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The Supreme Court will soon hear a case that could have sweeping effects on the U.S. tax code, including corporate revenue and future wealth tax proposals.
Depending on the scope of the rule, it could affect the future taxation of so-called pass-through entities, such as partnerships, limited liability corporations and S-corporations.
“You’ve got to pay attention to the way the rules are going to impact your business, especially if you’re doing things in a cross-border context,” said Daniel Bunn, president and CEO of the Tax Foundation.

The Supreme Court in Washington, D.C.
Celal Gunes | Anadolu Agency | Getty Images

As the Supreme Court starts a new term, experts are closely watching a case that could have sweeping effects on the U.S. tax code, including corporate revenue and future wealth tax proposals.
This summer, the high court agreed to hear Moore v. United States, a case involving a Washington couple with a controlling interest — more than 10% investment — in KisanKraft, a profitable India-based farming corporation.

The plaintiffs are fighting taxes on earnings that weren’t distributed to them by arguing about the definition of income, which could have broader implications, according to policy experts.
“This could have the biggest fiscal policy effects of any court decision in the modern era,” said Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, who recently co-authored a report on the case.
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The case challenges a levy, known as “deemed repatriation,” enacted via the Republicans’ 2017 tax overhaul. Designed as a transition tax, the legislation required a one-time levy on earnings and profits accumulated in foreign entities after 1986.
While the 16th Amendment outlines the legal definition of income, the Moore case questions whether individuals must “realize” or receive profits before incurring taxes. It’s an issue that has been raised during past federal billionaire tax debates and could affect future proposals.

Ruling could affect pass-through businesses

Depending on how the court decides this case, there could be either small ripples or a major effect on the tax code, according to Daniel Bunn, president and CEO of the Tax Foundation, who recently wrote about the topic.
If the court decides the Moores incurred a tax on unrealized income and says the levy is unconstitutional, it could affect the future taxation of so-called pass-through entities, such as partnerships, limited liability corporations and S-corporations, he said. 

“You’ve got to pay attention to the way the rules are going to impact your business, especially if you’re doing things in a cross-border context,” Bunn said.
There’s also the potential for a “substantial impact” on federal revenue, which could influence future tax policy, Bunn said. If deemed repatriation were fully struck down for corporate and noncorporate taxpayers, the Tax Foundation estimates a $346 billion federal revenue reduction over the next decade.
However, with a decision not expected until 2024, it’s difficult to predict how the Supreme Court may rule on this case. “There’s a lot of uncertainty about the scope of this thing,” Gardner added. More

Social Security’s funds may run out in the next decade, which could lead to benefit cuts of 20% or more.
Traditionally, Congress has fixed those shortfalls by raising taxes, cutting benefits or a combination of both.
Now one lawmakers is pushing another potential solution to create a new separate fund that would invest in stocks on the program’s behalf.

Wand_prapan | Istock | Getty Images

The trust funds that Social Security relies on to pay benefits are “rapidly heading to zero,” according to the Center for Retirement Research at Boston College.
Those funds, which are typically invested in Treasury securities, are projected to run out in 2034, at which point just 80% of benefits may be payable.

As that date draws closer, that has prompted more discussion as to whether that money should also be invested in stocks.
“Theoretically, yes,” said Anqi Chen, senior research economist and assistant director of savings research at the Center for Retirement Research, which recently published research addressing the question.
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But the real-world answer is not necessarily clear-cut, Chen and other experts say.
The problem is whether the funds, which are already running low, may be able to come up with the money to invest in stocks while also paying the benefits it owes.

Those benefit obligations are growing as baby boomers age, with 10,000 individuals turning 65 every day.
There were 53 million Social Security beneficiaries in 2010, the year before baby boomers started turning 65, according to the Peter G. Peterson Foundation in New York, which focuses on fiscal and economic challenges facing the U.S.

