Medicare tax hike looms

While cash-strapped seniors are hopefully watching the congressional debate on prescription drug relief, no one seems aware that they are really looking at a potential stiff tax hike for Medicare.

The Washington Times reports that the free drugs promised elderly Americans won’t be free. Costs will simply shift from senior citizens to younger taxpayers. As P.J. O’Rourke once said: “If you think health care is expensive now, wait until you see what it costs when it’s free.”

The same taxpayers who are expected to prop up Social Security and Medicare, if and when it becomes necessary, also will have to bear the cost of subsidizing prescription drugs for all seniors.

Congress estimates the drug benefit will cost taxpayers better than $400 billion over a 10-year span. But, as with nearly all entitlement programs, benefits expand, enrollments rise and inefficiencies increase.

Medicare, created in 1965, was projected to cost $10 billion annually. The annual cost this year: $244 billion. Congress needs to make a longer range analysis of costs.

According to The Heritage Foundation, an ultra-right think tank, by 2030 a drug benefit will hand taxpayers a $148 billion annual tab (in current dollars). Total cost by 2030 will be $2 trillion, smack on top of the $5 trillion shortfall Medicare is expected to face that year.

There’s the rub. How do we pay for this? What are the options open to Congress? It could crank Medicare premiums or cut spending in other programs, but that’s unlikely. Deficit spending would work for a short time, but it has to be repaid with taxes. That would mean massive tax hikes now and in the future.

Let’s look at the situation for a married couple, both 40 years old. They already pay the 15.3 percent payroll tax for Medicare and Social Security. But the tax doesn’t provide enough money to pay for Medicare benefits for all retirees. This hypothethical couple would face $40,000 in additional taxes from now until they retire in 2030.

The proposed prescription drug benefit would add $16,127 to that burden, boosting total taxes to more than $56,000.

None of that money would go for this couple’s own retirement. Every single dollar would pay for current Medicare recipients.

How about a child born this year? By the time she’s 27, she probably would be married, have begun a career, and started a family. She and her family would face a mind-boggling tax burden.

In 2030, her household would pay $1,125 in taxes just to cover the unfunded drug benefits of seniors. Add to that the payroll tax, plus $2,855 in extra taxes to cover Medicare’s shortfall even without the drug benefit. These taxes will only go up and up in the next 40 years before she can retire.

The Heritage Foundation claims adding a drug benefit to the program will push Medicare toward bankruptcy at a quicker pace. The organization says income taxes will have to rise by 18 percent on average through 2030 just to keep Medicare solvent.

What are the choices for that kind of huge tax hike?

Income tax rates could be boosted by 7 to 9 percent each; the home mortgage tax deduction, child tax credit, and earned income tax credit could be dropped; or the tax exclusion exempting employees from taxation of the value of their health insurance could be eliminated.

All of these would be highly unpopular, and congressmen aren’t going to talk about them. They prefer to spend and spend and leave the tax hike to future congressmen and women.

Brian Riedl, with the Roe Institute for Economic Policy Studies at The Heritage Foundation, sums up: “Lawmakers who vote for the Medicare drug benefit are voting for a $2 trillion tax increase. Who would have thought ‘free’ drugs could cost so much?”

Enjoy The Rock River Times? Help spread the word!