I expected a response from the editors of the Wall Street Journal to President Biden’s plan for Medicare and I wasn’t disappointed:
President Biden on Tuesday rolled out a plan he says will shore up Medicare for decades, and we’re all supposed to believe the spin: looming insolvency averted. But this proposal is really a huge tax increase paired with prescription-drug rationing that does nothing to reform the health entitlement, and the tax ratchet is only beginning.
The White House in a fact sheet previewed a proposal for “extending Medicare solvency†in its budget outline for fiscal 2024, set for release Thursday. Mr. Biden says he’ll extend “the life of the Medicare Trust Fund by at least 25 years,†without “benefit cuts†while “lowering costs for Medicare beneficiaries.†The program’s hospital insurance trust fund is set to start coming up short in 2028.
This Medicare miracle will come mainly from raising taxes and diverting the money into what was supposed to be a self-financing trust fund. The Administration would extend the Affordable Care Act’s 3.8% surtax on investment income to business income. Pair that with jacking up the rate to 5%, but putatively only for those earning north of $400,000. The current net investment tax kicks in at $250,000 for married couples, so call the new bracket a surtax on the surtax.
They raise a good point, allied to an observation I made in my own post, linked above. It’s hard to tax the highest earners. They have devices for avoiding taxes unavailable to the rest of us and they have the wherewithal to hire lawyers to ensure their interests are protected. That’s why taxes tend to fall on us ordinary wage slaves. We’re easy to tax and we’re unlikely to fight back.
As I noted in my post I’m not opposed to either of the measures President Biden mentioned in his op-ed but they don’t do anything to solve fundamental structural problems in Medicare. So, for example, if healthcare costs rise 6%, that means that the general rate of inflation is at least 1% and it’s all healthcare. Translation: cost of living increases are different now that healthcare is a sixth (or more) of the economy.
Where does wealth come from?
As Adam Smith pointed out nearly 300 years ago, the wealth of nations is not in gold or silver (or ledger entries in books) but in the crops that are produced, the goods manufactured, and the labor used to produce them. Shorter: it doesn’t come from the government.
Well, I was half right, they did an appeal to the innovation angle. However, I forgot that they would likely bring back the old rationing argument. Negotiating a drug price rather than just paying whatever a company charges is rationing? This is really just a scare tactic. (And you claim they are centrist.)
They claim it wont address any fundamental reform? Drug prices are actually a good start. Essentially low hanging fruit. Medicare generally pays about 20-30% less than private insurance except for drugs so this helps. We still have further to go.
Steve
No. I claim they are pro-business and anti-tax in their editorial policy. Their news coverage is reasonably balanced. That’s consistent with what AllSides.com has determined
BTW, you’re more sanguine about the prospects for reducing healthcare costs by Medicare reducing what’s paid for drugs than I am. The proportion of healthcare costs represented by pharmaceuticals varies from 8% to 14%, depending on who’s talking and that’s split nearly 50-50 between Medicare and private insurance.
How much do you think that Medicare negotiating prices will actually accomplish? I don’t see how it cuts spending more than a couple of percentage points. Again, I’m not opposed to it; I just think there are limits to what can be accomplished that way.
How many times have we ever done anything to appreciably cut Medicare costs in the last 40 years? Zero? Maybe I will think of something later but I doubt it. So it would be a big step, IMO, if we could muster the political will to make this change. One that is pretty obvious and one that the GOP has also supported in the past, but they wont now because Biden is POTUS.
Can we convince a few Republicans to join in or at least not filibuster? As I said there is no way Republicans can address this issue. Their hands are tied. They cant cut spending for fear of losing votes and they cant raise taxes for fear of being booted out of office. They only thing they can do is not hinder solutions.
(We made some changes to how Medicare pays for surgery and procedures in the 70s IIRC that cut spending and spending for individual therapies/surgeries has been adjusted but no overall cost cutting I can think of.)
Steve
This is part of the President’s budget proposal which also includes
(a) Roll back Trump tax reforms
(b) increase capital gains to 39.6% for investors making more than $1 million
(c) impose a minimum 20% tax on individuals (including “unrealized gains”) worth more then $100 million
(d) increase the stock buyback to 1%
As the WSJ dryly noted, “it will include some ideas that didn’t become law while Democrats controlled the House and Senate”. You could probably cover the US with balloons with the amount of hot air analyzing the budget proposal vs the negotiated end result.
While Republicans control at least one house of Congress, they only have 1 deadline (outside of an emergency) to negotiate on tax matters, the expiration of the Trump individual tax reforms on Dec 31, 2025; i.e. there is no urgency for them to negotiate on this topic in this Congress.
If your objective is to increase the federal government’s ability to control the economy, that’s a pretty good plan. It will inevitably increase deadweight loss. IMO excessive deadweight loss is already part of our economy’s problem.
As to whether it will increase revenue, I couldn’t say. I eagerly await the CBO’s analysis.