This ‘big idea’ fix would rely on stocks

Sen. Bill Cassidy, R-La., has put forward another “big idea” fix that calls for investing money in stocks on the program’s behalf.
The proposal calls for raising $1.5 trillion that would be put in a separate fund and invested in stocks.
No Social Security trust fund dollars would be included in the plan. Instead, the separate $1.5 trillion investment fund may come from either borrowing the money, raising the funds from other parts of the budget or by selling government assets.
The investment would be held in escrow for 70 years, which would allow the funds to grow.

It always will have enough revenue coming in from the investments to pay scheduled benefits.

Sen. Bill Cassidy
Republican U.S. senator from Louisiana

Over time, the investment fund would get a higher return than the returns on Treasury notes, ranging from 1% to 4%, which may not beat inflation, Cassidy noted at a recent AARP forum of the future of Social Security.
Ultimately, 75% of Social Security’s deficit may be covered by the strategy, while it would be up to lawmakers to come up with a strategy to make up the difference.
“Never again will we worry about a Social Security shortfall,” Cassidy said at the AARP event. “It always will have enough revenue coming in from the investments to pay scheduled benefits.”

How government retirement funds use equities
1. Cassidy’s plan takes inspiration from other countries, including Canada:

The Canada Pension Plan, with about $570 billion in Canadian dollars, changed its investment approach in 1997 in response to the need for higher payroll contributions due to longer life expectancies, lower birth rates and lower real wage growth, according to the Center for Retirement Research. The plan raised payroll contributions and began investing some funds in equities. Now its portfolio includes a variety of investments, including stocks, bonds, real estate, infrastructure projects and private equity. The fund, which invests in Canada and globally, has had a 10% annualized net return over the past 10 years.

2. Certain U.S. programs have also implemented investments that incorporate stocks:

In the 1990s, the U.S. Railroad Retirement System moved to invest in equities after its trust fund grew to four times annual spending, according to the Center for Retirement Research. The portfolio, now with around $27 billion in net assets, includes stocks, real estate, private equity and private debt.
The Federal Thrift Savings Plan, with about $800 billion in assets, was created in 1986 and includes passive investments through index funds. Congress must approve the investments it can offer.

Financial industry experts who have evaluated the plan have said the return expectations are conservative and would have a negligible effect on the equity market, according to Molly Block, a spokeswoman for Cassidy.

Why experts are cautious

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While it would be up to Congress to approve any changes to Social Security’s investment strategy, experts question the inevitable risks.
Generally, one of the prerequisites for investing Social Security in stocks is having the money to do it. In the 1990s and 2000s, when the idea was previously discussed, the trust funds had more money available to invest, according to Chen.
Now, there may have to be a tax increase to not only shore up Social Security’s current funding shortfall, but also provide additional funds to be invested in equities.
“Theoretically, yes that could work,” Chen said. “But that seems politically very difficult.”

Borrowing money to invest in stocks for retirement is a risky move, regardless of whether it’s in an individual’s 401(k) plan or a government retirement plan, noted Andrew Biggs, senior fellow at the American Enterprise Institute.
“It’s basically taking a bet on stocks versus bonds,” Biggs said. “It’s not smart for an individual to do it, and we’re doing it on an economy-wide basis.”
Moreover, while a 4% or 5% risk premium can make a big difference over a 30-to-50-year time horizon, there’s no guarantee those terms won’t change along the way, which could interfere with Social Security as a guaranteed government program, noted David Blanchett, managing director and head of retirement research at PGIM DC Solutions.
“It’s just not realistic to expect that things wouldn’t change in the interim,” Blanchett said. “I’m incredibly apprehensive about the idea of investing Social Security type benefits in public equity funds.” More

As colleges are being forced to rethink their policies in the wake of the Supreme Court’s ruling against affirmative action, more schools are also choosing to end legacy preferences, adding uncertainty to the process.
Heightened uncertainty is driving students to cast a wider net, according to Christopher Rim, president and CEO of college consulting firm Command Education.
Rather than apply to a greater number of schools, find schools that are a better fit, experts say.

