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The Real Tax Gap, Paying For Unfunded Benefits



August 20, 2010 – Comments (13)

We all know healthcare costs are going to rise. Older, older people, more older people, more sickness and disease from using our home as a toilet, better quality more costly care.

Top quality healthcare for all is something worth having. On that point many of you disagree with me, prefering top quality healthcare to be reserved for a wealthy elite. Regardless of your opinions on that point, I want it and am willing to pay taxes to get it.

Republican supporters often describe Democrats as fiscally reckless. I never had much hope for "trickle down" economics. I have always considered myself fiscally conservative. Save first, buy second sort of guy. I used to be a fiscally conservative, conservative. Now I am a fiscally conservative Democrat. By which I mean that once you have decided to buy something, you find a way to pay for it. Even if it means cutting a defense budget or raising taxes on those who benefited from an earlier lowering of taxes.

Make sure you read page two for the caveats.

To sum up, Medicare’s 2009 report showed that taxpayers were on the hook to the tune of 6.8 percent of GDP. That is how much taxes would have to rise to pay all of the benefits that had been promised at that point. To put this number in perspective, federal income taxes are expected to equal about 10 percent of GDP over the long term, according to the Congressional Budget Office. Thus taxpayers were looking at a 68 percent increase in federal income taxes just to pay the unfunded costs of Medicare.

The 2009 report of Social Security’s trustees (p. 64) showed a long-term actuarial deficit in that program of $15 trillion or 1.2 percent of GDP. If one adds up all of these unfunded entitlement program promises, it came to 8 percent of GDP, which would have required an 80 percent increase in federal income taxes to fully fund.

The Difference a Year Makes
Now we turn to
Medicare’s 2010 report. It shows enormous improvement in the program’s long-term costs as a result of the Affordable Health Care Act. Starting with Part A, we see that Medicare’s actuaries are projecting no long-term deficit whatsoever. Last year’s projected deficit of $36 trillion has literally fallen to zero (p. 85). Part B’s finances also show significant improvement, with the long-term deficit falling from $37 trillion to just $12.9 trillion or 1.5 percent of GDP. Medicare Part D’s finances are unchanged. The long-term deficit is estimated to be $15.8 trillion or 1.1 percent of GDP.

Putting these numbers together, we see that Medicare’s unfunded liability fell from almost $90 trillion in 2009 to less than $30 trillion, a two-thirds improvement in one year. As a percent of GDP, the taxpayers’ obligation has fallen from 6.8 percent to 2.6 percent. Throw in Social Security’s unfunded liability,
estimated by its actuaries (p. 65) this year at $16.1 trillion, or 1.2 percent of GDP in perpetuity, we see that the potential tax increase from entitlement programs has fallen in half, from 8 percent of GDP to 3.8 percent. That still means a possible income tax increase of 38 percent, but that’s a lot better than 80 percent..

13 Comments – Post Your Own

#1) On August 20, 2010 at 7:34 PM, starbucks4ever (80.02) wrote:

Now I am completely stunned. How did Obama, Baucus & Co manage to turn a bankrupt entitlement program into a thriving one without making any changes in the said program? Jesus was the last one who accomplished something similar with 5 loaves of bread, but our emperor, for all his beautiful speeches, is anything but Christlike. Devoish, any explanations for the miracle? 

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#2) On August 20, 2010 at 8:57 PM, ChrisGraley (28.47) wrote:

zloj, you really don't have to change health care, you just have to change the report.

devoish, I mean this with respect, but you are never going to get top quality healthcare with a government provided system.


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#3) On August 20, 2010 at 8:58 PM, devoish (64.87) wrote:

They lowered costs and collected enough money to pay the bills. Radicals.

The financial status of the HI trust fund is substantially improved by the lower expenditures and additional tax revenues institued by the Affordable Care Act. - From the 2010 Board of Trustees Report report - Section II - "overview" - "short range results" linked above.

But keep in mind, for all my distate for ignorant relentless Government bashing, Medicare is not "thriving" it is improved/less bad, but not "without making any changes". Changes were made. You may remember lots of discussions about them.

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#4) On August 20, 2010 at 9:27 PM, devoish (64.87) wrote:


Government is not providing the healthcare. Government is paying the healthcare provider. And the best quality healthcare around the world is provided by that model. We only took a baby step in the right direction.

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#5) On August 20, 2010 at 9:48 PM, rd80 (94.67) wrote:

It's easy to make the finances look better if you make a bunch of unrealistic assumptions about future cuts.  The trustees have to assume the legislation will be implemented as passed, even if many of the provisions are unrealistic.

According to a memorandum issued the same day as the trustees report, Medicare’s actuaries said the trustees are overoptimistic about certain provisions of current law — upon which the trustees report must necessarily be based — that are unlikely ever to be implemented.

In addition to reductions in doctor's payments - which have always been over ridden in the past.  Here's one discussion of some savings from the linked memorandum.

In the Office of the Actuary‟s April 22, 2010 memorandum on the estimated financial effects of the Affordable Care Act, we noted that by 2019 the update reductions would result in negative total facility margins for about 15 percent of hospitals, skilled nursing facilities, and home health agencies. This estimated percentage would continue to increase, reaching roughly 25 percent in 2030 and 40 percent by 2050. In practice, providers could not sustain continuing negative margins and, absent legislative changes, would have to withdraw from providing services to Medicare beneficiaries, merge with other provider groups, or shift substantial portions of Medicare costs to their non-Medicare, non-Medicaid payers. In practice, Congress would presumably act to adjust Medicare payment rates as necessary before such a situation developed.

