Health Care Spending Path Implies Lower After-Tax Income and Slower Economic Growth

Although the economy can probably bear some tax increases to help finance Medicare, if recent rates of spending growth continue, taxes would have to increase precipitously. An analysis performed by the Congressional Budget Office (CBO) before the ACA was passed suggested that income tax rates would have to increase by more than 70% to finance health care spending that grew just 1 percentage point faster than the GDP — and by more than 160% to finance growth at the historical rate of 2.5 percentage points faster than GDP growth, increasing the income tax rate in the top bracket, for example, to 92% from 35%.  Even with just 1 percentage point excess growth in health care spending, the CBO estimates that the tax increase would reduce the GDP by 3 to 16%.

This is Katherine Baicker and Michael Chernew writing in the NEJM.

Comments (3)

Trackback URL | Comments RSS Feed

  1. Devon Herrick says:

    All firms (except small businesses) will be required to provide expensive health coverage. Workers will be required to have coverage, which will reduce their take-home pay since coverage is merely a portion of total compensation. Moreover, taxpayers will have to fund the expansion of health insurance subsidies and public coverage.
    If the proportion of our economy that is dedicated to health care continues to rise, of course a natural result is lower take-home pay and a slower growing economy. This should come as no surprise.

  2. Brian Williams. says:

    Maybe we should give all our income to the government and let them decide how much to give back to us in the form of education spending, health care spending, and food stamps.

  3. P.L. Sonis says:

    Iknow, let’s ask Comrade Stalin how he did it.