Brian Snyder | Reuters

With competition at an all-time high and admissions practices increasingly unclear, it’s not an easy time for college applicants.
As colleges are being forced to rethink their policies in the wake of the Supreme Court’s ruling against affirmative action, more schools are also choosing to end legacy preferences, adding uncertainty to the process.

“There’s a true perception that the process is getting more and more unpredictable,” said Eric Greenberg, president of Greenberg Educational Group, a New York-based consulting firm.
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Heightened uncertainty is driving students to cast a wider net, according to Christopher Rim, president and CEO of college consulting firm Command Education.
To boost their chances of getting in somewhere, Rim now sees high school seniors apply to as many as 20 schools. But that comes at a cost: Each application can be $60 to $100 to submit, depending on the school.
After adding up the fees associated with submitting that many college applications, along with ACT and SAT test reports, “at the bare minimum, you are spending $1,200 to $2,000 on application fees,” Rim said.

It’s understandable that college hopefuls want to hedge their bets, said Robert Franek, editor in chief of The Princeton Review. “At the upper tier, students are seeing their friends not get in and that’s crushing.”
However, “20 is far too many,” he added.
Still, students are applying to more schools to try to get a leg up, no matter the cost.
“We are seeing a large increase in the number of applications students are submitting,” Greenberg noted. Students apply to twice as many schools as they did a decade ago, he said. “People are saying ‘the more schools, the better.'”

There’s a true perception that the process is getting more and more unpredictable.

Eric Greenberg
president of Greenberg Educational Group

Roughly 40% of students are applying to 10 or more schools, up from 37% last year, according to Jenzabar/Spark451’s recent college-bound student survey, a trend also driven by the growing number of colleges that are now “test-optional,” which means students don’t need certain SAT or ACT scores to apply.
As a result, a small group of universities, including many in the Ivy League, are experiencing a record-breaking increase in applications, according to a separate report by the Common Application.
The greater number of applications is further fueling historically low acceptance rates at many top colleges.

Application volume spikes despite hefty fees

Ariel Skelley | Digitalvision | Getty Images

Application volume jumped 30% for the 2022-23 academic year compared to the 2019-20 school year, the Common Application found.
At the same time, more students were eligible for a fee waiver, although not all requested one.
Students can apply for the fee waiver but don’t always bother, Rim said. “This is valuable time during their senior year that they could be using on their applications.” Many colleges also offer a college-specific fee waiver, and SAT or ACT testing fees can be waived on a case-by-case basis.

A better approach to college applications

Piling on more applications doesn’t better the odds if students and their families are too focused on institutions with acceptance rates below 10%, Rim cautioned. “That’s not really how this works.”
Rather than applying to a slew of similar schools, which may all yield the same slim chance of success, the key is to identify a core list of different types of institutions with a balance of “safety” schools, “targets” and “reaches,” Greenberg said.

Since admissions tend to be less predictable now, focusing on a more balanced list of schools at the outset “is most likely to lead to the desired result,” he advised.
Further, finding a selection of schools based on which are the right fit for you in terms of cost, academics, campus life and other factors is also likely to make you a more attractive candidate to the admissions office, Franek said. “Applying to a list that’s truly a best fit for you is always going to be of value.”
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President Joe Biden announced on Wednesday that he’d approve $9 billion in student loan forgiveness for 125,000 Americans.
The relief is a result of his administration’s fixes to number of programs, including the income-driven repayment plans and Public Service Loan Forgiveness.

President Joe Biden holds a Cabinet meeting at the White House on Oct. 2, 2023.
Kevin Dietsch | Getty Images

President Joe Biden announced on Wednesday that he’d approve $9 billion in student loan forgiveness for 125,000 Americans.
The relief is a result of his administration’s fixes to number of programs, including the income-driven repayment plans and Public Service Loan Forgiveness.

