Medicare and Social Security Fair Share Act
- Sponsor
- Sen. Whitehouse, Sheldon [D-RI]
- Committees
- Finance Committee (primary)
- Last action
- May 8, 2025
Bottom line
This bill aims to shore up Social Security and Medicare solvency by significantly increasing taxes on high earners and certain investment and business income.
What it actually does
This bill significantly increases funding for Social Security and Medicare by modifying payroll taxes and expanding the Net Investment Income Tax (NIIT). It reintroduces Social Security payroll taxes on earnings above $400,000, adds a new 1.2% Medicare tax on wages and self-employment income above $400,000/$500,000, and expands the NIIT to include all business income for high-income individuals, increasing its rate from 3.8% to 17.4% and allocating a portion of its revenues to the Social Security and Disability Insurance Trust Funds.
Proponents argue
Proponents argue this bill ensures the long-term solvency of Social Security and Medicare by requiring the wealthiest Americans and highest-income individuals to contribute a fairer share, without raising taxes on middle- and lower-income workers. They emphasize the importance of these programs for retirees, individuals with disabilities, and the vulnerable, asserting that these changes are necessary to protect earned benefits for future generations.
Opponents contend
Opponents contend that increasing taxes on high earners and investment income could disincentivize investment, harm economic growth, and potentially lead to capital flight. They may also argue that these substantial tax increases could negatively impact small business owners and entrepreneurs, creating disincentives for job creation and wealth accumulation.
The bill is concise, allowing for a quick read and understanding of its core provisions, though the tax code amendments require careful attention to fully grasp their implications.
Section 2(a)
Modification of Social Security Wage Base
This provision amends the Internal Revenue Code to reintroduce Social Security payroll taxes on earnings above $400,000. Currently, Social Security taxes only apply up to an annually adjusted wage cap (e.g., $168,600 in 2024). This change creates a 'donut hole' where income between the current cap and $400,000 remains untaxed for Social Security, but income above $400,000 becomes subject to the tax again.
Supporters argue
Supporters argue this ensures high-income earners contribute more to Social Security, helping to extend the program's solvency and aligning with the principle that those with greater ability to pay should contribute a larger share.
Critics contend
Critics might argue this is a tax increase on successful individuals and could disincentivize high earnings or entrepreneurship. They may also contend that the 'donut hole' structure introduces unnecessary complexity into the tax system.
Tradeoffs
This provision balances the need for increased Social Security funding with concerns about the impact of higher taxes on high earners and the complexity of a non-linear tax structure.
Section 2(b)
New Hospital Insurance (Medicare) Tax on Very High Incomes
This section imposes an additional 1.2% Hospital Insurance (Medicare) tax on wages for individuals earning over $400,000 (or $500,000 for joint filers, $250,000 for married filing separately). This is in addition to the existing 0.9% additional Medicare tax, bringing the total additional Medicare tax for these high earners to 2.1% on income above these specified thresholds.
Section 3(a) and 3(b)
Modification of Self-Employment Taxes
This section mirrors the changes for wage earners, applying the modified Social Security wage base (re-taxing income above $400,000) and the new 1.2% additional Hospital Insurance tax (on income above $400,000/$500,000) to net earnings from self-employment. It also includes conforming amendments regarding the deductibility of these self-employment taxes.
Section 4(a)
Expansion and Rate Increase of Net Investment Income Tax (NIIT)
For individuals with modified adjusted gross income exceeding $400,000 ($500,000 for joint filers), this provision significantly expands the definition of 'net investment income' to include all income derived from a trade or business, regardless of whether it's a passive activity. It also substantially increases the NIIT rate by an additional 13.6 percentage points (from 3.8% to 17.4%) on the lesser of the expanded net investment income or the amount of income exceeding the high-income threshold.
Section 4(b)
Increased NIIT Rate and Expanded Base for Trusts and Estates
This provision increases the Net Investment Income Tax (NIIT) rate for trusts and estates from 3.8% to 17.4%. Additionally, it expands the base for this tax to include 'undistributed specified net income' (the expanded definition from Section 4(a)) or undistributed net investment income, whichever is greater, ensuring that wealth held in these entities is also subject to the higher tax.
