Achieving Mitt Romney’s Tax Fantasy Would Require Medicare Repeal

The Mitt Romney jobs plan is a very savvy document. It’s not all ranting and raving about how everything is unconstitutional, and indeed it doesn’t even say he wants to repeal Medicare. And yet lurking between the lines is an agenda on social welfare policy that’s basically every bit as extreme as anyone else’s. The tell here is when he argues against a balanced approach to long-term deficit reduction by arguing that “the reality is that before President Obama exploded the size of the federal government, our existing tax rates were more or less adequate to pay for the government we needed.”

For one thing, though it’s true that in 2006 the budget deficit was small as a share of GDP, at that time we were at the peak of a macroeconomic cycle and the private sector was piling on debt. An adequate tax system for the time would have been one that generated a substantial budget surplus in order to cushion us against the possibility of future recession.

The bigger issue here, however, is that we’ll need more tax revenue in 2016 than we needed in 2006 and we’ll need even more in 2026. The reasons for that have nothing to do with President Obama and everything to do with Medicare and Medicaid. These are programs that pay for health care services for the elderly, the disabled, and the poor. And the price of health care services is rising. Consequently, you either need higher taxes than were adequate in 2006 or else you need to gut the programs. The best thing to do — needless to say — is to enact systemic changes that slow the rate at which health care prices increase. The Affordable Care Act takes a number of steps in that direction and there’s more that can and should be done. However, it would be absurdly utoptian to hold that any systematic change is going to hold health care cost increases to zero even in the face of population aging. Maintaining America’s commitment to health insurance for senior citizens is going to require higher taxes. When politicians try to say that we can get by with Bush-era levels of taxation indefinitely, they mean we can get by with Bush-era levels of taxation if we scrap Medicare.

Romney’s whole plan is framed as a paen to economic growth and one has to concede that in those narrow terms this makes perfect sense. Lots of public spending — on infrastructure, on education, on health care, etc. — is important to economic growth. Providing health care services to 72 year-olds is not. My grandparents are lovely people, but they’re not, at this point in their lives productive workers. Radically reducing the living standards of the elderly in order to reduce the corporate income tax is plausibly a “pro-growth” measure. My view is that this reflects the limits of the Romney perspective rather than its merits, and you can tell that the authors of the document are not eager to draw out this particular implication, but that appears to be the basic structure of the thinking. Why tax productive firms in order to finance health care services for non-productive retirees?