Dems Attain Deal to Prolong Medicare Solvency

A news-packed Thursday: UK Prime Minister Boris Johnson was forced to resign, the IRS asked a watchdog to investigate how two former FBI leaders who clashed with former President Donald Trump came to face intensive audits, and legendary “Godfather” actor James Caan died at age 82. Oh, and Democrats appear to be getting closer on their budget reconciliation bill. Here’s your fiscal update.

Dems Reach Deal to Extend Medicare Solvency: Reports

Senate Democrats have reportedly finalized another key piece of the scaled-back economic plan they want to pass within weeks: A deal with Sen. Joe Manchin (D-WV) that would tax high earners and use the money to extend the solvency of Medicare.

Medicare’s trust fund for inpatient hospital care is projected to be depleted by 2028, according to a report from the program’s trustees released last month. The Democratic proposal reportedly would require individuals making more than $400,000 a year and couples making more than $500,000 to pay a 3.8% tax on their earnings from so-called pass-through businesses.

The surtax would close what Democrats say is a costly loophole in the tax code and raise some $200 billion over a decade. The additional revenue is reportedly projected to push off the Medicare trust fund’s insolvency until 2031.

Democrats reportedly expect to submit the plan for review by the Senate’s parliamentarian within days. Democrats want to use a fast-track process called budget reconciliation to pass their plan along party lines and avoid the threat of a Republican filibuster, but that process involves strict rules that the parliamentarian will have to confirm have been met.

Why it matters: The Medicare plan is the latest sign that negotiations between Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV) are making progress on a scaled-back economic package to replace the Build Back Better plan that collapsed late last year when Manchin rejected it. That plan reportedly could include about $500 billion in spending on climate, health care and other programs and another $500 billion in deficit reduction over 10 years.

Democrats on Wednesday sent the parliamentarian another part of their package, a 190-page plan to lower prescription drug costs that, among its provisions, would allow Medicare to negotiate some drug prices. “Democrats say both plans will show voters they are battling to curb health care costs and protect the widely popular Medicare program, positions they say will be dangerous for Republicans to oppose,” Alan Fram of the Associated Press writes.

Despite the signs of progress, Democrats still have a long way to go to finalize their deal, particularly the climate and energy portions. Those programs are now reportedly expected to carry a price tag of $300 billion to $350 billion, down from $555 billion in the Build Back better bill passed by the House last year.

“Suggestions that a reconciliation deal is close are false,” Sam Runyon, a spokesman for Manchin, said in a statement to The Washington Post. “Senator Manchin still has serious unresolved concerns and there is a lot of work to be done before it’s conceivable that a deal can be reached he can sign onto.”

The bottom line: The Post’s Maxine Joselow and Tony Romm note that “a wide array of issues — about the size, scope and cost of the package — remain up for debate” and add that Democrats have repeatedly thought they were close to a deal with Manchin only to see talks break down. Still, Democrats appear to be closer to a deal than they have been in many months.

Number of the Day: $1 Billion

The Biden administration is directing nearly $1 billion this year to 85 airports around the country to help cover the cost of upgrades and expansions. The funds will come from the roughly $1.2 trillion infrastructure bill Congress passed last fall

“I don’t think anybody could look at airports across America today and say that the existing system and existing levels of funding have been adequate,” said Transportation Secretary Pete Buttigieg. “America is a country that brought the modern aviation age to the world — and yet around the world, in most rankings of airport quality, not one of our airports ranks among the top 25. That’s something that we have to change.”

According to The Washington Post, projects that are receiving funding include expansion at Chattanooga Metropolitan Airport ($5 million), a new terminal and baggage screening enhancements at Pittsburgh International Airport ($20 million) and new gates and improved access at Orlando International Airport ($50 million).

Pharma Giant Saves Billions Thanks to 2017 GOP Tax Overhaul: Senate Report

AbbVie, an American biopharmaceutical company with a current market value of more than $260 billion, has sharply reduced its federal tax bill in recent years thanks to a provision in the 2017 Republican tax bill signed into law by former President Donald Trump, according to a new report from the Senate Finance Committee.

