Health and Taxes
By Arnold Kling
In a rather disappointing conclusion to its series of editorials on economic policy, the Washington Post writes
If all regions could emulate the most efficient fifth of the country, the cost of Medicare would fall by 30 percent.
Enforcing efficiency will not be easy. Expensive regions are expensive because they have lots of hospitals and doctors; the medical folks are good at marketing their services. If the feds capped the number of heart surgeries or MRIs in each region, two things would happen: Doctors would market themselves even more aggressively to non-Medicare clients, and retirees would stage a revolution against “rationing.”
Suppose, in the spirit of this series, that this political constraint could somehow be overcome. What would that do to the future budget deficit? A 30 percent cut in Medicare spending in 2040 would save just over 2 percent of GDP; a similar cut in private health spending would boost the tax take, bringing the budget impact up to around 3 percent of GDP. With the 2040 deficit projected at 20 percent of GDP, this won’t fix the problem.
The editorial’s conclusion is that we have no choice but to raise taxes. The old joke used to be that there are two certainties–death and taxes. Now, government health care and taxes are what we regard as inevitable.
For Discussion. Twenty years from now, will taxes as a percent of GDP in the United States be significantly higher than they are today?