Make Wealthy Investors Pay Their Fair Share of Medicare Taxes

by Reggie Oldak, Senior Counsel,
National Women's Law Center

President Obama is stepping up the pressure on Congress to pass health care reform now. His plan includes a financing proposal that would raise almost $184 billion over ten years by making sure the wealthiest Americans pay their fair share to support Medicare. 

Medicare is financed by a combination of a dedicated tax on earnings paid by workers and employers, income tax, and premiums paid by beneficiaries. But wealthy investors aren’t contributing their fair share because investment income—such as dividends, interest, and capital gains—is entirely exempt from the Medicare tax. (And, because income from capital gains and dividends is taxed at substantially lower income tax rates than income from work, wealthy investors get another break there.)

For taxpayers with incomes above $200,000 ($250,000 for couples), the President’s plan would apply the Medicare tax to investment income and would increase the Medicare tax rate by 0.9 percent on earnings above $200,000 ($250,000 for couples). That’s good tax policy, as we’ve said, and it’s a responsible way to help pay for health care reform.

By including investment income in the Medicare tax base and making the tax on earnings more progressive, the President’s proposal strengthens Medicare’s finances and makes the tax more equitable at the same time. It’s only fair.