The Reason America Cannot Afford Medicare For All: We Have Run Out Of Other People’s Money

Some Simple ObservationsThe current path is unsustainable. Do not take my word for it. The most recent Treasury Financial Report states quite bluntly: “Projections in the Financial Report indicate that the Government’s debt-toGDP ratio is projected to remain relatively stable over the next decade, and then continuously rise over the remaining projection period and beyond if current policy is kept in place. This trend implies that current policy is not sustainable.” What’s remarkable is that this conclusion is based on examining only federal spending, only using a 75-year time horizon and not even taking into account the alternative fiscal scenario. Readers who have stuck with this series should well realize how much bigger the problem would have appeared had Treasury officials opted to measure it more accurately.Filling the gap through higher taxes alone is politically unrealistic.  Even if we agreed upon a tax plan tomorrow, a federal fiscal gap of $200 trillion is equivalent to 8.2% of GDP.  In 2017, using a 75-year time horizon projected federal revenues from all sources (including payroll taxes) amounted to 19.9% of GDP (p. 56). Thus, even assuming zero behavioral effects, all federal taxes would have to rise by 41% if we were to rely on tax increases alone to to fill the fiscal gap. But such a massive increase in taxes would stimulate all sorts of tax-evading behavior meaning that the nominal tax rates would have to go up by considerably more than that to yield a net revenue increase of 41%.  And remember that a delay of 20 years would increase this figure by 50% (i.e., to over 60%). I cannot believe that anyone with a solid grasp of political realities in America could even conceive of this being politically feasible. Even if it could, it would still leave a $41 trillion fiscal gap at the state and local level unresolved.Filling the gap through a wealth tax is mathematically impossible.  If the first two posts in this series did not convince you of this, I hope this post does the trick. Remember that $241 trillion is the amount we need in hand today in order to bankroll all the downstream promises whose aggregate costs exceed the projected revenue expected to be collected under current law. So even if we taxed away every penny of wealth held not only by Jeff Bezos but everyone else in America, the amount raised would not even cover half the amount needed.Closing the gap through spending cuts alone likewise appears politically dubious. But the same could be said of trying to rely on spending cuts alone. Projected non-interest federal spending over the next 75 years will average 21.1% of GDP. Thus, taxpayers would have to either accept across-the-board cuts of 38.9% or much more massive cuts in some programs if any are to be spared from such draconian cuts.

Source: The Reason America Cannot Afford Medicare For All: We Have Run Out Of Other People’s Money