In their recent paper “Health Care Spending Growth and the Future of U.S. Taxes,” Katherine Baicker of the Harvard School of Public Health and Jonathan Skinner of Dartmouth College measure the balanced-budget impact of continued growth in the Medicare and Medicaid programs. Here is a summary of their finding:
The model predicts that top marginal tax rates could rise to 70 percent by 2060, depending on the progressivity of future tax changes. The deadweight loss of the tax system is greater when the financing is more progressive. If the share of taxes paid by high-income taxpayers remains the same, the efficiency cost of raising the revenue needed to finance the additional health spending is $1.48 per dollar of revenue collected, and GDP declines (relative to trend) by 11 percent. A proportional payroll tax has a lower efficiency cost (41 cents per dollar of revenue averaged over all tax hikes, a 5 percent drop in GDP) but more than doubles the share of the tax burden borne by lower income taxpayers.
Their conclusion is that “the rising burden imposed by the public financing of health care expenditures” in the form of more taxes and less economic growth could ultimately be what slows down the growth of health-care spending. It’s not a pleasant prospect.
Thanks to Tyler Cowen for sending me this rather depressing paper.