In Five Years, Medicare Runs Short of Money. Republicans to Nix Biden Fix.

President Biden made known his priorities with the release of his budget plan early this month. One feature is a modest increase in the Medicare payroll tax ("huge" and "giant" says the tax-averse Wall Street Journal editorial board) meant to extend the viability of Medicare for another 25 years beyond 2028 when the trust fund's reserves will otherwise run dry.

The president's offering will be negotiated over the coming months along with budgets from the House and Senate, and the tax increases are destined not to get past Republicans in the House. But the White House proposals do serve to remind that some action needs to be taken
about Medicare by a Congress that resolutely chooses to ignore what's coming at us in the future.

We pay 1.45% of income for Medicare, as do employers, for a 2.9% total. single individuals on income over $200,000 and marrieds filing jointly on income over $250,000 pay an extra .9% for a 3.8% total. For income over $400,000 Biden wants to increase the 3.8% to 5.0%. And he wants "business income" to be be swept into the equation. (Owners of professional service businesses have structured them to classify their earnings as profits which heretofore are not subject to the surcharges).

Republican refusal to consider any tax increases stands out against a backdrop of stunning gains in the wealth of the nation's top earners and business owners. Pay to corporate CEOs has gone steadily upward for decades, skyrocketing 1,460% since 1978.

Even poor results are rewarded, such as $21 million paid to Boeing's David Calhoun in the year its 737 Max airliner was grounded and the company lost $12 billion. Such as Norwegian Cruise Lines' CEO Frank del Rio pocketing $36.4 million with its ships dead in the water from COVID restrictions in 2020.

Corporate boards lavish extras. Atop his $34.5 million base pay last year, the board of JPMorgan Chase gave CEO Jamie Dimon a $50 million "retention bonus" just for him to stay on the job another five years and meet performance targets.

When Tim Cook took over from Steve Jobs at Apple in 2011, he was pledged 28 million shares over 10 years provided he stayed on and the stock price rose faster than most other large companies. Both did. Cook's shares rose to $3.5 billion across the decade.

Jeff Bezos' worth increased by $13 billion in a single day in 2020 when Amazon's shares surged 7.9%. He added $74 billion to his net worth at one point that year, which made him personally worth more than McDonald's or Nike. A "Money Issue" of the Sunday New York Times magazine made the point that for the average full-time Amazon employee, who was paid $37,930 in 2020, to accumulate as much money as Jeff Bezos — $172 billion at the time — that employee would have had to start working in the Pliocene Epoch, 4.5 million years ago, when hominids had just started standing on two feet.

The CEO of giant private equity firm Blackstone, Stephen Schwarzman, took home $1.1 billion in 2021, 85% of it in dividends.

And of course there's Tesla awarding Elon Musk $56 billion in stock (since sharply reduced by a drop in the company's stock price). It was as incentive to get Musk to stay with Tesla. He had said, "I did not want to be CEO" but the board considers him indispensable. (A single shareholder sued and the case is yet to be decided by Delaware's Chancery Court.)

We could fill your day with more of these pay bonanzas. Of course, these are extreme examples, but when the subject is taxes it's worth reminding how out of hand capitalism has become.

J. Pierpont Morgan "reckoned that bosses should earn at most 20 times the pay of their underlings". (Plato argued it should be no more than four times.) In the early 1960s, the typical chief executive at a large American company made what Morgan prescribed — only 20 times as much as the average worker.

It was a different time that brings to mind a John O'Hara world in which the plant owner of the company town lived with family in only a modestly larger house at the top of the hill but joined the rest of Gibbsville at church and country club dinners. George Romney – Mitt's father — ran American Motors, which produced the Rambler, America's 3rd most popular car, but he turned down several annual bonuses because he didn't think one should make more than $225,000 a year (about $2 million today).

The top tax rate in those days was the confiscatory 91%(!). Lyndon Johnson lowered the top rate to 70%. Ronald Reagan dropped it to 50% and then 28% in his final year (but with some 33% rates because 28% led to a revenue shortfall). It is now 37% with a surcharge for high earners.

The irony is that the crushing tax rate in the 1960s didn't cause high earners to clamor for more money, yet as taxes eased, yielding what one would think were more gratifying paychecks, corporate bosses became ever more obsessed with the money never being enough.

