Arnold Kling  

Health and Taxes

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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.

Here is my post on the first two editorials in the series. Here is what I proposed two years ago to phase out Medicare, so that health care is not inevitably financed by taxes.

For Discussion. Twenty years from now, will taxes as a percent of GDP in the United States be significantly higher than they are today?


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COMMENTS (12 to date)
Lawrance George Lux writes:

They will be significantly higher, but not because of health care, or even social programs. They will be higher to insist on a balanced budget. The Bush administration will probably be the last gasp of the concept that deficit spending spurs the Economy. Tax Cuts do not even enhance economic performance. The Keynesian concept dies hard, but it dies.

Cure for Elderly Care at low cost: Set up a Medical Corps. equivalent to military service. Low-level Care Providers are drafted and trained, Specialists are drafted upon need--without a limitation of service. They won't provide medical service at an efficient Wage, let them try military pay. Drug Cost: pass a Federal law which states that any Doctor who proscribes a more expensive Drug, when a cheaper one would suffice, can be fined up to $1000 per Incident, and no more than $250,000 per year. There would be change! lgl

bob writes:

"Twenty years from now, will taxes as a percent of GDP in the United States be significantly higher than they are today?"

About the same or slightly higher.

Medicare, interest and other governmental expense will continue to rise absolutely. As pointed out earlier, as personal income grows, consumer preference turn toward consumption of 'goods' that government can help provide; clean air, clean water, universal education, etc.

However, the economy will grow just fast enough to keep pace because, as we get closer to economic disaster we'll find the political will to overcome some of the stupidity (see the Michael Munger's 'Dumping' article as an example) that keeps productivity from growing at 4% or more annually and the will to face the cost problems.

Nothing changes unless there's a crisis. The best way to get the outcome you want is to proactively cause the crisis and have the solution in hand. So, cut taxes like crazy, bring on the crisis.

How's that for an optimistic answer;-)

Jason Ligon writes:

Higher. Much higher. People now in their 30s are going to be crushed by never ending demands of current and near retirees. And servicing the current debt.

Only a Flesh Wound writes:

Much, much lower. A combination of encrypted identity-confederation services and escrow-based private contract-enforcement mechanisms will obsolesce government-based contract enforcement. The rich (top 20%) will virtually relocate their income-earning identity-roles to locales with vanishingly low taxes. At some point much sooner than 20 years from now, tax revenues will begin coming in much lower than expected, and then quickly fall off a cliff, as high-earning information workers start forgetting to report income from sources no government enforcement agencies can trace.

Robert Schwartz writes:

Ask me on November 4.

Mike Everett writes:

Lower.
To the degree that I understand Only A Flesh Wound's comment, I think he's on to something.
The shrinking power of governments to control capital flows and to conceal policy errors through monetary manipulation will continue the current trend of driving down tax rates world-wide.
My home state, Maine, is a good example of this trend. Following a "soak the rich" fiscal regimen for a generation, the electorate is slowly discovering that its economic stagnation and the brain-drain exodus of its adult children are attributable to killer income and capital taxes. Tax reform is Maine's most urgent political issue. Compete or stagnate.

Alex writes:

Need to get illegals and green cards off medical benefits. Need to state: twenty years here as a citizen or go to the end of the line. Yes, have seen more than enough to state it outright.

Need to make the old folks (and their adult children) use most of their inflated housing stock to pay for their medical bills. No way a free ride for the rest to pay for. And, those immigration groupings of last fifteen years can pay for their own groupings. So, can the sponsors and/or church synagogues that brought them all in here. Yes, have seen more than enough to state it outright.

Hey, Maine: You're dealing with the fact that thousands of all those 10th world Bantu tribal folk picked one of your most beautiful small cities and moved in (as not enough freebies and more mundane living in the city they were relocated to [& too many too vie for all that nice free govt. money, housing dollars, etc. they get]. Your fine citizens (and us generally) are supposed to watch quality of living go down and pay for it all.

Was a lifelong moderate.

Alex writes:

Do the above, then I agree with using LGLux approach.

Alex writes:

By the way, that is thousands of Bantus. (just one ex. of what is going on and has been going on.

William Woodruff writes:

All,

Alex, your statement about immigrants being the source of Maines (tax collection) problems are blatantly incorrect.

I formely conducted business in the state of Maine, and after negotiating the onerous business tax and regulatory environment, stopped conducting business there. The shere number of low (business) incorporation and population flight are all the proof that is needed.

Your argument which implies the blame lies solely on the shoulders of recent immigrants is specious.

William

Fitzaubrey writes:

lgl's drafted Medical Corps is the solution to many problems. It's high time we got rid of that pesky Thirteenth Amendment, anyway, and go back to the days when the county could order able-bodied men to work the roads three days a month. Let's hear it for involuntary servitude! </irony>

Mark Bahner writes:

Only a Flesh Wound writes that federal taxes as as percentage of GDP 20 years from now will be, "Much, much lower."

I don't agree. My guess is, "about the same," or "somewhat lower." (Not more than 22% of GDP, not less than 14% of GDP.)

Only a Flesh Wound continues, "The rich (top 20%) will virtually relocate their income-earning identity-roles to locales with vanishingly low taxes."

Perhaps, but there aren't that many such locales (e.g., Bermuda) around. There are many more locales that have significantly *higher* taxes than the U.S. (e.g., Western Europe). The pressure will be downward, but the world's a big place. Can't turn such a big ship very quickly.

And there's the fact that all the countries with high taxes are trying to pursue "tax harmonization." (Which some of the governments in low-tax countries don't mind, because they want to be "forced" to raise taxes and increase government size.)

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