Click here to listen to the broadcast of You Tell Me on KTBB AM 600, Friday, April 27, 2012.
On Monday (04/23), the 2012 Trustees Report on Medicare was released and the news isn’t as bad as you might think.
Last year, Medicare took in $260.8 billion. It paid out $549.1 billion creating a cash deficit of $288.3 billion. Defenders of the Medicare status quo dismiss the cash deficits by pointing out that Medicare benefits from “general revenue transfers,” hoping that no one will ask what that means in non-Washington speak.
But since you asked, I’ll explain. A general revenue transfer is simply a euphemism for the practice of raiding the treasury. To cover the shortfalls that the Medicare taxes that are withheld from our paychecks and the premiums paid by seniors don’t cover, Medicare simply sends a chit to the Treasury Department and the Treasury Department puts money in Medicare’s checking account. (Many of you with kids in college will immediately relate to this.)
This arrangement could conceivably be OK except for the fact that the Treasury is having to go get money from outside benefactors deposited into its account. About a hundred billion a month or so or about the equivalent of $2.3 million every second.
We’ve become fond of saying that “we’re borrowing money from China to pay our bills here at home,” but to the extent that that was once true, it’s a whole lot less true now. Without many of us noticing, China and other sovereign buyers of U.S. debt have sharply reduced their purchases of U.S. Treasury bonds, effectively saying, “Maybe we should see if these guys can get their act together before we loan them any more money.”
So the money the Treasury uses to cover payroll, pay the bills and to deposit into Medicare’s checking account every month has increasingly been coming from the Federal Reserve, which in return for an IOU from the U.S. Treasury, has more or less been conjuring money out of thin air and loaning it to the U.S. government. There’s an innocuous-sounding euphemism for this practice, too. It’s called “monetizing the debt.”
Medicare thus, all by itself, accounts for a fifth of U.S. borrowing and will account for much more as more Baby Boomers retire.
The numbers are already staggering. For Medicare Part A (hospital coverage) to be solvent, Medicare payroll taxes will have to go up by 31 percent. For Part B (payments to doctors) and Part D (prescription drugs) the amount seniors pay in premium will have to go up by a combined $6,377.
We all know that’s not going to happen.
So Medicare alone, without the profligacy of every other department, agency and program of the government, has the power to bankrupt the nation.
Reacting to the Trustees Report, President Obama said that it’s time to raise the Medicare tax rate on the rich in order to bring about “fairness” and to put Medicare on a “more sound financial footing.” But no one ever asks him, “By how much should the tax be raised?”
So I did the math. If you simply nick every taxpayer with taxable income over $1 million at the rate of 74 percent, you can erase the Medicare deficit.
If the answer to the remaining federal deficit of about $1 trillion remains to tax the rich, confiscating the remaining 26 percent of all income over $1 million will wipe out about 17 percent of it meaning that you’ll only have to find about $830 billion from Lord knows where to balance the budget.
(And who knows, maybe the most successful people in the country would sit still for having one hundred percent of their incomes confiscated by the government. Or am I crazy?)
It’s a bleak picture but don’t blame it all on the politicians. Every time someone even suggests raising the Medicare participation age or instituting means testing of eligibility, Congressional office phone lines explode. So far, we as a people have not sent the unmistakable signal that we’re ready to clean this (and other looming fiscal disasters) up.
All of which is a long way of saying, “We get the government we deserve.”