More than $5 billion of the aid will go to 53,000 borrowers who’ve worked in public service for a decade or more; $2.8 billion of the forgiveness is for 51,000 borrowers enrolled in income-driven repayment plans; and another $1.2 billion of the cancellation will go to 22,000 borrowers with disabilities.
This is breaking news. Please check back for updates. More

Mortgage payments have become significantly less affordable for homebuyers, according to the Consumer Financial Protection Bureau.
Nearly a quarter of refinance applications were rejected in 2022 — up sharply from 14.2% in 2021.
oXYGen Financial CEO Ted Jenkin recommended that consumers focus on their debt-to-income ratio.

Prospective buyers attend an open house at a home for sale in Larchmont, New York, on Jan. 22, 2023.
Tiffany Hagler-Geard | Bloomberg | Getty Images

As high home prices and interest rates push up monthly mortgage payments, it’s harder for many consumers to even get a mortgage in the first place.
Last year, lenders denied loan applications due to “insufficient income” more often than any other point since records began in 2018, according to a new report from the Consumer Financial Protection Bureau.

Overall, 9.1% of home purchase applications among all applicants were denied in 2022, the consumer watchdog agency reported, higher than 8.3% in 2021 but a marginal decrease from 9.3% in 2020. Refinance applications were more frequently rejected, at a rate of 24.7% in 2022 — up sharply from 14.2% in 2021.
Insufficient income represented more than 50% of of denials for Asian American applicants, 45% for Black and Hispanic applicants, and approximately 40% for white applicants — up from below 40% for each of these groups in 2018.
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The CFPB also reported that the average cost of a monthly mortgage payment increased 46%, to $2,045 in December 2022, from $1,400 during December 2021. Given the rising cost of payments and mortgage rates — both of which have responded to the Federal Reserve’s rate hikes — “none” of the recent trends in income-based denials should “be a surprise,” said certified financial planner Barry Glassman, founder and president of Glassman Wealth Services in McLean, Virginia.
“In most cases, income did not increase at the pace of average mortgage payments,” said Glassman, who is a member of CNBC’s FA Council.

‘People are feeling squeezed on all sides’

The higher rates of income-based mortgage denials are not only attributable to higher mortgage rates, but also higher home prices, Bankrate senior industry analyst Ted Rossman said.
“It’s really a double whammy, especially for first time buyers who don’t have any equity that they can trade in,” he said.
It doesn’t help that consumers have been taking on more debt as inflation puts pressure on their budgets.

Rossman added that lenders are looking for applicants’ housing costs to make up no more than 28% of their gross income. Lenders often use a guideline called the 28/36 rule, which looks at how much of your income housing expenses and other debt take up. Ideally, your mortgage, property taxes and insurance should represent less than 28% of gross monthly income, and total debt — including your mortgage, credit cards and auto loans — shouldn’t exceed 36%.
To gauge how much house you can afford before you apply for a mortgage, focus on “three big letters” — DTI, or debt-to-income ratio, said CFP Ted Jenkin, the CEO of oXYGen Financial in Atlanta.
If your overall monthly debt, including auto loan, student loan and mortgage payments, totals more than 40% of your total income, you have a greater chance of being denied. If that’s the case, you may need to adjust your housing expectations, said Jenkin, who is also a member of CNBC’s FA Council.

DTI ratios are currently higher than 40% among Hispanic and white applicants, according to the CFPB.
Lenders also look at applicants’ credit scores, and the CFPB data points to that as another potential trouble area. The median credit score of applicants for loan refinances is now lower than the median credit score of applicants for home purchase loans, reversing a recent trend, the CFPB reported.
“I think people are feeling squeezed on all sides,” Rossman said. “And from a credit scoring standpoint, too, that’s another big part of this whole discussion.”