Section 4(c)
Clarifications and Inclusions for Net Investment Income Tax
This section refines the definition of net investment income for NIIT purposes. It clarifies that income already subject to self-employment or FICA taxes is excluded. It also specifies that net operating losses (NOLs) are not taken into account for NIIT calculations. Crucially, it includes certain foreign income (under sections 951, 951A, 1293, or 1296 of the IRC) in the NIIT base and provides rules for the proper treatment of previously taxed foreign earnings and profits.
Section 4(d)
Allocation of Expanded NIIT Revenues to Trust Funds
This section amends the Social Security Act to direct specific percentages of the revenues generated by the expanded Net Investment Income Tax (Section 1411 of the IRC) 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%). This means that the expanded NIIT will now contribute to all three major social insurance trust funds, not just Medicare.
The bill does not simply remove the Social Security wage cap; instead, it creates a 'donut hole' where income between the current wage cap (e.g., $168,600 in 2024) and $400,000 is exempt from Social Security taxes, but income above $400,000 is again subject to the tax.
Section 2(a)(1)
Why it matters:This specific structure is a policy choice that avoids taxing income just above the current cap while still capturing revenue from very high earners. It's a technical legislative drafting choice rather than an attempt to obscure.
Case for: Proponents might argue this structure targets only the highest earners for increased Social Security contributions, avoiding a tax increase on those earning just above the current cap, which could be seen as a more politically palatable approach.
Case against: Critics might argue this 'donut hole' adds unnecessary complexity to the tax code, creating an arbitrary income band that is exempt from Social Security taxes and potentially leading to confusion for taxpayers and administrators.
Estimated impact: This specific structure will result in less revenue than a full uncapping of the wage base, but still significantly more than the current system, impacting individuals earning above $400,000.
The bill significantly expands the Net Investment Income Tax (NIIT) base for high-income individuals to include all income derived from a trade or business, regardless of whether it is considered a passive activity under current law. This means active business income, which was previously exempt from NIIT, would now be subject to it for high earners.
Section 4(a)(1) and (3)(B)
Why it matters:The use of an expanded definition ('specified net income') and references to existing tax code sections (like 469(c)) is standard legislative practice for modifying tax bases, but it makes the full impact less immediately obvious.
Case for: Proponents argue this closes a significant loophole that allows high-income individuals to avoid social insurance taxes on substantial active business income, ensuring a more comprehensive and equitable tax base for Medicare and Social Security.
Case against: Opponents would argue this constitutes a major tax increase on active entrepreneurs and business owners, potentially stifling investment, innovation, and job creation by increasing the cost of doing business.
Estimated impact: This provision is expected to generate substantial revenue, potentially billions of dollars annually, by broadening the NIIT's application to a wider range of high-income business activities.
The bill directs specific percentages of the expanded Net Investment Income Tax (NIIT) revenues 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%). This fundamentally changes the purpose of the NIIT, which was originally solely for Medicare (Hospital Insurance).
Section 4(d)
Why it matters:Amending the Social Security Act is the correct legal mechanism for directing trust fund revenues. However, its placement separate from the tax code amendments might make its broader policy implications less apparent to a reader focused on the tax changes.
Case for: Proponents argue this is a critical step to ensure the long-term solvency of all three vital social insurance programs, directly linking new revenue to the programs it is intended to support and providing a more robust funding mechanism for Social Security and Disability Insurance.
Case against: Opponents might argue that this expands the scope of the NIIT beyond its original intent (Medicare funding) and further entrenches a tax that they believe is detrimental to investment, potentially setting a precedent for reallocating other tax revenues.
Estimated impact: This allocation will provide billions of dollars in new revenue to the Social Security and Disability Insurance Trust Funds, significantly improving their projected solvency, in addition to bolstering the Hospital Insurance Trust Fund.