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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