Presently, there is no wage cap on Medicare Taxes, which are 1.45% of an employees wages. And then the company also matches this 1.45% of an employees wages.
Thus, someone making $1 mil in his base salary in 2012 is getting $14,500 withheld from his pay for this Medicare Tax. And the company he works for pays another $14,500 in Medicare Tax.
It does surprise me how some companies keep emphasizing how they are helping the US Debt situation by all of the US taxes they are paying. However, the actual research shows that this isn't the case at all, particularly as it relates to the largest US Corps.
And their assertion that they are matching what the employee pays in Social Security and Medicare Payroll Taxes, is frankly very deceptively overstated. Let me explain.
A C corporation is able to deduct these employer-matched Payroll Taxes. Assuming the present US corporate tax rate of 35%, the actual US taxes paid related to these matched Payroll Taxes is not 100% of the Payroll Taxes, but only 65% of the Payroll Taxes.....yeah, that works out to a 35% discount to the company.
If the US Congress's objective was for the Big Corporations to fairly and truly match the employee's payroll taxes paid, then they would disallow, for US corporate federal income tax purposes, the payroll taxes paid by the corporation. And this would make a gigantic dent in the US Debt, and do so very fairly.
On the other hand, the employee gets no like 35% discount on his Payroll Taxes paid.
This is another case where the US Congress proudly proclaims that they are fairly legislating for everyone, but then doesn't openly disclose to the US public that they are also giving a 35% tax discount to the corporation, as corporate welfare.
And this is also another case of the continuing US Congress legislation for the already wealthy, in this case the rich corporation, which further expands the already huge economic gap between the wealthy and everyone else.
Anyway, back to this Medicare Tax and how it presently is not being assessed and collected on most of the large amount of tax-free or tax-deferred Employee Benefits of High Income taxpayers.
The 1.45% Medicare Tax is assessed on Base Salaries and on Bonuses. But Employee Benefits are also, in essence, Compensation, just as much as Bonuses are. However, the only tax-free or tax-deferred Employee Benefit that I can think of where the Medicare Tax is assessed is on the tax-deferred Salary Deferral.
Thus, the huge amount of true employee compensation from both tax-free health insurance and tax-free health savings accounts do not have a dime of Medicare Tax assessed on them, by either the high-income employee or by the company in its "match".
So, where in the world is the logic behind the US Congress widely and loudly proclaiming that it is imperative that the middle income and lower income retirees get their Medicare Benefits and Medicaid Benefits dramatically reduced when, at the same time, this same US Congress continues to allow this massive Medicare Tax Loophole Avoidance Scheme by High Income corporate executives, and frankly also by many other high income individuals, including many doctors?
Let me present again my short tax-free Employee Benefit list, which I showed in my earlier post on Tax-fee Employee Benefits:
1) Health Savings Accounts.....this one is huge
2) Archer Medical Savings Accounts
3) Accident and Health Insurance
4) Child and Dependent Care Services.....up to $5,000 per year
5) Disability Coverage
6) Group-term Life Insurance.....a portion is now taxable
7) Adoption Assistance Programs
8) Cafeteria Plans
9) Flexible Spending Arrangements
10) Qualified Retirement Planning Services
11) Employee Educational Expenses.....up to $5,250 per year
12) Health Reimbursement Arrangements
13) Post-Retirement Health Care and Other Benefits.....this one is huge
My understanding is that not a single one of the above tax-free Employee Benefits have the Medicare Tax assessed on them, either the 1.45% for the employee or the 1.45% "match" for the company.
And a lot of the above tax-free Employee Benefits are related to health.
So the US Congress is saying, let's give the healthier, wealthier, younger, highly-paid employees all of these health care related tax loopholes, but then, at the same time, let's also really stick it to the unhealthier, older middle income and lower income retirees by dramatically decreasing their Medicare Benefits.....after all, you old sick people are the real reason the country has such a huge US Debt.
Give me a break! It's nothing less than a full-fronted assault by the younger, wealthier, healthier US citizens and by US large corporations, with the US Congress being their paid mercenaries, on the older, poorer, less healthy US citizens. And it seems that the only one fighting on the side of weak here in this one-sided battle is the Obama Administration.
Where's the fairness here? It's clearly another situation of the wealthy, who are in control of the US Congress, getting their economic benefits, in this case health care tax loopholes, piled on, while at the same time making unreasonable economic demands on the weaker, elderly US citizens.
So my first recommendation is for all taxpayers with Adjusted Gross Income above $250,000 should pay the 1.45% Medicare Tax plus another 0.9% Medicare Tax imposed started in 2013, related to health care reform, on all Tax-free Employee Benefits, and the company should pay its fair 2.35% "match".
