Senate Democrats agree to close tax loophole to save Medicare from bankruptcy

July 7 (UPI) -- Senate Democrats have agreed to close a tax loophole for rich people to raise money to save Medicare from going bankrupt.

The lawmakers plan to close the loophole for individuals earning $400,000 or more a year, which allowed them to avoid a 3.8% tax on some income from pass-through businesses, sources told NBC News and Business Insider.

The tax would also apply to couples, trusts and estates making at least $500,000.

One source added that the 3.8% tax will raise about $200 billion over a decade, which will fund Medicare through 2031 in effort to save the federal health care program from bankruptcy.

Without intervention, Medicare's hospital insurance trust fund is expected to undergo a shortfall in 2028.

In pass-through businesses, such as sole proprietorships and partnerships, a partner can claim a portion of their income as salary resulting in fewer taxes, which the new plan aims to curb.

One source told NBC News the tax plan will be submitted in the coming days to a Senate official to see if it complies with a special budget process that would allow it to pass with a simple majority.

Sen. Joe Manchin, D-W.Va., who said earlier this year the Build Back Better Bill was "dead," objecting to key social and climate spending legislation in the package, and previously citing factors including inflation worries, has been concerned about Medicare solvency.

The agreement on the 3.8% tax for high-income earners by all 50 members of the Senate Democratic caucus follows a separate deal announced Wednesday to lower prescription drug prices, which Senate Majority Leader Chuck Schumer, D-N.Y. and Manchin have been negotiating.