The ratio of CEO pay to that of a company's median worker, a benchmark of inequality, has rocketed into the stratosphere. From the 20:1 ration we saw in the 1960s, the average compensation of CEOs across all companies in the S&P 500 had by 2021 risen to 186 times the pay of the median worker at those companies. Median CEO pay was $14.2 million.

The Economic Policy Institute looks at the biggest 350 among them; in that subset CEOs in 2021 were paid 399 times the "typical" employee's earnings, with CEO compensation – about $1 million equivalent in 1965 — averaging $27.8 million in 2021, an increase of almost 2,700%. In indefensible contrast, EPI shows an increase in inflation adjusted dollars of only 42% for the average worker across the 56 years.

Often as not, these pay packages are largely in options to buy stock at a certain price in the future, and possibly with strings of performance goals attached. But compensation consultants say that is shifting. More and more CEOs are holding out for outright grants.

The CEO compensation that shows up in the annual filings of public companies is a visible indicator of soaring wealth, but the broader membership in America's wealthiest 1% is found in the less visible multitude of private companies across the nation – the auto dealerships, bottling plants, multi-unit food franchise holders, real estate developers, etc. – that pass through to their owners millions of dollars a year. In the aggregate it is they, as well as the huge sums of hereditary assets, that comprise America's wealthiest 1%.

The concentration of wealth in the U.S. has been a constant topic, reflected in assertions such as:

 The richest 1% hold 40% of the nation's wealth.

 The top 0.1% of households hold about the same amount of wealth as the bottom 90%.

These inequality stratifications are challenged by economists on the right because they count only income. They argue that the low income groups are far better off because of all the transfer payments they receive: food stamps, Medicaid, the Children's Health Insurance Program, the Affordable Care Act's subsidies, rent subsidies, energy subsidies, and refundable tax credits — "more than 100 other federal, state, and local transfer payments". True enough, but never have we seen it occur to them to fault a capitalist system that has brought about the need for a congeries of social programs, a system where businesses are allowed to pay wages insufficient for self-support and throw it to the rest of us to make up the difference between their inadequate wages and what a worker needs to pay for life.

But look how much of the total tax bill is already paid by top tier earners, goes another argument against any tax increase. "The top 1 percent of all taxpayers paid a bigger share of individual income taxes than the bottom 90 percent combined", goes the complaint. An editorial by the Journal board itself wants us to know that "the top 1% of earners paid 42.3% of the country’s income taxes". How could they be asked to pay more, is the implication.

But that is obfuscation. Why does the 1% foot so much of the nation's tax bill? Because the 1% takes in such enormous amounts of money. They are subject to exactly the same tax brackets as the rest of us, and that's simply how the math calculates. It is their wildly disproportionate "take" that should be disconcerting, not the taxes thereon.

The editorial goes on to say that the income reported on all the tax returns of the 1% is 22.2% of the total income reported on the returns of the entire nation. That fact comes from the right-leaning Tax Foundation in its analysis of 2020. If they only take in 22.2% of total income, how is itthat they pay 42.3% of all taxes, the Journal wonders. "Whatever else you say about the current tax code, there’s no denying that it is steeply progressive", the editors tell us. Something is seriously wrong, right?

Well, no. Here's why: Each of the few who make up the 1% reported high enough income to aggregate to the 22.2%. Each of those high amounts was subject to the higher tax brackets that — using exactly the same tax brackets as the rest is, remember — amount to the 42.3%.

The Journal further tells us that "the top 1% in 2020 earned at least [our emphasis] about $550,000 and paid an average income-tax rate of 26%.". That's revealing: 26% is exactly the effective tax rate on $550,000. But $550,000 is the minimum to qualify for the 1%, the Journal said; everyone else earned more, many surely a lot more, so shouldn't we expect to see an effective rate higher than 26%, the rate for the minimum earner in this select group? (the maximum tax is 37%). What we're reading is that the group that paid so much of the nation's taxes managed with the help of tax accountants and the various avoidance gimmickry buried in the tax codes, to pay a reduced rate.

That, as we first said, is the backdrop against which Republicans reportedly would vote 100% to turn down Biden's proposed tax increases to prop up Medicare, which those same Republicans say they want to leave unmolested — or so they said shouting "Liar" when Biden, during his State of the Union address, pointed to a Republican plan to "sunset" Medicare and Social Security.