Raising Medicare Taxes

Glen Reynolds writes:

The concern is that when people perceive the cost of government to be cheaper than it really is, they will demand ever more government benefits because they either don’t feel the cost directly or believe that others will be paying those costs.”

Social Security taxes are set at about the right level - the reason we have a problem with the program is that we spent the "trust fund" ages ago on everything but Social Security.  But Medicare is a different story.  Medicare taxes cover just a third of the benefits a participant can expect to eventually receive.  Of course everyone thinks it's a great deal, it's like they are buying Mercedes sedans for $15,000.

Update:  I know there are people who are horrified I would suggest raising a tax, that we should work the spending side or eliminate the program all together or replace it with a hybrid voucher system.  I would like to see any and all of that.  But there is absolutely no momentum for doing so.  Even Paul Ryan only fiddles around the edges in a barely meaningful way, and he is labelled as one step away from Hitler for doing so.

If the government is going to offer an "insurance" program, then the "premiums" need to be priced correctly.  If those "premiums" rise to absurd levels because the government is incompetent at management, then we might have some pressure to replace the program with something else.

If the post office were still charging 15 cents for a stamp, and then burying the resulting deficits in the budget somewhere, there would be a hell of a lot less pressure for reform.


  1. sean2829:

    You are right, it desperately needs to be fixed. But look at what young folks are faced with. Obamacare was structured to balance the costs for healthcare among the old and the young. In other words, the healthy young people pay more than their share. Then when it comes to government paid for health care from Medicare and Medicaid, only 80% of the costs are covered and the shortfall is picked up by younger employed people with private health insurance through higher reimbursement that result in higher premiums. I suspect that cost is close to $3,000 per household. And that young household is also already paying 3.5% of their income to Medicare through payroll taxes. All to support a healthcare system that some estimate wastes a third of the money it gets.

    Those same young people if they go to public college will take 6 years or more to finish college due to lack of classes in many cash strapped states. Those extra years will show up in student loans that are averaging in excess of $25K so their family and first house will have to wait several years. And when they do have kids and send them to school, the public schools in states like California will be paying so much in retirement benefits that the current kids will get lost in very large class sizes.

    If Medicare needs to draw more money from the population at large, lets start reaching into the pockets of the people that use it. And for heaven's sake, the health care industry needs to be reigned in before it consumes any chance of prosperity for younger generations.

  2. Matthew Slyfield:

    I have said this here before and I will say it again, there has NEVER been anything spendable in the Social Security "trust fund"
    From it's very foundation, Social Security has been a pay as you go program where current benificiaries benifts are paid from current workes Social Security taxes.
    The contention that it was some kind of insurance program where your benifits would be paid by putting your taxes in to a fund to be spent on your benifits later was a LIE from day one.
    By the very law that created Social Security in the first place, any execess taxes collected beyond what is needed to pay current benifits must be invested in US Tresury bonds. The very first dollar beyond what was needed for current benifts went into the general fund as does the money collected from all treasury bond sales.
    The real problem with Social Security is Two fold.
    First, by law benifits payed can not exceed current Social Security tax revenues + the balance of the trust fund.
    The second half of the problem is demographic in nature. When the program was first started, there were somewhere in the neighborhood of 10-15 workers for every benificiary. However, some time in the late 70s to early 80s, someone noticed that the ratio of workes to benificiaries was declining and that it could actually fall below 1 by the time the last baby boomer retired.
    The problem is that the combinatioin of these two things would force an automatic drastic cut in benifits. To prevent this they raised the SS tax rate well above what was needed for current benefits. This filled the trust fund with phony money that could be used to continue paying higher benifits after current tax revinues dropped below what was needed to pay the then current benifit levels. The polititans that did this knew full well that when the bills came due the actual benfits would have to be payed out of the general fund, most likely with new governement debt.
    When the trust fund runs out of IOUs, it will force an imediate across the board cut in benifits that could exceed 30%.

  3. LarryG:

    this is worth reading: http://dhhs.gov/asfr/ob/docbudget/2010budgetinbriefl.html

    the thing that Medicare gives people is guaranteed access to health care at the same price for everyone.

    beyond that - it's a question of how much you pay and how much you get - which is the same premise with
    any insurance including private sector.

