RALEIGH – Bruce Bartlett, a senior fellow at the National Center for Policy Analysis and a widely read columnist, is one of the most effective advocates of free-market policies on the national scene today. A former government economist, Bartlett combines sound principles with practical experience and political insight.
So when, in a piece published Wednesday in The New York Times, Bartlett said that he no longer believed politicians of either party were willing to restrain government spending, and that the only operable question was which federal tax to raise to pay the freight, plenty of folks perked up their ears.
Bartlett’s argument is that the real driver of budgetary growth in Washington – and at the state level, I would add – is health care. Programs such as Medicare, Medicaid, and health insurance for federal employees and retirees are growing far more rapidly than overall expenditures. Indeed, much of the federal government isn’t slated to grow much at all over the next few years, but it won’t matter much. When Medicare and Medicaid catch colds, the whole federal budget gets sick.
What’s more, health-care inflation isn’t limited to on-budget programs. There’s also the implicit “cost” of providing generous tax exemptions – applying to federal income and payroll taxes as well as state income and sales taxes – to those who obtain health coverage from their employers or who take advantage of new tax credits for the self-employed. Because these tax exemptions aren’t capped, their fiscal impact grows along with overall health-care inflation.
As has frequently been observed, rising health-care costs partly reflect the fact that consumers face insufficient incentives to consume care prudently. Fooled by relatively low cost-sharing into believing that a $150 doctor visit actually “costs” $25, or a $200 prescription “costs” $30, they naturally go to the doctor and take the medicine regardless of whether the treatment will be truly needed and effective. Better safe than sorry, is the rule. But when being “safe” imposes little cost, such a rule is a recipe for financial disaster.
Bartlett understands all this and supports public policies ranging from scaling back Medicaid to reforming the tax treatment of health insurance. He does not, however, think that elected officials are going do these things. So the budget deficit will grow worse, creating pressure to raise taxes to compensate. If this series of events occurs, he says, at least the U.S. ought to consider imposing a consumption tax, such as the value-added taxes prevalent in Europe, rather than hiking marginal tax rates on income that will do far greater harm to economic investment and production.
I think he’s wrong, and overly pessimistic, but at least Bartlett is doing his job by making readers think about challenging issues.
Hood is president of the John Locke Foundation.