Debt Digest | Higher Health Spending, Tax Math, and Rising Interest Costs
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
Health spending on the rise. Stephen Parente of the Carlson Global Institute writes that “health insurance coverage provisions under current law for the non-elderly are estimated to increase federal outlays by $6.73 trillion from 2023–2033…Budget impact estimates do not include estimates for non-ACA tax expenditures encoded in current law, such as the employer-sponsored health insurance tax expenditure.” The Congressional Budget Office previously estimated the tax exclusion alone will cost $3.4 trillion over 10 years. Michael Cannon argues that Congress should end the tax exclusion for employer-sponsored health insurance here.
Medicare needs reform. President Biden recently outlined his vision for reforming Medicare, including expanding drug pricing negotiations and increasing taxes on higher-income individuals. Jonathan Bydlak writes, “[I]mplicit in Biden’s words is an acknowledgement that Medicare, one of the crown jewels of the nation’s social safety net, is not on sound footing. It’s a startling admission from any president, let alone one who used his State of the Union address to goad Republicans into a public debate over the third rail of American politics.” Read Boccia’s piece on the long-term funding challenges caused by entitlement spending here.
Higher taxes chase ever higher spending. Veronique de Rugy of the Mercatus Center writes, “The belief that we can reduce the deficit by taxing more revenue also overlooks the effects of increased revenues on the actual spending behavior of politicians. When those guys get their hands on more revenue, they often use it to spend more money...One study found that tax-driven deficit reduction ‘will result in the long run not only in more taxes, and more expenditures but also in more deficit.’”
Biden’s budget math doesn’t add up. Cato’s Adam Michel explains, “There is simply not enough income at the top of the distribution to cover the projected federal budget deficit, let alone a significant expansion in federal spending over the next decade.”
Soaring interest costs warn of coming debt crisis. Cato’s Chris Edwards writes, “With interest rates rising, federal interest payments have doubled from 1.2 percent of GDP in 2015 to 2.4 percent in 2023. The government will pay $640 billion in net interest this year…By 2033, interest costs will hit 3.6 percent of GDP [based on CBO projections], double the peak reached after World War II.” Read more about the consequences of high and rising debt here.
Cost of student loan cancellation approaches a trillion dollars. The Committee for a Responsible Federal Budget (CRFB) highlighted recent Congressional testimony by Marc Goldwein “on the $970 billion recently spent or allocated toward debt cancellation, the repayment pause, Income-Driven Repayment (IDR) changes, and other student loan policies.” See the CRFB graph below. He argues that Biden’s student loan policies were “costly, inflationary, economically and financially unjustified, poorly targeted, and would ultimately result in more borrowing, higher tuitions, and more low-quality degrees.” Read Clark Neily and Neal McCluskeys’ piece on why Biden’s student loan cancellation is ‘clearly unconstitutional’ and ‘terrible policy’ here.
