Spending on the United States' Medicaid system is increasing faster than tax revenues and poses a far greater long term funding problem than the Social Security crisis, according to a new paper by the Heritage Foundation.
While the Heritage analysts Tracy L. Foertsch, a Senior Policy Analyst at the Heritage Foundation, and Joseph R. Antos, a health care and retirement Policy expert at the American Enterprise Institute, note that Medicaid is still less expensive than Social Security, an aging population and other factors will force policymakers to make some hard decisions regarding spending and taxation in the years to come.
The 2005 Medicare trustees’ report estimates that if no action is taken to cut spending or benefits, Congress would need to raise some $2.7 trillion in new taxes to pay for promised Medicare benefits over just the next decade. Over 75 years, this funding requirement rises to a massive $29.9 trillion - the equivalent to an immediate and permanent increase in the Medicare payroll tax to 13.4%.
Foertsch and Antos warn that a payroll tax increase of that magnitude would exact a heavy price in terms of lost jobs.
“Between 2006 and 2015, total job losses could average 816,000 annually and real (inflation-adjusted) gross domestic product could be, on average, nearly $87 billion lower per year,” Foertsch and Antos wrote.
The analysts also found that the negative economic effects of raising payroll tax rates would be more pronounced if the federal government used new tax revenues to finance higher spending. Even though the government would end up with more money, both personal and corporate incomes would drop every year for the next decade.
“By 2015 real GDP would be more than $283 billion lower than it would be without tax increases, and almost 2.8 million private-sector jobs would have been lost because of higher payroll taxes,” the report warned.
The full text of the Heritage Foundation report on Medicare funding can be found in the Tax News Resources section.
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