NEJM: Mind your taxes
If the no-increase-in-revenues position prevails, both Medicare and Medicaid, as well as other healthcare spending and all other domestic social spending, will inevitably be subject to cuts so large that they will make it quite impossible to meet the commitment the U.S. made to assure the aged, disabled and poor a standard of healthcare similar to that enjoyed by other Americans, according to a perspective published Oct. 12 in the New England Journal of Medicine.
"Current projections indicate that government debt owed to the public will reach 90 percent of national output in 2021, a decade from now,” wrote Henry J. Aaron, PhD, from the Brookings Institution in Washington, D.C. “There is nothing magic about this number, but many observers fear that if the debt reaches that level and is headed still higher, savers here and abroad will come to doubt the capacity and willingness of the U.S. to service its debt. Should such a loss of faith occur, the interest rate that the government—and other borrowers—would have to pay would soar. Rising interest rates would multiply the debt burden, simultaneously aggravating the government's fiscal problems and discouraging private investment and consumption. Such a panic would be catastrophic.”
According to Aaron, cutting the deficit by an additional $1.2 trillion over the next decade, the goal set for a committee created by Congress to recommend deficit-reducing measures, won’t do the job.
“If that is all that's done, then just two years from now, in 2013, projections for the succeeding decade will look as bad as today's projections and would probably fuel exactly the same concerns that the current projections elicit. If spending were then cut by an additional $1.2 trillion spread over the succeeding decade, that step would prevent the projected ratio of debt to gross domestic product from reaching 90 percent for only about two more years. Two years later, the same process would have to be repeated. Debt fears and deficit angst would become a semi-permanent feature of the U.S. political landscape,” he wrote.
An alternative strategy would be to take a big whack out of the deficit immediately, Aaron proposed. “Deficit reduction of $4 trillion to $5 trillion spread over the next decade would, given current projections, stabilize the ratio of debt to national income for many years to come.”
Tax increases must account for a sizable fraction of any deficit-reduction plan, Aaron concluded. “It is tempting and natural for observers interested in the future of health policy to stick to what they know and focus on the healthcare proposals in [President Barack] Obama's deficit-reduction plan or the possible super-committee proposals… But their importance for overall health policy pales beside that of the vastly greater issue of whether a deficit-reduction plan includes not just spending reductions but tax increases as well.”
"Current projections indicate that government debt owed to the public will reach 90 percent of national output in 2021, a decade from now,” wrote Henry J. Aaron, PhD, from the Brookings Institution in Washington, D.C. “There is nothing magic about this number, but many observers fear that if the debt reaches that level and is headed still higher, savers here and abroad will come to doubt the capacity and willingness of the U.S. to service its debt. Should such a loss of faith occur, the interest rate that the government—and other borrowers—would have to pay would soar. Rising interest rates would multiply the debt burden, simultaneously aggravating the government's fiscal problems and discouraging private investment and consumption. Such a panic would be catastrophic.”
According to Aaron, cutting the deficit by an additional $1.2 trillion over the next decade, the goal set for a committee created by Congress to recommend deficit-reducing measures, won’t do the job.
“If that is all that's done, then just two years from now, in 2013, projections for the succeeding decade will look as bad as today's projections and would probably fuel exactly the same concerns that the current projections elicit. If spending were then cut by an additional $1.2 trillion spread over the succeeding decade, that step would prevent the projected ratio of debt to gross domestic product from reaching 90 percent for only about two more years. Two years later, the same process would have to be repeated. Debt fears and deficit angst would become a semi-permanent feature of the U.S. political landscape,” he wrote.
An alternative strategy would be to take a big whack out of the deficit immediately, Aaron proposed. “Deficit reduction of $4 trillion to $5 trillion spread over the next decade would, given current projections, stabilize the ratio of debt to national income for many years to come.”
Tax increases must account for a sizable fraction of any deficit-reduction plan, Aaron concluded. “It is tempting and natural for observers interested in the future of health policy to stick to what they know and focus on the healthcare proposals in [President Barack] Obama's deficit-reduction plan or the possible super-committee proposals… But their importance for overall health policy pales beside that of the vastly greater issue of whether a deficit-reduction plan includes not just spending reductions but tax increases as well.”