Medicare and Social Security Fair Share Act
- Sponsor
- Rep. Boyle, Brendan F. [D-PA-2]
- Committees
- Ways and Means Committee (primary)
- Last action
- May 8, 2025
Bottom line
This bill aims to bolster the financial solvency of Social Security and Medicare by increasing tax contributions from high-income earners and investment income.
What it actually does
This bill proposes to increase funding for Social Security and Medicare by modifying payroll taxes and taxes on unearned income. It removes the cap on wages subject to Social Security payroll taxes for income above $400,000, adds a new 1.2% Hospital Insurance tax on wages and self-employment income above certain thresholds, and significantly expands the Net Investment Income Tax (NIIT) by broadening its scope and increasing its rate for high-income individuals and trusts/estates.
Proponents argue
Proponents argue this bill ensures the long-term solvency of critical social safety net programs without burdening middle and lower-income taxpayers. They contend that high-income individuals and corporations can afford to contribute more, and that closing tax loopholes on investment income is a fair way to fund these essential benefits.
Opponents contend
Opponents might argue that increasing taxes on high-income earners and investment income could disincentivize investment, harm economic growth, and lead to capital flight. They may also raise concerns about the complexity of the new tax structure and its potential impact on small businesses or family-owned enterprises.
The bill is relatively short but involves complex amendments to the Internal Revenue Code, requiring careful reading to understand the full implications.
Section 2(a)
Removes Social Security Payroll Tax Cap for High Earners
Currently, Social Security taxes (OASDI) are only applied to wages up to an annual cap (the "contribution and benefit base"). This provision would reintroduce the Social Security payroll tax on wages between the current cap and $400,000, and then again on all wages above $400,000. This creates a "donut hole" where wages between the current cap and $400,000 are subject to the tax, as are wages above $400,000.
Supporters argue
Supporters argue this ensures that the wealthiest individuals contribute their fair share to Social Security, strengthening the program's finances and extending its solvency. They highlight that the current cap disproportionately benefits high earners.
Critics contend
Critics might argue that this represents a significant tax increase on successful individuals, potentially discouraging work and investment. They may also point to the complexity of the "donut hole" structure.
Tradeoffs
Balances the need for Social Security funding with concerns about the tax burden on high earners and potential economic disincentives.
Section 2(b)
New 1.2% Medicare Tax on High Wages
This provision adds a new 1.2% Medicare (Hospital Insurance, HI) tax on wages above $400,000 for single filers, $500,000 for joint filers, and $250,000 for married filing separately. This is in addition to the existing 1.45% HI tax (and additional 0.9% HI tax for incomes above $200k/$250k/$125k).
Section 3(a)
Removes Social Security Self-Employment Tax Cap for High Earners
Similar to the payroll tax changes, this provision applies the Social Security self-employment tax (OASDI) to net earnings from self-employment above $400,000, and also to earnings between the current contribution and benefit base and $400,000, creating a similar "donut hole" structure.
Section 3(b)
New 1.2% Medicare Tax on High Self-Employment Income
This provision extends the new 1.2% Medicare (HI) tax to self-employment income above $400,000 for single filers, $500,000 for joint filers, and $250,000 for married filing separately. This coordinates with the wage-based HI tax, ensuring that the tax applies once income exceeds the threshold, whether from wages or self-employment.
Section 4(a)
Expands and Increases Net Investment Income Tax (NIIT)
This section significantly expands the scope of the Net Investment Income Tax (NIIT) to include all income from a trade or business for high-income individuals, regardless of whether it's a passive activity. It also introduces an additional 13.6% tax rate on the lesser of specified net income/net investment income or the amount by which modified adjusted gross income exceeds the high income threshold ($400,000 single, $500,000 joint). This effectively raises the NIIT rate from 3.8% to 17.4% for income above these thresholds and broadens the types of income subject to it.
Section 4(b)
Increases NIIT Rate for Trusts and Estates
This provision increases the Net Investment Income Tax rate for trusts and estates from 3.8% to 17.4% and expands the base to include "undistributed specified net income," mirroring the changes for individuals.