But as large as the Tax Loopholes are on the Medicare Tax Avoidance on all of the above High Income Employee Benefits, there are other like ones that are even much larger.....Medicare Tax Avoidance related to Retirement Benefits under all Defined Contribution Plans and also related to Retirement Benefits under all Defined Benefit Pension Plans.....with both of these huge Employer-Provided Employee Benefits made on behalf of High Income Employees.
What is happening now is that Medicare Taxes are not assessed and collected on any of these Profit-sharing Contributions, neither the Employee's portion nor the company's "matching" portion, and neither on the front-end when the Profit-sharing Contributions are made, nor when the Profit-sharing Contributions, as well as the huge subsequent earnings, are much later distributed, and thus when they become taxable income to the individual.
And the same can be said for Pension Funding under Defined Pension Benefit Plans, and frankly also on Post-Retirement Health Care and Other Post-Retirement Benefit Plans, where neither the company nor the high income employee has paid a dime of Medicare Tax related to these massive employee benefits.
My first recommendation here is that the company should be assessed a 2.35% Medicare Tax on all of its Profit-sharing and similar Contributions and on all of its Pension Contributions made, in the year they are made, related to those employees making more than $250,000 in compensation in each year. A reasonable allocation of the portion of the total Pension Contribution related to employees making more than $250,000 will be necessary here.
And my second recommendation is that for very high asset retirement plan accumulations, the participant should pay a Medicare Tax on the fairly allocated portion of profit-sharing and similar defined contribution plan distributions, that represents the initial Profit-sharing contributions by the employer, and also on the subsequent tax deferred earnings in the defined contribution plan. For these same high asset retirement plan accumulations, the participant should also pay a Medicare Tax on all of the defined benefit pension plan distributions.
To be more specific:
For all cases where the total fair market value of all retirement plan assets, existing at December 31, 2012, or at December 31 of any subsequent year, for a participant are at least $10 mil, that all subsequent Profit-sharing and similar defined contribution plan retirement distributions in the next calendar year should be allocated in a fair manner between the original Profit-sharing contributions and the subsequent earnings, and a 2.35% Medicare Tax will be assessed on the original Profit-sharing contribution portion, and a 3.8% Medicare Tax will be assessed on the portion that represents the subsequent earnings in the defined contribution plan, of the subsequent calendar year retirement distributions. Also, a 2.35% Medicare Tax will be assessed on all Defined Benefit Pension Plan Distributions made in the subsequent calendar year related to these extremely high total asset accumulations in retirement plans.
For all cases where the total fair market value of all retirement plan
assets, existing at December 31, 2012, or at December 31 of any
subsequent year, for a participant are at least $5 mil, but less than $10 mil, that all
subsequent Profit-sharing and similar defined contribution plan retirement distributions in the next calendar year should be
allocated in a fair manner between the original Profit-sharing
contributions and the subsequent earnings, and a 1.5% Medicare Tax will
be assessed on the original Profit-sharing contribution portion, and a 2.8% Medicare Tax will be assessed on the portion that represents the subsequent earnings in the defined contribution plan, of the subsequent calendar
year retirement distributions . Also, a 1.5% Medicare Tax will be assessed on all Defined Benefit
Pension Plan Distributions made in the subsequent calendar year related
to these very high total asset accumulations in retirement plans.
And for all cases where the total fair market value of all retirement plan
assets, existing at December 31, 2012, or at December 31 of any
subsequent year, for a participant are at least $2 mil, but less than $5 mil, that all
subsequent Profit-sharing and similar defined contribution plan retirement distributions in the next calendar year should be
allocated in a fair manner between the original Profit-sharing
contributions and the subsequent earnings, and a 1.0% Medicare Tax will
be assessed on the original Profit-sharing contribution portion, and a 1.8% Medicare Tax will be assessed on the portion that represents the subsequent earnings in the defined contribution plan, of the subsequent calendar
year retirement distributions. Also, a 1.0% Medicare Tax will be assessed on all Defined Benefit
Pension Plan Distributions made in the subsequent calendar year related
to these high total asset accumulations in retirement plans.
I think that the above closing of the Tax Loopholes on Medicare Tax Avoidance on all of the above Employee Benefits of High Income individuals is a substantially better and fairer way to solve the country's health care cost problem than dramatically decreasing the Medicare Benefits and Medicaid Benefits of middle income and lower income retirees.
And the amount of additional US Government Medicare Tax Revenues raised by the above fair proposals are just huge, and should all be used to reduce US Debt.
