• Henry Aaron says we must have higher taxes

    In his NEJM Perspectives piece published this week, Henry Aaron makes the case that taxes must rise or else entitlement programs will fall.

    [I]f all [deficit] cuts come exclusively from spending, it will be impossible to sustain anything approximating current commitments under Medicare and Medicaid (and under Social Security) as we know them.

    Aaron goes through the math. Since his piece is ungated, short, and easy to read, I won’t. Then he delivers the straight talk.

    [T]ax increases must account for a sizable fraction — perhaps most — of any deficit-reduction plan. It is tempting and natural for observers interested in the future of health policy to stick to what they know and focus on the health care proposals in Obama’s deficit-reduction plan or the possible super-committee proposals. […]

    But their importance for overall health policy pales beside that of the vastly greater issue of whether a deficit-reduction plan includes not just spending reductions but tax increases as well. Although the current weak state of the economy means that immediate deficit reduction would be a serious blunder, the margin by which revenues fall short of outlays must eventually be narrowed. Should the various health care interest groups prevail on the specific issues that now occupy them without winning sizable revenue increases as part of a deficit-reduction program, it would be rather like securing a nicer cell for a prisoner facing certain execution.

    It has become fashionable to say that all policy is health care policy, since health care dominates government spending and spending growth, thereby constraining and crowding out all other government functions. Aaron is suggesting that this is wrong. All policy is now tax policy.

    Go on, tinker with health care if you wish, but you’re not going to get very far unless you’re willing to dismantle Medicare. Are you? If not, given the fact that debt substantially above 90% of GDP — the level it is project to reach by 2021 — is considered dangerous and/or unthinkable, you’re an implicit advocate for higher tax revenue.

    Why not make it explicit? Go on and admit it. I’ll do it with you. Tax revenue must go up or Medicare will be crushed. Nips and tucks may postpone this inevitable truth for a bit, but not for long. If you’re for Medicare as we know it, you’re for higher taxes. Conversely, if you’re against high taxes, you’re for eliminating Medicare as we know it. It’s just math.

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    • But isn’t dismantling healthcare as we know it part of the point of those arguing against tax increase?

      If you don’t agree that healthcare, roads, schools, police, etc should be organized by government for the greater good of all then you don’t want to pay for it yourself or for others. The argument the country is having over taxes I think is a fundamental argument about the shape/structure of our society and, as with the crowd that cheered the issue of uninsureds dying, is displaying a very ugly side of our national character. I fear that talking about healthcare and taxes is a symptom of a deeper problem that we are not discussing, which is the lack of personal responsibility, compassion and community.

    • It is choice.  As I outline here, it is easy to slash spending without hurting the poor.  We can raise taxes or lower spending  or some combination but right now it is difficult to do anything because the median voter is rationally ignorant and the problem is not felt enough by the median voter that a politician can win by addressing it sensibly.  Both side’s politicians see either raising taxes significantly or lowering spending significantly as a loosing strategy.   

    • I have been presenting the basic numbers of Medicare for quite a few months now, but I do not mind doing it again.

      There are 45 million persons on Medicare today. We spend about $11,000 per person for a total of $500 billion. (there are dual eligibles for Medicare and Medicaid, but lert’s leep our numbers somewhat simple.

      in 10 years the number of persons on Medicare will be about 65-70 million. The number of deaths will be far less than the number of persons who turn age 65.)

      If we held Medicare spending to $11,000 a person, which wouod be a secular miracle, the cost of Medicare in 10 years will be
      $700 billion. That would require a slight increase in taxes.

      But if Medicare spending per person grows at 6- 7% a year, then the cost per person will be $20,000 in 2020.

      And the cost of the program would be $1.4 trilllion.

      That woudl recquire a payroll tax of about 20%.

      Maybe more.

      All the above is nothing fancy, you barely need a calclator. All you have to do is read The Statistical Abstradt of the US/

      $20,000 a person is just plain too much. Read Joseph Wiite or Uwe
      Reinhardt about how to slash this/

      Bob Hertz