Rostenkowski Calls for Cut in Medicare Surtax : Seeks to Save Catastrophic Care; Proposal Would Require All Beneficiaries to Pay at Least $125

Times Staff Writer

The chairman of the House Ways and Means Committee--trying to head off a mushrooming effort to repeal the entire Medicare catastrophic care program approved by Congress last year--Tuesday proposed reducing the program’s controversial new surtax that many retirees would have to pay next year.

The proposal, which immediately ran into opposition from a number of lawmakers, also would extend a host of tax breaks scheduled to expire this year in hopes of wooing tax negotiators on the panel away from an alternative plan that promises to cut capital gains taxes.

To raise revenues that would replace those lost by reducing the Medicare surtax, the plan by Chairman Dan Rostenkowski (D-Ill.) would require all 32 million Medicare beneficiaries to pay at least $125 per year extra out of their own pockets.

Taxpayers Would Pay


Currently, the program places the bulk of the burden on the 40% of Medicare beneficiaries who earn enough to pay income taxes. More affluent retirees now are liable for an additional tax of as much as $800 per year when they file their federal tax returns.

If Rostenkowski’s proposal is approved, retirees with incomes of less than $25,000 would pay more than is now planned for the expanding Medicare coverage to protect against the cost of long hospital stays and to help pay for prescription drugs. Those with incomes between $25,000 and $100,000 would pay less. Those with incomes of more than $100,000 would be relatively unaffected.

The latest proposal to modify the catastrophic care program “wasn’t too well received,” Rostenkowski conceded after a three-hour meeting of the committee. “That makes the prospect of repeal very prominent.”

But those advocating repeal are faced with the difficult problem of finding at least $5 billion in extra revenues next year for the Treasury because the current program is designed to generate more income in 1990 than it pays in benefits.


Rostenkowski’s overall package is aimed at reaching a compromise on most of the remaining issues confronting the committee in its efforts to boost revenues by $5.3 billion as part of the budget agreement between Congress and the White House that is aimed at keeping next year’s deficit under $110 billion.

The most popular provision in the package would expand the current earned income tax credit for working poor families in ways that are generally similar to President Bush’s own child-care initiative. Once in place, the plan, which includes an extra benefit for families with children under 6, would provide about $5 billion a year in tax benefits to poor families. It would cost roughly $16 billion over the next four years.

Rostenkowski’s package also contains a proposal to keep the low-income housing credit and the 20% corporate research and development tax credit that are scheduled to expire this year. It would extend a number of other expiring tax benefits, such as those for company-provided educational assistance, mortgage revenue bonds, targeted jobs and business energy investments in solar and geothermal power.

Bowing to critics who challenged the committee’s move last week to eliminate the consumer interest deduction one year earlier than scheduled, Rostenkowski also proposed to keep a 10% deduction in place for 1990. This year, taxpayers are allowed to deduct 20% of consumer interest expenses.


To pay for the various tax breaks included in his package, Rostenkowski recommended that manufacturers of fluorocarbons, which damage the ozone layer and are widely used in refrigeration and insulation, pay an escalating tax that would raise an estimated $8.5 billion over five years. He also proposed that the 3% telephone tax be extended indefinitely and recommended that mutual insurance companies be required to pay almost $2 billion in extra taxes.

Lawmakers remain far apart over how to respond to the political firestorm stirred up by angry groups representing relatively well-to-do senior citizens who object to the surtax that is scheduled to pay for the new Medicare benefits. Those groups have contended that many persons paying the greatest amounts would receive few additional benefits not already provided by their private insurance plans.

Would Rise in 1994

Under Rostenkowski’s proposal, the maximum surtax would remain at $800 per person on taxes paid next year for the 1989 tax year. It would rise to $1,050 in 1994 but for many the rate would be slashed sharply. Instead of an additional tax of 15% next year on those who pay at least $150 in income taxes, the rate would be just 5%. It would rise to 10% by 1994, far lower than the 28% rate called for under current law.


To make up the roughly $3.5 billion in lost revenues each year from cutting the surtax, Rostenkowski’s package would make sure that retirees continue to pay 25% of the total Medicare premium through 1993. His proposal would add $6.40 a month by 1993 to so-called Part B premiums for doctors’ services. It would also impose an extra monthly premium of $3.50 in 1990, $4 in 1991 and $4.10 in 1992, and boost the annual deductible for doctors’ care from $75 to $150.

The plan also would raise the limit on out-of-pocket expenses for care by doctors, boosting it to $1,500 next year instead of $1,370, and would require Medicare beneficiaries to pay $800 for prescription drugs in 1991 rather than $600. The drug deductible would increase to $1,100 in 1993.