Medicare vs. Obamacare

[updated below]

Andrew Biggs crunches some numbers on Medicare over at the AEI blog.   Contra Minnesota Republican Rep. Michele Bachmann and others adopting the new “Obamacare vs. Medicare” talking points, Biggs rightly points out that Medicare is not a program conservatives should be defending.  Conservatives should be looking at ways to reform Medicare, certainly, but defending it without caveats while decrying the government-run-health care bogeyman is ludicrous.  A reformed, solvent entitlement may worth be defending, but the status quo is not.

Biggs explains why the notion that seniors’ have paid for their own benefits is simply not true:

Let’s start with a typical person who was born in 1944, began work at age 21 in 1965, and in 2009 retired at age 65 and enrolled in Medicare. Over the course of his life he paid the Medicare tax out of his wages (see here for historical tax rates). According to the 2009 Medicare Trustees Report, the average Medicare benefit per person in 2008 was $11,012. From this, we subtract the average Medicare premium of $1,288 to produce an average net benefit of $9,724. I’ll assume that this person collects the average Medicare benefit from age 65 through age 83 (his life expectancy as of age 65).

But unlike Social Security benefits, which increase only to keep up with inflation, Medicare benefits grow in real terms. The Medicare Trustees project that health costs will grow around 1 percentage point faster than the growth of per capita GDP, which in turn they project will grow around 1.3 percent faster than inflation over the next 15 years. So I assume that real Medicare benefits will increase by 2.3 percent each year.

To make taxes and benefits comparable, I convert each to present value terms, assuming a real interest rate of 3 percent. This means that taxes paid in the past have 3 percent interest added each year, to account for the fact that these taxes could otherwise have been invested. Likewise, future benefits have 3 percent annual interest deducted, to account for the fact that retirees must wait to receive them.

So what do we get? This typical person paid around $64,971 in Medicare payroll taxes over his lifetime. Likewise, after netting out Medicare premiums, he’ll receive around $173,886 in lifetime Medicare benefits. The net? He can expect to receive around $108,915 more in benefits than he paid in taxes over his lifetime.

To put this in perspective:

Medicare vs. Obamacare

Like Social Security, Medicare is simply not sustainable without serious overhaul, regardless of its popularity or the political benefits to opponents of Obamacare who have chosen to exploit that popularity.  It’s disingenuous for conservatives to pretend otherwise.

Without means-testing and other significant overhauls to how we think about entitlements, future beneficiaries will face massive cuts, and quite possibly see a negative return on taxes spent on the program.  Conservatives should not be defending Medicare.  Conservatives should point out that adding yet another financially insolvent entitlement to the cadre we already have is unsustainable without defining exactly how to pay for it.  Conservatives should work toward new solutions to fund any new entitlement, including the possibility of a VAT since one smart area for compromise in entitlement reform and implementation is the means to secure revenue (another being the means to distribute benefits); and conservatives should present alternatives, such as real market reforms for the health insurance industry coupled with better, national regulations that allow interstate trade and competition to occur.

The status quo, however good the health care results it delivers may be, is still lousy as a system of insurance.  Conservatives should use the health care reform debate to reinvent how we think about entitlements and safety nets from the ground up.

At some point these fiscal reforms will be necessary – as the federal deficit under big spenders like George W. Bush and Barack Obama piles up one administration to the next, and special interests, labor groups, and other government beneficiaries grow increasingly powerful and increasingly vested in government intervention into the economy, the poorer and poorer the results of these programs will become.

It’s very sad that the last real success in entitlement reform occurred under Bill Clinton’s watch.  George W. Bush spent too much political capital in Iraq to push much needed Social Security reform, and the pendulum has swung now in favor of the Democrats, who threaten to increase spending on just about everything imaginable – from defense to climate change legislation to health care – and who promise to do so in whatever way is politically feasible regardless of the consequences or efficacy of these reforms, because “any reform is better than no reform.”  (Or is it?)

With all this in the balance, why is it so hard for Republicans to stay on message – or to even construct a message to begin with?  Even if it’s working, obstruction is no way to govern in the long haul.  Images of angry town hall protesters are not comforting to the vast bulk of Americans.  Someday Republicans are going to need to govern again and the public will need to have faith that they can govern competently.

Medicare is a popular entitlement, but it’s going to have to face changes one way or another down the road, and some people are going to lose their benefits in the process.  We should be talking about health care vouchers, free markets, and responsibility.  We should be talking about avoiding monopoly in favor of competition.  We should be talking about the moral impetus to cover the uninsured because there is a moral impetus at the heart of this debate, and there is no reason it should be the sole property of the left.

