The GOP Tax Plan Is Disastrous For The Healthcare System

The U.S. tax system and healthcare are deeply intertwined. The Republican tax bills hurtling through Congress would make significant changes in this relationship.

            The proposed changes, primarily a large cut in the corporate tax rate from 35% to 20%, would benefit healthcare (and most other) companies.

            But none of the changes would, in the long run, benefit consumers, the public good, or public health. The major components of the proposed legislation are dangerously ill-conceived and ill-timed in the context of the overall economy and in particular healthcare policy and spending, which is projected to comprise 20% of the nation’s economy in 2025, up from 18.3% today.

            That’s a difference and increase that reflects several trillion dollars of “additional” healthcare spending over the next decade. Amid this projected rise, the Trump administration and congressional Republicans propose to reduce the rate of growth of overall federal government spending and shift a sizable portion of health spending to other government entities and programs. These include the Pentagon, national security, homeland security, infrastructure projects, and—most notable in the context of the tax bills—a tax cut for corporations and upper income Americans.

            It doesn’t and won’t add up—unless two (unlikely) things happen: (1) the economy grows at twice to three times the rate most economists predict and (2) the rate of growth in health spending is dramatically constrained.

            Absent both, the Republican tax bills will cause the annual federal budget deficit and the nation’s long-term debt to balloon even more than already forecast.

            This outcome is highly irresponsible and could lead to adverse economic consequences, especially in the event of a major war, terrorist attack, natural disaster (such as a pandemic) or weather/climate-change-related event.

            In addition, over the long run, excessive deficits and debt are a tax and dangerous burden on our children and grandchildren during a period in which fewer workers will be subsidizing a growing number of senior citizens.

            As has been widely reported, the tax legislation would add an estimated $1.5 trillion to the national debt over the next decade (some analyses show it closer to $2.2 trillion). Republicans dismiss this as a trivial amount and say economic growth, spurred primarily by the corporate tax cut, will more than make up for it.

            Many independent and Democratic-affiliated analysts disagree. They argue that (1) there’s no proof the corporate tax cut will add more than a fraction (less than 1%) to economic growth over the next decade, and (2) that an increase in deficit spending, and thus the national debt, at this point is greatly at odds with the current debt load, national priorities, overall projected government expenditures, and the government’s commitments to provide health insurance and care to upwards of 120 million Americans.

            The national debt is currently $20 trillion. That’s more than triple the debt in 2000, when it was $6 trillion. Federal government spending (our tax dollars!) to pay the interest on that debt varies from year to year. It mostly trends between 5% and 10% of the federal budget each year. In 2017 it was 6.5%. In 2018 it will be 8%—$315 billion of a $4 trillion federal budget.

            For a host of reasons, interest on the national debt is projected to be the fastest growing federal expense over the next decade. It’s projected to rise every year over the next decade to $787 billion by 2026 and in that year comprise 12.2% of the federal budget.

            Economists track the national debt in another way, too: as a percentage of overall GDP. That’s considered a more robust and meaningful measure for technical reasons. Our nation’s debt is now at around 100 percent of GDP. The GDP was $19.4 trillion in 2017.

            The only other time it was that high was during and right after World War II.

            And deficits and the debt are poised to rise further. If current tax receipts and federal expenditures, including for healthcare, were to continue at a pace equal to the past few years (often referred to as the baseline), CBO forecasts a federal budget deficit of close to $1 trillion in 2024.

            In CBO’s words: “The projected rise in deficits would be the result of rapid growth in spending for federal retirement and healthcare programs targeted to older people and to rising interest payments on the government’s debt, accompanied by only moderate growth in revenue collections. Those accumulating deficits would drive up debt held by the public from its already high level to its highest percentage of gross domestic product (GDP) since shortly after World War II.”

            As is well known by health policy folks, Medicare and Medicaid account for bulk of health spending by the federal government (again, our tax dollars). And there’s no let up in sight.

            As most recently projected by CMS’s Office of the Actuary, Medicare spending will increase between 7.1% and 7.6% annually from 2019 to 2025. That program alone will make up 18.8% of the federal budget in 2019 rising to 21.4% in 2025.

            Medicaid spending is projected to increase around 6% a year between 2019 and 2025, and make up 9.2 percent of federal government spending in 2019 and 9.5% in 2025.

            In this context, the Republican tax bills and the Trump administration’s 2018 budget are bad law and bad policy and should be rejected.

Steven Findlay is a healthcare policy communications manager. A version of this op-ed originally appeared at The Health Care Blog.