The Real Tax Gap, Paying For Unfunded Benefits
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..