This faux-crusade to “protect” Medicare from the government is just absurd.  “Keep your government hands off my Medicare” was a funny line.  That Republicans have taken it up as a cause is simply farcical.

Update.

See also, Dave Schuler.’

Update II.

Andrew Biggs updates his numbers to adjust for mortality:

What’s the result? The typical 21-year-old as of 1965 would have paid around $62,290 in Medicare taxes (versus $64,470 on a non-mortality adjusted basis) while receiving around $140,346 in benefits (versus $173,886 on a non-mortality adjusted basis). So Appel’s point clearly has merit.

That said, the broader point still stands: in my original calculations, a new retiree in 2009 would have paid Medicare taxes equal to around 37 percent of his expected benefits. Adjusted for the chance of dying before retirement, that share rises to only 44 percent. So even with reasonable adjustments for mortality, the typical retiree today has paid for less than half the Medicare benefits he can expect to receive over his lifetime. Importantly, rising life expectancies will tend to increase benefits more than taxes, making today’s deal better over time.

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109 thoughts on “Medicare vs. Obamacare

  1. The elderly are a constituency that always votes.

    In my youth, they were a constituency that always voted for Democrats.

    The Republicans, when they pick up votes in constituencies that have not traditionally been “theirs”, have picked up votes using wedge issues against the Democrats… e.g., crime, abortion, terrorism.

    This is one hell of a wedge issue.

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  2. So raise income taxes back to Clinton levels and cut defense spending to cover only our true defense needs, not an internationally-hegemonic expeditionary force.

    Of course we can afford Medicare, and universal health care besides.

    “Some people are going to lose their benefits in the process.” Why? Why should anyone accept this as a fait accompli? You need to convincingly explain why every other industrialized nation on the planet can pay for national health care, but somehow the broke, crippled and destitute United States can’t.

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        • Look, if you want to commit electoral suicide, cut people’s entitlements. I say this again and again, and I am backed up by events again and again– people in this country don’t, actually, support smaller government. They say they do in general but oppose eliminating government programs in specific, except for programs that we already barely fund at all– spending for the arts and foreign aid. On issue after issue, they support larger entitlements and government doing more, and in that kind of a situation you have to raise more revenue. The prescription drug benefit was and is wildly popular. Medicare and Social Security are holy writ even among conservatives.

          It’s bordering on useless, to say, “our entitlements are going to bankrupt us!” and then turn around and say, “well hey, revenue is higher than it was….” We’ve just been hit with all these reasons we need more money. So, you raise taxes. That’s actual fiduciary responsibility.

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          • If raising taxes would reduce revenues, would that be in the best interests of those who wish to fulfill our obligations to not committing electoral suicide or does such a question betray my fundamental unseriousness?

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              • This is far too absolute a statement, though, Freddie. At certain levels, raising taxes absolutely will reduce revenues. I don’t think we’re currently at those levels and a tax increase to pre-Bush levels would likely increase revenue, but returning to pre-Reagan era taxation rates in which the top marginal federal tax rate was 70% would go way too far, and the data suggest would in fact reduce tax revenue.

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              • I just posted numbers saying that we had more revenue (in real dollars, even) in 2008 than we did 30 years before (okay, 28) when tax rates were higher.

                I have posted numbers demonstrating that revenues are higher today than they were when taxes were higher.

                I would posit that the argument that we need to raise taxes back to the levels of 30 years ago (okay, 28) has the ball in its court.

                It is reality that revenues are higher today than they were 30 years ago.

                The argument that it is not the case is the argument that is fantastic.

                But if you have numbers that would demonstrate otherwise, please post them.

                Perhaps the links I’ve provided could give a good starting point.

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          • Raising taxes is also electoral suicide, though. Except, of course, if you limit those tax increases to a small number of people. This, however, is no different from the observation that cutting entitlements is electoral suicide unless the entitlement cuts are limited to a small number of people.

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          • And it is because of people like you, Freddie, that we have less and less freedom and liberty as each year passes. Fiduciary responsibility? I have an idea for you – be responsible for future generations of Americans who may just want to keep 50% of their paycheck every week, or save for retirement on their own, or pay for their medical care out of pocket.