    Despite the echo chamber demagoguing of "death panels" and " unelected faceless bureaucrats deciding your benefits" - ALL health insurance works this way - public and private, in the US and worldwide.

    the only difference is the access to the insurance and the price.

    Singapore has Universal Health Care. Everyone pays into it and everyone has access to it and you do not get all that you want or even need - you get basic benefits and if you want more you can pay more - but the key factor
    is that EVERYONE gets access to basic care. Singapore does this at a cost per capita that is less than half what we pay, in fact, close to a third and yet they have some of the best life expectancy and infant survival rates in the world.

    We need to fix Medicare. It needs to cost more, especially for those than can afford it. right now, it covers 80%. We need to rethink that perhaps but we also need to rethink how much is paid for end-of-life care. It's a harsh reality that applies around the world but at some point - we have to realize that paying hundreds of thousands of dollars to keep someone alive for a few more weeks is not tenable and threatens the entire program.

    People want Medicare fixed but they do not want Medicare alone to be what has to be cut to deal with the deficit. It has to be across the board and include DOD.

  4. mark2:

    Reined in would be easy if the cost/benefit was borne more directly by consumers.
    Now it is a free for all and folks make outragious demands, and if the demands are not met, then folks get their representatives in state congresses to get them mandated.

    It would also be nice to make the insurance - real insurance. You pay for your annual visits and when you have the sniffles. the insurance will cover you if you have a heart attack or cancer, or severe accident over say 10K. That would cut down on many of the frivolous visits.
    Obamacare actually encourages more frivilous minutes and services by mandating that insurance must offer an annual visit, and standard tests for free once a year. Before where I would get just one test, - may as well go for them all now. I think the prevention claim is grossly overdone.

  5. JKB:

    This is from an article in Life magazine (1939), 4 years after lawwas originally passed but before they expanded to include survivors and disability. As you can see they'd spent the "reserve fund" already.

    "The joker in this is that the Government has been spending Social Security tax money for ordinary expenses and putting its own I.O.U.'s (i.e., bonds) in the reserve fund. Thus when the time came to pay old-age annuities partly out of the interest on the bonds the money could be raised only by taxing the people a second time.

    When President Roosevelt signed the Social Security Act just four years ago this month, he hailed it truly as a milestone in American history. Nobody, however, regarded the Act as much more than a long first step toward its objectives, a tentative plan to be revised and expanded with experience."

  6. mesaeconoguy:


    The actual problem is that we invented these programs in the first place.

    Mediscare, like Medicaid, Socialist Insecurity, and Obamascare, is designed to fail.
    It cannot be demographically or otherwise sustained in any economic system.

    Unfortunately, only when I and my cohorts die in 30 years - 15 sooner than
    current actuarial predictions - will we figure this out.

    There is no way to save these programs. None. Game over.

    The only solution is economic growth, and leftists have finally found a way to
    fool 51% of the population of what used to be the most productive country ever.

    If Obama wins, cue the Lando Calrissian…..


  7. mesaeconoguy:

    You're an ignorant moron.

  8. mesaeconoguy:

    Look, Larry, let’s cut to your highly ignorant chase here:
    there is zero record of any collectivist economic system resulting in social economic
    benefit; nor is there any record of collective system of medicine to do the

    In fact, there is a giant gaping, pus-filled wound, staring
    you straight in the face, called EUROPE, telling you otherwise.

    Please remove your cranium from thy rectum, post haste,

  9. Vitaeus:

    Healthcare needs to have its special status removed before anything else. You walk in and no one can tell you how much the visit will cost you, imagine if you bought your clothes or anything else that way, take home two suits and find out the total cost six monthes later when the last bill from the tailor come in the mail. I have two kids and for both of them I received the last bill for their delivery from some random provider of service around their first birthdays, that is insane.

  10. mark2:

    Actually Singapore's Universal care works extremely well, but that is only because it is more free market than ours. They provide bare minimum service, And folks are allowed to buy up. Try buying up in the US and you get arrested.