About 21 months ago Paul Krugman had a question
lower and middle-income Americans would be substantially better off under the Obama plan. But where is the money for health care reform?
I proposed an answer
there are two puzzles in Obama's proposals
1) how does he plan to pay for both health care reform and his middle class tax cut ?
2) why is he raising the social security tax even though it is probably not needed to pay old age and disability pensions ?
I think the two questions answer each other. I think that Obama is planning to pay for health care reform with the donut FICA increase (taxing individual labor income over $250,000).
Now we know. Yes most of the money for health care reform came from planning to have the CMS squeeze hospitals and nursing homes, then much from eliminating the Medicare advantage boondoggle (not eliminating the program just paying private insurance companies the same per policy holder as the CMS spends), then from the tax on cadillac health plans.
However, when cutting that unpopular tax, expanding subsidies, making the special deal for Nebraska universal and making the special deal for collectively bargained health insurance benefits universal, Obama was short a few hundred billion. So in the Obama compromise proposal (the first proposal from the Obama administration) the donut tax returned.
The bill imposes new taxes on wealthier people. Individuals making more than $200,000, and families making more than $250,000, will have to give up more of their paycheck to the Hospital Insurance payroll tax. Instead of paying 1.45 percent like most workers, they’ll pay 2.35 percent. And a new 3.8 percent tax will be added to income from interest, dividends, annuities, royalties, and rents.
OK so it's described as an increase in the Medicare plan A tax not the social security old age and disability pension tax. It starts at income of 200,000 or family income of 250,000. It applies to capital income too. The rate is lower than I guessed way back then (I just assumed it was 6.25%). Still I now type "I told you so."
It was always there in his mind in case it was needed.