            Every new entitlement ensures this for the future: the next generation of Americans will have either more debt or much higher taxes, or both. I personally don’t want my kids to have mandated government retirement savings, mandated goverment health care coverage, and a 50% tax bracket. Might as well just bring back the draft and let the real government ownership take place…

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            • Matt:

              While I am aware that this discussion raises the passions of people on all sides, I would ask that you refrain from phrases like “people like you” and similar attacks that do little to add to the discussion. Our commenting policy is on the sidebar.

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  3. I’m sorry, but Bush’s Social Security reform plan wouldn’t have fixed the problem. Adding new accounts onto the system would have cost more money, at least initially. And it was largely Bush’s Medicare Part D overhaul–a huge giveaway to drug companies–that is causing the problems with Medicare now, because Bush was a fiscally conservative guy who didn’t have a problem with new entitlements, so long as we didn’t have to raise taxes to pay for them. And I recall very few Republicans raising this objection at the time. At the very least, the Democrats are trying to make sure that their programs are paid for.

    We can talk about raising the retirement age or means testing. I’m perfectly amenable to those ideas. But Bush wasn’t seriously trying to reform Social Security. He was trying to radically alter it, and in the process help out a lot of Wall St. bondsmen. There was no theory of reform here, just magical thinking, and it was ever thus with Bush initiatives. Let’s be honest about these things.

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    • I should have specified that I’m not sure one way or another if Bush’s specific reform measures were correct or not, but that the general idea – that reform is necessary, and that some implementation of personal savings accounts plus safety nets – is something I’d like to see. (Plus means-testing, etc.)

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  4. One more point – yes, we can always raise taxes to pay for benefits. Of course, that could just as easily lead to new spending instead. And as we continue to raise taxes to pay for Benefit A we may end up cheating and paying instead for Benefit B. Or people who receive Benefit A might decide they want A and B, and after all, we can just pay for it through more taxes.

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  5. It’s very sad that the last real success in entitlement reform occurred under Bill Clinton’s watch.

    Why would you expect anything different? George W. Bush is not an outlier from Republican adherence to fiscal responsibility. George HW was. It’s not just W., it’s Reagan, Nixon, Gingrich, Delay, Dole– none of these powerful Republicans made any actual sacrifices in the name of balancing the budget. It’s all talk. Yet we continue to regard conservatism and the Republican party as the standard bearers of balanced budgets. Why? On what evidence? For what reason beyond empty rhetoric?

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  6. Medicare is in much, much worse than Social Security. Social Security can always be made fiscally sound by limiting benefits paid to revenues taken in. (I recognize that’s politically a lot harder than it sounds.)

    That can be done in two ways: reduce benefits or increase revenues. I favor some of both. I think we need to raise the SSRA, means test Social Security, and raise FICA max. With respect to the last I think it’s important to recognize that we wouldn’t be talking about problems with Social Security at all if incomes in the third and fourth quintiles (which are wholly subject to the tax) had grown faster. The reality of Social Security is that if most income growth is in the fifth quintile and you exempt most of the fifth quintile’s earning from Social Security, you’ll have sustainability problems with Social Security.

    Medicare is a completely different kettle of fish. Unless costs in healthcare, generally, are brought under control, we won’t be able to pay for Medicare regardless of how high we raise taxes, means test, change the age of eligibility, or anything else.

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    • All very good points, Dave. Thanks for stopping by…

      I really don’t see the current legislation addressing any of your concerns. Which is a shame, because I think it could be done. Namely, we could put health care decisions in the hands of consumers and make sure they understood the costs, and had incentives to keep those costs low. The real problem here often boils down to cost distribution and the lack of catastrophic coverage.

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  7. From the Tax Policy Center, numbers that appear reliable:

    “In 2008 the federal government collected $2.5 trillion, an amount equal to 17.7 percent of GDP. Federal revenue has ranged from 14.4 to 20.9 percent of GDP over the past five decades, averaging 18.2 percent.”

    Of course Medicare is affordable. The US spends more per patient, including Medicare recipients, than any other country, by far. There is a tremendous amount of overuse of care in the system. Indeed, the “death panel” was intended to be a voluntary way to reduce overuse, by paying doctors to take the time to find out in detail what level of treatment people want at the end of life.

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    • The problem is the more we put into these programs the bigger they become. It’s not like you can say we put X amount of dollars in and then it will all be fine and paid for. It’s that you put X amount of dollars in and this allows it to grow. So then you have to put more dollars in to sustain it, but then it grows again. Etc. etc.

