Budget plan due to cost state Workers to add Medicare tax

October 02, 1990|By John Fairhall | John Fairhall,Evening Sun Staff Frank D. Roylance and Larry Carson contributed to this story.

WASHINGTON -- The federal deficit-cutting plan will be especially costly for 2 million state and local government workers, including thousands in Maryland, who will have to pay a Medicare tax for the first time.

The Medicare tax would be 1.45 percent of gross income, or $435 a year for someone earning $30,000, and would be phased in over three years beginning in 1992. The government employer would have to pay an equal amount.

Many affected workers and government agencies only now are learning of this provision of Sunday's budget deal and calculating what it will cost them. Initial reaction ranged from surprise to dismay.

"It's a bummer," one State Police trooper said yesterday.

Maryland troopers and Baltimore police officers and firefighters hired before April 1, 1986, will have to pay the tax if Congress approves the deal. The exact number of affected employees was not immediately known.

About 1,950 of Baltimore County's 2,700 firefighters and police officers also will have to pay it. The impact on other jurisdictions in Maryland could not be immediately determined.

It's unclear whether employees will be able to offset any of the Medicare tax increase by reducing contributions to their state or local retirement health programs.

Medicare is the federal health insurance program for senior citizens. The vast majority of American workers contribute to it through their Social Security taxes, but federal law has long permitted an exemption for state and local employees who have other retirement health plans. Many police officers and firefighters have taken advantage of this option.

A change in the law during the Reagan administration required workers hired after April 1, 1986, to pay the Medicare portion of the Social Security tax. Of the 7.65 percent Social Security tax, 1.45 percent goes to Medicare.

What the budget deal does is eliminate the Medicare tax exemption for workers hired before April 1, 1986. Slightly more than 2 million workers will be affected, according to Congressional Research Service data.

Bush and Reagan administration officials have contended that exemption from Medicare taxes costs the government money. The government expects the extension of the Medicare tax to generate $5.2 billion from 1991 through 1995.

Administration officials also say the exemption is unfair because many of these employees are eligible for Medicare benefits anyway, through their spouses or by holding other jobs.

Much of the burden of the budget agreement falls on Medicare beneficiaries, who will pay a greater share of their health costs, and on service providers such as hospitals and doctors, who face a cut in planned payments.

Additionally, the top Medicare income tax ceiling is being raised. Workers and employers each will pay 1.45 percent of earnings up to $73,000, the new limit, as opposed to the current ceiling of $51,300.

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