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Democrats Want to Extend Medicare Solvency by Closing Trump-Era Tax Loophole

The plan would be included in the latest reconciliation bill, which top Democrats are negotiating with Joe Manchin.

Senate Majority Leader Charles Schumer conducts a news conference after senate luncheons in the U.S. Capitol on May 24, 2022.

In their negotiations over the next budget reconciliation bill with conservative Democrat Joe Manchin (West Virginia), Senate Democrats are working on two provisions that could help balance the budget for Medicare and close a major Donald Trump-era tax loophole.

On Wednesday, Senate Majority Leader Chuck Schumer (D-New York) released a plan to allow Medicare to negotiate prescription drug prices for the most expensive drugs and cap out-of-pocket costs for recipients at $2,000 a year. It would also place a cap on the amount that drug companies can raise prices annually. The plan reportedly has the support of all 50 Senate Democrats, and is pending review from the Senate parliamentarian.

The new drug price proposal is slightly narrower than last year’s proposal, which also included a plan to cap the cost of insulin at $35. Progressives like Sen. Bernie Sanders (I-Vermont) had hoped to get a major expansion of Medicare, including allowing it to negotiate prices for a wider range of drugs and expanding it to cover dental, hearing and vision, but the plan was watered down thanks to pharmaceutical industry-funded Manchin and Sen. Kyrsten Sinema (D-Arizona).

Democrats passed a bill introducing the same price cap on insulin earlier this year, but the legislation has stalled in the Senate. Senate Republicans are likely uniformly opposed to the current drug price plan, which Democrats plan to include in a roughly $1 trillion reconciliation bill that can be passed in the Senate through a simple majority vote.

Democratic aides also say, according to the Associated Press, that Senate Democrats are planning to extend the solvency of Medicare. They’re hoping to raise $203 billion to fund the service until 2031. The program is currently set to start running out of funding in 2028.

They’re aiming to extend Medicare’s solvency by closing a tax loophole created by Republicans in 2017 that has allowed wealthy executives to dodge hundreds of thousands, if not millions of dollars, in taxes — including Medicare taxes. The current proposal would make it so that people with incomes higher than $400,000 a year and couples with incomes higher than $500,000 a year would have to pay a 3.8 percent tax on earnings from pass-through businesses, or businesses that pass all of their income onto owners and investors.

Proposals to lower drug prices and expand Medicare are incredibly popular among the electorate. Polling done by Data for Progress last year found that about 83 percent of likely voters support expanding Medicare to include dental, hearing and vision. Other polling, conducted by CBS, found that 88 percent of people support lowering prescription drug prices.

The popularity of the plans could be due to exceptionally high drug prices in the U.S. Last year, a Government Accountability Office report found that, among 20 name brand prescriptions, prices were about four times higher in the U.S. than they were in places like Australia and France, and about 2.5 times higher than in Canada. Meanwhile, the amount the pharmaceutical industry gained in sales from the U.S. was nearly double that of the rest of the world combined in 2020.

The fact that Democrats are drafting the two Medicare provisions is a sign that Manchin may be in favor of the plans, though the lawmaker played a major role in watering down and ultimately killing the party’s reconciliation bill last year. Democrats are hoping the new proposal may also include provisions to address the climate crisis, with as much as $300 billion in clean energy tax incentives.

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