Consumers should monitor their credit scores and take steps to keep them in top shape. The FICO scoring model used by many lenders runs from 300 to 850, and the higher the better. Depending on the lender, you might need a score of at least 600, or as much as 660, to qualify for a loan, and a 760 or better to get the best-available rate.
“The difference between a 575 FICO score and a 675 FICO score could be as much as 1% on your mortgage rate,” Jenkin said.
That higher rate means a bigger monthly mortgage payment, he said, “and that could put you into the category of having insufficient income.” More

The bulk of holiday shoppers — 54% — expect to feel financially burdened this year, according to a recent Bankrate survey.
Despite these statistics, those who do their holiday shopping early set themselves up for financial success.
“You still have a few months and still have the opportunity to stock away some savings so that you’re not going into credit card debt,” said Ted Rossman, a Bankrate senior industry analyst.

David Paul Morris | Bloomberg | Getty Images

The end of the year doesn’t just bring autumn leaves and jack-o-lanterns, then mistletoe and the chance of snow — it can also bring on financial distress.
Nearly half of all consumers say their financial standing fluctuates seasonally — and December is the most cited month for experiencing financial distress, followed by November and January, according to a report by LendingClub Corporation and PYMNTS Intelligence.Meanwhile, 54% of holiday shoppers expect to feel financially burdened this year, anticipating overall high costs, according to a recent Bankrate survey.

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These statistics notwithstanding, holiday shoppers who start saving early for year-end purchases set themselves up for financial success, experts say.
“You still have a few months and still have the opportunity to stock away some savings so that you’re not going into credit card debt,” said Ted Rossman, a Bankrate senior industry analyst.

‘Deals start early’ for holiday shoppers

Nearly all Americans, 92%, are cutting back on their overall spending in some way, according to a CNBC and Morning Consult Survey.
To that point, many are already getting ahead of holiday expenses. Half of holiday shoppers plan to begin, or have already begun, making purchases before Halloween, according to Bankrate.

While some people may gripe about seeing Christmas trees in stores while it’s still 90 degrees out in some areas, “the fact that these sales have started early is an advantage,” said Rossman.
Some retailers are even debuting holiday discounts early. Target released members-only price cuts on Oct. 1 and BestBuy on Oct. 2, while Amazon and Walmart are expected to so Oct. 9 to 12, he added.”The fact that deals start early allows you to research the best options and spread out your cashflow,” said Rossman.

It’s best to pay now, fly later

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Booking holiday airfare is cheaper in October, as well. Domestic round-trip fares over Thanksgiving are averaging $268 per ticket, down 14% compared to last year. For Christmas, prices are about $400 round-trip, down 12% from last year, per Hopper data.
Shoppers looking into traveling for the holidays should book their flights by Oct. 14, Hopper lead economist Hayley Berg previously told CNBC.Buy gifts for friends and loved ones throughout the year to spread out the cost, said certified financial planner Carolyn McClanahan, founder of Life Planning Partners in Jacksonville, Florida. Additionally, if you have a particular gift in mind, keep an eye out for good year-end sales.
Overall, think through what your gift-giving budget should be ahead of time so it doesn’t create a  financial strain. 
“Starting early is better because that last-minute shopping ends up being very reactionary,” said McClanahan, who’s also a member of CNBC’s FA Council. “You end up spending more and buying less thoughtful gifts than if you actually put in the work on that front.”

3 ways to get ahead of holiday spending

Here are a few ways holiday shoppers can start preparing:

Start setting money aside. Save a portion of every paycheck between now and the end of the year. Banks’ “Christmas Clubs” are separate, short-term savings accounts where can consumers accumulate savings for holiday shopping and expenses, said McClanahan. If not opening a Christmas Club account, consider “parking your money” in short-term savings options that have high liquidity and benefit from high interest rates, such as money market funds.
Be careful with credit cards. You can reap credit card rewards and benefits so long as you pay each card off by the end of the month. Otherwise, you risk at stacking on additional debt for discretionary spending, especially as the average credit card rate is more than 20%, a record high. “We definitely want to avoid that,” added Rossman.
Take stock of unused gift cards. About half, 47%, of Americans have at least one unused gift card, and the average value is almost $200 per person, Bankrate found. Shoppers should “take stock of unused gift cards,” as they could give a head start in holiday shopping, said Rossman. More

If Social Security benefits were reduced or eliminated, Americans would need to double or triple their savings rate to retire with a sufficient nest egg.
Meanwhile, “the old-age poverty rate would soar,” said Richard Johnson, a senior fellow at the Urban Institute.
Social Security is the main source of income for Americans age 65 and older.

