Tuesday, September 17, 2013
New York Times: Taxing Medicare Benefits, by Bruce Bartlett:
In a recent post, I discussed the nontaxation of imputed rent – the income homeowners receive from themselves by virtue of being both landlord and renter – which, judging by the comments, many readers found bizarre. In my continuing series on tax expenditures, this week I want to discuss another form of income that few people recognize as being “income” – the nontaxation of Medicare benefits.
First, few people probably think of any government benefits as income in any sense of the term. But if one gets back benefits far in excess of what one pays into a program like Medicare, then one is receiving income. ... In reality, almost everyone gets back far more in Medicare benefits than they ever pay into the system. What follows below are new data from the Urban Institute on lifetime benefits and taxes for those with average lifetime wages. The figures are a present value calculation – all future benefits discounted to today – in inflation-adjusted 2013 dollars.
Interestingly, the Treasury Department does not include Medicare on its list of tax expenditures, because it considers this to be a normal feature of the tax system rather than an exception, but Congress’s Joint Committee on Taxation does. (See Page 39 in Estimates of Federal Tax Expenditures for Fiscal Years 2012-17.) ...
While I do not expect that the taxation of Medicare benefits will be on the table when Congress considers tax reform, it might be one way of raising revenue from high-income taxpayers who would be the primary beneficiaries of lower tax rates.