In order for the plan to achieve the predicted savings, substantial numbers of Medicare recipients get to go without healthcare.  Or to put it another way, our elected leaders have bought something without finding a realistic way to pay for it.

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#6) On August 20, 2010 at 9:51 PM, ChrisGraley (28.47) wrote:


We took a huge step and it was a step backwards.

If I bought your lunch at a restaurant, even if I didn't do the cooking, did I not provide you lunch?

Government really isn't paying for it totally though, they are mandating that people that don't want it, chip in for it too.

Forget that some 25 year old can't pay for college with a part-time job because this healthy kid has to spend all that money on health care. We''ll just make up for that by forcing senior citizens to chip in to fund college educations.

Apparently the new key to prosperity is forcing people to spend their money on stuff that they don't want.

Isn't freedom great! 

BTW devoish, you can call me Chris, you've earned it.

You really want to fix things?

Lower costs.

Allow tort reform and open up competition across state lines. 


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#7) On August 21, 2010 at 4:14 AM, starbucks4ever (80.02) wrote:


Yes, one change WAS made. Before: if HMOs become TOO insolent, people choose to remain uninsured. After: if you choose to remain uninsured, a policeman will grab you by the scruff of your neck and force you to pay for insurance, whatever it costs. But this change seems to work in the opposite direction, does it not? 

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#8) On August 21, 2010 at 11:38 AM, uclayoda87 (28.49) wrote:

Optimism concerning the recent changes in health care do not appear to be shared by other liberal groups.


AUGUST 21, 2010

Who's ObamaCare's Daddy?


Now even liberals are denying paternity.


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#9) On August 21, 2010 at 2:17 PM, RonChapmanJr (30.13) wrote:

"Regardless of your opinions on that point, I want it and am willing to pay taxes to get it."

Instead of paying taxes to get it, why not just pay for it directly? 

How much do you get paid to write these pro govt articles and comments?

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#10) On August 21, 2010 at 8:44 PM, devoish (64.87) wrote:


How much do you get paid to write these pro govt articles and comment?

Thanks for asking

Less than Hopelesslylost, I imagine.

 I am managing a small CSA this year. I stand to earn about 30k, no benefits. I did not write the article, I shared it with you. Judging by the volume of of Government hating that goes on here I feel like the voice in the wilderness.

The US Government ultimately backs your health insurance company in the event your insurer has the resources of an AIG  when you submit your claim. Cutting out the private insurers means cutting out the middle man. Paying taxes is paying directly.


Correct. Said with extreme political bias, but essentially correct. If that is your issue - being forced to pay for something i  want that you do not - then don't ask me to pay for anything you want. Contract enforcement for instance, or the military, or streets. 

Perhaps we could get together on the idea of being able to tell the US Government where to spend our tax money. For instance I could insist upon spending my tax money on health care, you could insist on a new battleship or tickets out of here for all those who feel oppressed by our democracy.


Anyone who reads the article will understand that the author believes the savings from 2009 -2010 are on a identical "unrealistic assumption" basis. 20% cuts in  Medicare payments aren't happening this year, or last year, or any year because Congress always votes to wait until next year to implement the cuts. So last years report made the same assumptions but has not achieved the improvements to the bottom line by actually collecting money to pay the bill, as "Obamacare" does.


Apparently the new key to prosperity is forcing people to spend their money on stuff that they don't want.

President Obama was elected in part to provide universal healthcare - most people wanted it and voted to get it. It is a Democracy, not a Christocracy.

 I lost because I wanted Single Payer not the continued abiomination of Government backed private healh insurance. Healthcare will continue to need fixing until Government takes a stronger hand with it. It will never fix itself.

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#11) On August 21, 2010 at 10:08 PM, ChrisGraley (28.47) wrote:

Since when is democracy voting on bills that congress hasn't even seen a democracy?

Obama was partially elected because he promised to allow voters to see bills 5 days before Congress voted.

Hope and Change turned into Ropes and Chains pretty quickly.


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#12) On August 22, 2010 at 1:40 AM, starbucks4ever (80.02) wrote:


Do you know that there is a law in dialectics that quantitative changes at some point translate into qualitative changes? This is what happened to healthcare. As long as prices remained low, moderate, high, very high, outrageously high, one could pass this "reform" off as just another example of mandatory taxation. And then, after prices cross a certain threshold, the motives of Baucus & Co can no longer be hidden or given the benefit of a doubt. It is not a matter of judgement as to whether or not pooling the risks is justified, it's a case where the state throws its police power behind a greedy monopoly. First, break up HMOs or better yet, eliminate them entirely. Then I will be open to the discussion of pros and cons of individual mandates. 

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#13) On August 22, 2010 at 3:06 PM, rd80 (94.67) wrote:

Anyone who reads the article will understand that the author believes the savings from 2009 -2010 are on a identical "unrealistic assumption" basis.

That's what I thought until I read the memorandum linked to the article.  Turns out there are a lot of new unrealistic assumptions - like the cut to hospitals note I quoted.

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