Section 4(c)(3)
Taxes Foreign Income under NIIT
This provision amends the NIIT to explicitly include amounts includible in gross income under sections 951 (Subpart F income), 951A (GILTI), 1293 (PFIC current inclusions), or 1296 (PFIC mark-to-market gains). It also directs the Secretary to issue regulations for distributions of foreign corporation earnings and profits accrued before December 31, 2025, to prevent double taxation or avoidance.
Section 4(d)
Allocates New NIIT Revenue to Trust Funds
This section directs specific percentages of the revenue generated by the expanded Net Investment Income Tax (NIIT) to the Federal Old-Age and Survivors Insurance Trust Fund (71.3%), the Federal Disability Insurance Trust Fund (10.3%), and the Federal Hospital Insurance Trust Fund (28.7%). These transfers apply to taxable years beginning after December 31, 2025.
The bill reintroduces Social Security payroll and self-employment taxes on wages/earnings above $400,000, but also on wages/earnings between the current contribution and benefit base (e.g., $168,600 in 2024) and $400,000. This creates a range of income that was previously untaxed (above the cap) but is now taxed, while leaving a "donut hole" of income between the current cap and $400,000 that is also taxed.
Section 2(a)(1) and Section 3(a)(1)
Why it matters:This structure is a deliberate policy choice to target only the highest earners while avoiding a full elimination of the cap for all income, which could impact a broader range of high-income professionals. The technical phrasing is standard for tax code amendments.
Case for: Proponents argue this structure specifically targets the very wealthiest individuals, ensuring they contribute more to Social Security without imposing additional taxes on those earning just above the current cap but below the very high-income thresholds.
Case against: Critics might argue the "donut hole" creates unnecessary complexity and could be seen as an arbitrary distinction. Some may prefer a full elimination of the cap for all income above the current base, while others may oppose any increase.
Estimated impact: Significant increase in Social Security tax revenue, primarily from individuals earning over $400,000.
The bill redefines "specified net income" for the expanded NIIT by removing several phrases from current law (e.g., "other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2)"). This effectively broadens the NIIT base to include active trade or business income for high-income individuals, not just passive investment income, if their modified adjusted gross income exceeds the high income threshold.
Section 4(a)(3)(B) (defining "specified net income")
Why it matters:This is a highly technical but substantively significant change to the tax base. The method of amendment (striking specific phrases) is common in tax legislation but makes the impact less obvious. The policy intent is to ensure that high-income individuals cannot avoid the NIIT by structuring income as active business income.
Case for: Proponents argue this closes a significant loophole, ensuring that all forms of income for the wealthiest individuals contribute to social programs, promoting tax fairness and preventing tax avoidance strategies.
Case against: Opponents contend this represents a substantial tax increase on active business owners and entrepreneurs, potentially stifling job creation, investment, and economic growth by taxing income that is not truly "passive."
Estimated impact: Expected to generate substantial revenue by broadening the tax base for the NIIT.
The bill imposes a new 1.2% Hospital Insurance tax on wages and self-employment income above certain thresholds. A crucial coordination rule (Section 1401(b)(3)(B)) ensures that the self-employment income threshold is reduced by any wages already taken into account for the wage-based HI tax, preventing double taxation of income that might be both wages and self-employment income (e.g., for partners in a partnership).
Section 2(b)(1) (new 3101(b)(3)) and Section 3(b)(1) (new 1401(b)(3)(B))
Why it matters:This is a standard technical provision to prevent unintended double taxation, which is common in complex tax legislation. Its placement is logical within the self-employment tax section.
Case for: Proponents argue this ensures fairness by preventing individuals from being taxed twice on the same income stream, while still achieving the goal of increasing contributions to Medicare.
Case against: No specific opposition is typically raised against such technical coordination rules, as they prevent unintended negative consequences.
Estimated impact: Prevents unintended over-taxation for a small subset of high-income individuals with mixed income sources, ensuring the tax is applied as intended.