The Johnson Kwak Plan for Medicare

Simon Johnson James Kwak has a plan for dealing with Medicare’s deficit:

So what should we do? Most importantly, we have to recognize that there are two separate problems, and they are not equal. The primary problem is health care inflation. The secondary problem is the long-term Medicare deficit. That’s a secondary problem because it’s largely a result of the primary problem.

Of these two, the Medicare deficit is the easier problem to solve: index the payroll tax to actual health care costs. This should automatically solve the Medicare deficit because as Medicare’s costs go up, its funding will go up at the same rate.*

I suspect that Dr. Johnson Kwak should have run the numbers before making this suggestion. Using numbers from the Trustees Report for Medicare spending and from the Census Bureau for aggregate incomes, I calculate that Medicare spending constituted 3.77% of total incomes in 2001, 6.33% of total income in 2009, and has risen at roughly 7% since then, i.e. 6.77%, 7.24%, and so on. In other words the >s?Johnson Kwak Plan would have resulted in a tax rate for Medicare spending alone that doubled every ten years.

Not only does that constitute a powerfully regressive tax (as Dr. Johnson Kwak himself acknowledges) that’s an intolerable rate of spending increase whether the money comes from the payroll withholding for Medicare or from the general fund.

2 comments… add one
  • Icepick Link

    Not only does that constitute a powerfully regressive tax (as Dr. Johnson himself acknowledges) that’s an intolerable rate of spending increase whether the money comes from the payroll withholding for Medicare or from the general fund.

    Feature, not bug. That kind of VISIBLE increase would finally get the attention of enough people for them to comprehend the basic problem. Until a soild majority of voters understand that nothing CAN be done.

  • Maxwell James Link

    Yeah, I agree with Icepick. The essential problem with Medicare is that most people don’t comprehend the scope of it, because the actual payroll tax is quite small. If we all had to pay right now for what it actually costs, that situation would change overnight.

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