Medicare was the sleeper issue that probably saved the Democrats from a “red tsunami” in the 2022 midterm elections. Now President Joe Biden looks like he’s trying for a repeat for the 2024 presidential elections, when — according to the current betting — he will be running again.
The president’s fiscal 2024 budget, announced Thursday, is a campaign platform in all but name. It calls for tax hikes on high earners and a further smackdown on “big pharma” to shore up the Medicare trust fund, which is due to run out of cash in 2028. The president says the moves would shore up the trust fund for another 25 years.
Biden would raise an extra $650 billion in Medicare taxes over the next 10 years by raising payroll taxes on incomes over $400,000 a year. He wants to hike the rate to 5% from 3.8%, as well as closing loopholes. With the Trump tax cuts due to expire in 2025, this would heft the top rate of effective income tax to about 45%.
Biden reckons Medicare can save $200 billion over 10 years by cutting prices paid to the pharmaceutical companies for the drugs they invent. Biden wants to expand the range of drugs on which Medicare can negotiate, and to demand drug companies rebate price hikes in excess of inflation.
The $850 billion positive swing in the Medicare budget over the next 10 years would dwarf the predicted red ink. At its last reckoning, the Medicare trustees were predicting a deficit of $250 billion by 2031.
“This is the start of a healthy dialogue,” said Shalanda Young, director of the Office of Management and Budget. “It shows you what he [i.e. Biden] values.”
Read: Biden targets crypto, real estate and oil industries, as he unveils his budget
It was an effective admission of what everyone in Washington already knows: This budget is going nowhere on Capitol Hill, least of all with the House of Representatives in Republican control. It’s a political document heading into the 2024 election.
“ If Republicans have a plan to rescue the Medicare trust fund without raising taxes or cutting spending this would be a good time to float it. ”
Medicare is already a key battleground issue. Biden provoked angry outbursts from opposition Republicans during his recent State of the Union address, when he said some of them wanted to cut or even “sunset” Medicare and Social Security.
While such ideas have certainly been floated in Republican circles, arguably the bigger questions are more about what Republicans haven’t said. Many of their lawmakers have been equivocal when it comes to ruling out cuts, and if Republicans have a plan to rescue the Medicare trust fund without raising taxes or cutting spending, this would be a good time to float it.
Meanwhile “Big Pharma” is an appealing target, especially in an election: That brief period in 2020 when liberals were cheering the pharmaceutical companies is already being swept under the carpet.
Investors might argue that if the pharma companies are making out like bandits they are doing a very good job of hiding it. Based on the performance of index funds such as VanEck Pharmaceutircals
PPH,
iShares U.S. Pharmaceuticals
IHE,
and SPDR S&P Pharmaceuticals
XPH,
that track the sector, pharma stocks in general have drastically underperformed the S&P 500
SPX,
— let alone the Nasdaq Composite
COMP,
— for years.
Over the past decade someone who owned stock in big pharma companies has made about half the returns of someone who invested in the SPDR S&P 500 index ETF
SPY,
and less than a third the returns of someone who owned a Nasdaq index fund such as the Invesco QQQ Trust
QQQ,
More: Biden backs tax hike on investment income to bolster Medicare, as he rolls out his budget proposal