An activist at the offices of Rep. Michelle Park Steel in Cypress, California, on Feb. 24, 2023
Araya Doheny | Getty Images

Social Security is essential to older Americans’ financial security, yet there always seems to be a new headline about how the benefits are at risk.
Douglas Boneparth, a certified financial planner and president and founder of Bone Fide Wealth in New York, said clients ask him how they can prepare for their retirement if Social Security benefits are slashed — or even eliminated.

“We work with a relatively young clientele, and they aren’t too confident today’s system will be the one they inherit when they retire” Boneparth said. “They want to hedge their bets.”
CNBC asked Boneparth, a member of CNBC’s Advisor Council, if he could provide an example of how much more people would need to save if they have to fund their retirement with a smaller Social Security benefit, or none at all.

Workers would need to triple savings

CFP Clifford Cornell, an associate financial advisor at Bone Fide Wealth, provided a scenario of a 30-year-old woman who earns $75,000 a year and already has $20,000 saved for retirement. The woman plans to leave the workforce at age 65 and to spend about $40,000 a year in retirement. Her life expectancy is 90.
In order not to run out of money in retirement, she’d need to save $375 a month in her workplace 401(k) plan — if the Social Security program remains fully in place. Cornell assumed a 6% annual return before retirement and 4% after.
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If Social Security benefits were cut in half, she would need to save $750 a month to not run out of money in retirement, or double the amount based on a fully funded program.
If the program were completely done away with, she’d need to save $1,125 a month, or triple the amount.
Social Security is the main source of income for Americans age 65 and older. With the benefits, about 10% of older adults already live in poverty, according to the Center on Budget and Policy Priorities. The share of older people living in poverty would swell to nearly 40% without the benefits. The average retired worker receives about $1,840 a month.
“The old-age poverty rate would soar if Social Security benefits were cut,” said Richard Johnson, a senior fellow at the Urban Institute. “Millions of seniors would be unable to afford basic needs, like food, shelter and health care. Many seniors would have to turn to their children for financial help.”

The future of Social Security

The Social Security program has been weakened by a rise in people retiring and the fact that people are living longer. About 10,000 baby boomers retire every day on average. Since beneficiaries are living longer, the program has been paying recipients over a longer period of time. The share of workers paying into the system — via payroll taxes — has been falling relative to the number of beneficiaries, creating an imbalance.
As a result, without any action from lawmakers, the trust fund that supports Social Security benefits for retirees is estimated to run dry in 2033.
If the trust fund is depleted, it doesn’t mean benefits would go away entirely.
Workers would continue to pay Social Security payroll taxes, and those collected funds would still be payable to retirees. However, there would be cuts. About 77% of promised benefits would be payable if the trust fund runs out, according to the Social Security Administration.

Congress will almost surely tweak Social Security to fix the solvency problem.  
Potential fixes might include reducing benefits, delaying the “full retirement age,” raising taxes on benefits, increasing the financial penalties for claiming Social Security before full retirement age or a combination of these and other factors.
It’s likely to be a “last-second compromise” and “there are going to be losers,” said David Blanchett, head of retirement research at PGIM, the asset management arm of Prudential Financial, in September on “This week, your wallet,” an audio program produced by CNBC’s personal finance team.
Older people and current retirees likely won’t see a change to their benefits, Blanchett said. However, “I do believe younger Americans — if you’re maybe in your 40s — should count on a lower benefit,” he said.
— Additional reporting by CNBC’s Greg Iacurci. More

A funding shortfall may hit Medicare’s hospital insurance fund in less than a decade.
Democrats’ proposals call for raising taxes on the wealthy to solve that.

