July 30, 2003

July 30, 2003 | News Releases on Health Care

New Drug Benefit Would Lead to Trillions in Higher Taxes

The prescription-drug benefit Congress is fashioning for Medicare will burden taxpayers with substantial tax hikes, says a new paper from The Heritage Foundation that outlines exactly how much the new benefit will cost.


"There are no free lunches, and future taxpayers will have to pick up the tab for this commitment to senior citizens," says Brian Riedl, a Heritage budget analyst, and William Beach, director of Heritage's Center for Data Analysis. "Lawmakers say the drug benefit will cost $400 billion over the next 10 years, but that's a guess. They're creating a new entitlement, and they need to take a realistic look at what it will cost 15, 20 -- even 25 years from now."


Using data provided by Thomas Saving, Ph.D., one of two public trustees of the Medicare trust fund, Riedl and Beach find the drug benefit would, in inflation-adjusted dollars:

  • Add $2 trillion to the $5 trillion shortfall Medicare will face in 2030.
  • Cost today's typical 40-year-old head of household an extra $16,127 in taxes between now and the time he or she retires.
  • Saddle households with extra taxes averaging $1,125 annually by 2030.

Combined with Medicare's current projected shortfall by 2030, the average household will pay $3,980 per year in higher taxes, the Heritage analysts find.


How will Congress raise the funds necessary to prevent Medicare from going bankrupt once the new drug benefit becomes law? Riedl and Beach list several politically painful options, such as raising most income tax rates by 7 to 9 percentage points, or eliminating the home mortgage tax deduction, the child tax credit and the earned income tax credit.


"Policy-makers who back this drug benefit should realize that they're backing a $2 trillion tax hike," the authors say. "They're putting the tax relief they've already approved in jeopardy and imposing a huge burden on future generations."

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