Can Uncle Sam Pay for His Healthcare Promises? Healthcare Fact of the Week

  • Title:

    American Health Economy Illustrated
  • Hardcover Dimensions:

    7" x 10"
  • 332 Hardcover pages
  • Buy the Book

To pay for the increases in federal health spending promised 75 years from now, federal income taxes that year would have to be 175 percent higher than they are today. If you don’t like that idea, how about tripling the 15.3 percent bite that Uncle Sam takes out of every worker’s paycheck? Or, if you would prefer to spread the increase across all federal revenue sources, it would require that each one be increased by 75 percent (figure 20.7a).

As I’ve explained repeatedly, the alternative fiscal scenario is the most credible current projection of how much we will have to pay for Medicare, Medicaid, and Exchange subsidies under the Affordable Care Act. Even the actuarial experts who work for the government do not believe the baseline forecast. Yet the percentages I cite above greatly underestimate the size of the tax rate increases actually needed to raise the revenue to cover these promises since they do not take into account the behavioral effects of higher taxes. I assure you that increasing federal income tax rates by 175 percent will not produce a 175 percent rise in income tax revenues. So think of all these figures as very conservative estimates of the tax increases looming over the horizon should we fail to get health entitlements under control.

Ask all your friends how comfortable they would feel imposing such punishing tax levels on their grandchildren. And if there’s no public sentiment for raising taxes by the gargantuan amounts required, then why are today’s policymakers making such promises? And if there’s no credible way we can tax our way out of this mess, why hasn’t the president offered a bold plan to substantially dial down on our promises (e.g., increase the Medicare retirement age) or fundamentally reform Medicare? The economy assuredly is a critical issue in the upcoming election. But well-informed voters also should be demanding that those wishing to inhabit the Oval Office answer some very tough questions about health entitlements as well.

Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research, an adjunct scholar at AEI and affiliated senior scholar at the Mercatus Center at George Mason University. The charts shown are from his new book American Health Economy Illustrated, to be released in February 2012 by AEI Press. See PowerPoint version of Figure 20.7a and Excel spreadsheet containing projected federal health care obligations for data, sources and methods.

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