The Spectacle Blog

New Payroll Tax About to Be Hiked for Second Time

By on 1.11.10 | 10:04AM

Last week, I wrote that appeasing House liberals who are upset about the public option would require adopting a number of measures that would increase the cost of the Senate bill. Now the New York Times is reporting the same:

As White House and Congressional negotiators work toward an agreement on a final version of sweeping health care legislation, they seem likely to push the 10-year price tag closer to the $1.05 trillion cost of the House-passed bill while relying on new taxes proposed by the Senate, probably including a bigger increase in the Medicare payroll tax than currently proposed.

The added cost would mainly be a result of increasing subsidies to those purchasing insurance through the government-run exchanges, as well as the possibility of having the federal government pick up the entire tab for expanding Medicaid by 15 million people.

Meanwhile, the new Medicare payroll tax hasn't even become law yet, and it's already on its way to being hiked for the second time. The tax was set at 0.5 percent in the orginal Senate bill, and then got raised to 0.9 percent in Harry Reid's final version that passed the Senate. And now the NYT tells us, its going to rise once again.

This would actually follow the historical pattern of payroll taxes. The Social Security tax has been raised 20 times since first being implemented in 1935, from 1 percent to 6.2 percent, while the Medicare tax has gone up seven times since 1966, from .35 percent to 1.45 percent. Taking into account that employers must match the payroll tax contributions of their employees, the combined tax went from 2 percent when introduced in 1935, to 15.3 percent today.

During the campaign, Obama introduced the idea of a payroll tax on higher income earners -- but it was only to apply to those making over $250,000, and the point was to extend the life of Social Security. Not only does the new payroll tax apply to individuals earning more than $200,000, it imposes a marriage penalty by applying to couples with combined income of $250, 000 or more. Furthermore, instead of using the money to extend the solvency of Social Security, it will be funneled into a new entitlement program. Thus, revenue generated is no longer available to plug the gap in entitlements.

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