Zoran Zeremski | Istock | Getty Images

Retirees who rely on Medicare for health-care coverage may see those benefits diminish in as soon as eight years.
“It’s life and death for millions of older Americans,” Sen. Sheldon Whitehouse, D-R.I., said Wednesday during a Senate budget committee hearing.

The program’s hospital insurance trust fund, which pays for Medicare Part A benefits including inpatient hospital care, may pay 100% of benefits only through 2031, according to projections from Medicare’s trustees.
If nothing is done by that date, just 89% of total scheduled benefits will be payable.
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Social Security faces a similar dilemma, whereby the program’s combined funds face a 2034 depletion date, at which point just 80% of benefits may be paid.
When it comes to repairing the programs’ funds, lawmakers generally have two choices: raise taxes, cut benefits or a combination of both.

“It’s simple arithmetic: Raise revenue or cut benefits,” Whitehouse said of preserving Medicare.
“If we abide by what seemed like a bipartisan commitment not to cut benefits,” Whitehouse said, referring to the president’s State of the Union address, “we must safeguard Medicare by raising revenue.”
President Joe Biden, in his address to Congress in February, prompted both sides of the aisle to agree to protect the safety net.

Whitehouse, along with Rep. Brendan Boyle, D-Pa., has proposed the Medicare and Social Security Fair Share Act, which would require taxpayers with more than $400,000 in income to contribute more money to both programs.
The additional revenue would extend the solvency of the hospital insurance trust fund through the 75-year projection period in the 2023 trustees report, the Centers for Medicare and Medicaid Services Office of the Actuary recently estimated.
Yet not all lawmakers are convinced it is the right solution.
“We’ve got to work in a bipartisan fashion and keep a range of options on the table,” Sen. Chuck Grassley, R-Iowa, said during the hearing.

How higher taxes may work

Whitehouse’s proposal calls for high earners to pay more into Medicare.
Currently, taxpayers with more than $250,000 in earned and investment income pay a 3.8% levy, known as the net investment income tax. The proposal calls for increasing that by 1.2% for incomes of more than $400,000.
The bill also calls for requiring those earning in excess of $400,000 to contribute to Medicare and Social Security on pass-through business income. Currently, pass-through business owners such as hedge funds and private equity funds may avoid Medicare and net investment income taxes by treating their earned income as distributed business profits.
Biden has also proposed raising the net investment income tax to 5% for earnings on more than $400,000 including pass-through business income.

President Joe Biden delivers remarks on Social Security and Medicare at the University of Tampa in Florida on Feb. 9, 2023.
Jonathan Ernst | Reuters

“The vast majority of Americans do, in fact, contribute to Medicare by taxes, either on income from their work or from their businesses,” said Chye-Ching Huang, executive director at the Tax Law Center at the New York University School of Law.
But wealthy filers may avoid those taxes by using a loophole that exempts income from pass-through entities used to own businesses.
“That invites hundreds of billions of dollars of wasteful tax avoidance,” Huang said. “Some of that tax avoidance gets so aggressive that it arguably becomes tax evasion because people are just not paying what they’re supposed to.”
Estimates have found closing the loophole may raise more than $300 billion, and 85% of that would come from people with incomes above $1 million per year, she said.

But the tax hikes in the proposal may have unintended consequences, Grassley argued.
The increased levies may affect not only high-income Americans, he said, particularly because the income thresholds will not be indexed for inflation. Ultimately, that may leave 25% of households affected by the end of the projection period, he said.
Instead, Grassley argued a better approach would be a bipartisan compromise.
“The truth is, taxes on the rich alone won’t save Medicare for our children and grandchildren,” Grassley said. More