May 21, 2012
That is what he told us in his New York Times column that was ostensibly about out of control Social Security and Medicare spending. Emmanuel begins by telling readers:
“If nothing is done about entitlement spending, and if our current tax breaks continue, then by 2025, tax revenue will be able to pay for Medicare, Medicaid, Social Security, interest on the debt and nothing else.”
There are two big problems with this story. First there is the old trick of conflating Social Security with Medicare and Medicaid. This is a great trick for those who want to deceive people into believing the budget problem is primarily a demographic story. However, it is highly misleading. The retirement of baby boomers is projected to increase Social Security spending by 0.9 percentage points of GDP or roughly 20 percent between now and 2025.
By comparison, military spending increased by more than 1 percentage point of GDP between 2000 and 2005. In other words, the projected increase in Social Security spending over the next 13 years is relatively modest and easily affordable. It also is fully covered by projected Social Security revenue and assets in the trust fund.
The projected increase in health care spending is considerably larger, however this depends on using the Congressional Budget Office’s “alternative fiscal scenario” rather than the baseline projection. The difference is that the baseline projection assumes substantial cost controls that were in the Affordable Care Act. These cost controls, if left in place, would substantially reduce the rate of growth of Medicare costs.
This point is important for two reasons. First it shows directly that the issue is not primarily one of demographics but rather one of exploding health care costs. Second, it is in principle possible to control these costs if the political power of health care providers can be held in check.
Per person health care costs in the United States are hugely out of line with costs anywhere else in the world. If our costs were comparable to those in any other wealthy country we would be looking at long-term budget surpluses rather than deficits. If it is too difficult politically to directly fix the U.S. system we could achieve enormous savings simply by allowing more trade in health care services. We will only see the explosive growth in health care costs described in the alternative fiscal scenario if health care providers and insurance companies are both powerful enough to prevent domestic reform and to maintain protectionist barriers that prevent people in the United States from taking advantage of lower cost care elsewhere.
It is also worth noting that Emanuel’s proposed cuts in these programs would hit people with average lifetime earnings of $40,000 and above. It might make more sense to place more burden on people earning $250,000 and above by raising their taxes.
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