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How This Impacts You

First off, none of this matters unless Biden’s budget is passed – and with the Republicans now in control of the House, this won’t happen without some pretty serious negotiations.

If you’re over 65, in theory you’ll be able to get prescription drugs more cheaply soon, once Medicare starts being able to negotiate drug prices.

If you’re still working, the impact this plan would have on you depends entirely on how much money you make annually. Earn less than $400,000? You’re in the clear. If you make more, though, you’ll be seeing a (relatively small) tax hike.

The Bottom Line

President Biden recently announced his proposal for a small tax hike on people earning more than $400,000, in order to fully fund Medicare through 2050. Additionally, he’s proposing a suite of prescription drug reforms.

Tax Planning Tips

• A financial advisor can help you adjust to any changes coming to the tax code. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Use SmartAsset’s income tax calculator to get a sense of what you’ll owe Uncle Sam this year.

Photo credit: ©iStock.com/Bill Oxford, ©iStock.com/andreswd

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