A Tax a Day

Turning Medicare into an income redistribution program.

Originally Posted At The Wall Street Journal
November 15, 2009

Another day, another tax increase to finance the trillion-dollar health-care overhaul.

The latest schemes are leaking out of the Senate, where Majority Leader Harry Reid is scrambling to find enough money while not offending Big Labor. The Senate Finance bill imposes a 40% tax on expensive private health plans, many of which belong to union members as part of their negotiated contracts. So Mr. Reid wants to reduce this tax and is floating a new Medicare payroll tax surcharge as a substitute.

Just what an economy with 10.2% unemployment rate needs: Another tax on hiring.

The versions leaked so far would add as much as 0.5% on workers who earn more than $200,000. If assessed on both the worker and employer, this would increase the Medicare tax rate to 3.9% from 2.9% today. It would also create the first progressive payroll tax in American history, with wealthier workers paying a higher Medicare payroll tax rate than lower income workers.

Until 1993 the Medicare tax was capped— the Social Security tax still is capped at $106,800 this year—because Medicare was supposed to function like an insurance program. For example, the rich don't pay more for auto insurance than the poor do. But Democrats lifted the cap with their 1993 tax increase, so the Medicare levy now amounts to a marginal rate tax on every new dollar of wage income. Mr. Reid's payroll surtax would sever the link between the tax paid over a lifetime and the medical benefits received, officially making Medicare an income redistribution program.

In another trial balloon, Mr. Reid would impose the payroll tax on all income, not just wages and salaries. This means applying the tax to capital gains, dividends and other investment income. This would convert the Medicare levy into a de facto version of the income tax.

The tax on expensive health plans would at least provide some incentive to spend less on health care, which is what Democrats still pretend their "reform" is about. In reality, it has became nothing more than a vast scheme to redistribute income, as their mad tax-a-day scramble for revenue shows. If all of this damages job creation and the economy in the process, Democrats don't seem to mind.

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