The tax law has allowed AbbVie to shift most of its U.S. sales to tax havens around the world, shielding income from U.S. taxation. “In 2020, over 75% of AbbVie’s sales were made to American consumers yet only 1% of AbbVie’s income was reported in the United States for tax purposes,” the report says. “Under the Republican tax law, AbbVie has continuously paid an effective tax rate that is less than half the U.S. corporate tax rate of 21% and the marginal tax rate of 22% paid by an American family with a combined income of $84,000.”

Sen. Ron Wyden (D-OR), who chairs the panel, said in a statement that the report highlights the need for Congress “to fix this broken system, so nurses and firefighters aren’t paying higher tax rates than Big Pharma.”

Playing the system: The 2017 GOP tax law established a minimum corporate tax of 10.5% on income recorded by multinationals based on patents and trademarks held offshore. This provision was intended to prevent multinationals from moving income and profits to low-tax jurisdictions, but some companies quickly figured out how to use the new system to their advantage.

AbbVie’s blockbuster rheumatoid arthritis drug Humira — the best-selling prescription drug in the world for several years, with a current annual cost of more than $77,000 per patient — provides a telling example. In a review of the Senate report, The Washington Post’s Tony Romm says that AbbVie “based its patents, trademarks and other assets for the sale of Humira with subsidiaries in Bermuda, while manufacturing key parts of the drug via a branch in Puerto Rico … These and other tactics helped AbbVie sharply reduce the taxes it owed, lowering its effective U.S. rate in 2018 to about 8.7 percent from 19 percent a year earlier, the data show. For 2021, AbbVie expected to pay an estimated effective tax rate of about 12.5 percent.”

In a letter to the Senate committee last fall, an AbbVie official made it clear that Republican tax overhaul has helped the company lower its tax bill. “The changes made by the 2017 tax law altered U.S. taxation on foreign earnings for U.S. corporations and have had a significant impact on AbbVie’s effective tax rate,” said Scott Reents, AbbVie’s Vice President for Tax and Treasury.

What comes next: The Biden administration hopes to enact an international agreement that establishes a minimum global tax rate and closes loopholes that allow multinationals to park profits in tax havens. But Republicans have opposed making changes to the 2017 tax law and are not expected to support any new international agreements, likely leaving the current system in place for the foreseeable future.

Global Inflation, Fueled by War in Ukraine, Could Drive 71 Million People Into Poverty: UN

The global food and energy price surges that have resulted from the war in Ukraine could push more than 71 people worldwide into poverty, according to a new report from the UN Development Program.

“Poverty, measured by the number of people surviving on less than $3.20 per day, grew faster in the war’s first three months than it did during the first 18 months of the pandemic,” The Washington Post reports, citing George Gray Molina, the U.N. development agency’s chief economist.

“As interest rates rise in response to soaring inflation, there is a risk of triggering further recession-induced poverty that will exacerbate the crisis even more, accelerating and deepening poverty worldwide,” the UN said in a news release.

The report concludes that “targeted and time-bound cash transfers are the most effective policy tool to address what it calls a “cost-of-living crisis.”


Views and Analysis

  • Democrats Can’t Waste This Chance to Pass an Economic Package – Washington Post Editorial Board
  • Congress Must Pass Funding for More Covid Research – Faye Flam, Bloomberg
  • Medicare Could Have Saved $3 Billion Buying Drugs the Mark Cuban Way – Hussain S. Lalani, Benjamin N. Rome and Aaron S. Kesselheim, Washington Post
  • McConnell’s Bizarre Threats Show the Danger of a GOP-Controlled Congress – Greg Sargent, Washington Post
  • The Fed Needs a Helping Hand to Fight Inflation – Marc Goldwein, Barron’s
  • The New Gun Reform Law Is the Biggest Expansion of Medicaid Since Obamacare – Abdul El-Sayed, The New Republic
  • What’s Wrong With Health Insurance? Deductibles Are Ridiculous, for Starters – Aaron E. Carroll, New York Times
  • Is It Time for a National Public Health System? – Leana S. Wen, Washington Post
  • Price Controls on Prescriptions Mean Fewer Jobs, Not Lower Inflation – Grover Norquist, The Hill
  • US Labor Market Shows No Signs of an Imminent Recession – Conor Sen, Bloomberg
  • Drivers Are Angry With Biden. What About Powell? – Liam Denning, Bloomberg
  • A Debt Crisis in Sri Lanka Could Spread Worldwide. The U.S. Must Help – Washington Post Editorial Board