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  8. ChrisWWW,
    I actually think paying all our money to insurance companies is only a small part of it, and paying money to doctors not that much bigger. Hospitals, med equipment, pharma companies, etc are probably much bigger, though I’m afraid I have to rely on someone else to find the numbers.
    But the US has a strange system. Consider: in the inner city, lots of poor folk use the ER as primary care. The minimum fee for walking in and having a nurse look at you is what, $800? $1000? It was $800 at one hospital in 1991. However, Medicaid pays for some of those people, and others, working poor, are accounting write-offs for the hospital. Overall, the hospital profits on the deal, no doubt because it charges such an unreasonable fee up front that the people who pay more than cover the people who don’t. The hospital claims that it HAS to take all those people with stuffy noses into the ER because of the risk of litigation. But does it have to charge that much money? Does it really take in a bunch of non-emergency cases because of fear of litigation, or because it likes that sweet, sweet Medicaid money? (Which in turn subsidizes the severely ill inpatients who have gone over their Medicaid or insurance limit…)
    In any other developed Western country, with any mix of state and private health care, from the UK on the one hand to Switzerland on the other, (1) people with colds would be told to piss off and go to their own doctor (and they would have one) or a local clinic, and (2) the ER would never charge that much money in the first place.
    Oh, and I forgot to mention that half of the physical space of this hospital is administration, and almost half of that is billing, trying to keep track of several states’ Medicaid and Medicare, plus the different rules for every policy for every private insurer, plus the very highly paid ‘procedure-code’ experts who tweak the procedure and diagnosis codes for every patient so they end up paying for as much as their insurers will cover, while self-pay patients have their bills minimized as much as possible.
    Extend the principles of this hospital to every facet of American health care.

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    • Antiquated Tory,
      You’re right that the insurance companies aren’t the biggest recipient of our health care dollars. The insurance system doesn’t work because it stops covering the very people who actually need insurance, not because it steals our money. (Although I suppose you could make the argument that by paying for insurance and then not getting covered when you need medical care is a form of stealing on their part…)

      But my main point remains: if you’re concern is fiscal responsibility, your focus has to be more on changing the cost side.

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    • Yes, they *have* to take them.

      Federal law (EMTALA) requires that anyone who walks into an emergency room is entitled to, at the very least, a medical screening to determine whether the condition is life or health-threatening. If such treatment is necessary, the person cannot be discharged or transferred until they are sufficiently treated and stabilized. You cannot be refused necessary treatment for any reason.

      Because of the risk of a lawsuit if a condition is missed, essentially what this means is that ERs can be walk-in clinics for the poor and uninsured. If you walk in with any sort of condition (even one not really life-threatening) you’ll get treated.

      And yes, this is a powerful argument for a national health care system. It’s massively inefficient to use the nation’s ERs as the public clinics for the poor.

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  9. “Like Social Security, Medicare is simply not sustainable without serious overhaul,”
    Lazy – the main crime is conflating the problems with social security (not serious) with the problems of Medicare (serious). But I don’t even believe there is a problem with long term SS funding, because the alarm is based on ridiculous 75 year forecasts. You haven’t done the work of proving there is even a problem with SS (please spare us all a link to Wilkinson’s ridiculous non-scholarship).
    http://www.dollarsandsense.org/archives/2004/1104econ.html

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    • Okay, this is from the Social Security government website:

      A. Unless changes are made, at age 65 in 2037 your scheduled benefits could be reduced by 24 percent and could continue to be reduced every year thereafter from presently scheduled levels. See the 2009 Trustees Report.

      Well I won’t be 65 by then. So how much will my benefits be reduced by 2045? Sure, it’s sustainable if you want to think of it as a program that continues to pay less and less the more people are enrolled. That’s not a very good program, though.

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      • …and the link I provided is a critique of how those number are arrived at – they are crap. I am not suggesting that we will pay more or reduce benefits, I am suggesting the numbers are irrationally pessimistic.

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          • In the current report, SSA is maintaining that long term productivity will increase at 1.7% (Table V.B.1 of the 2009 report) – still at odds with historic rates of GDP growth and only incrementally different than the article I linked to. And if SS is solvent – what are the deeper problems? If you are worried about the disappearance of the SS trust fund – why? It was created to assist SS through the boomer’s retirement years. An it is working. SS is pay as you go, the trust fund *should* be shrinking. The main point is it is that Medicare and SS are different universes of problem and should simply not be combined – suggesting that they are both pressing issues. SS reform is not a pressing issue.

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  10. I’m gonna say it again, because I was ignored before– what sense does it make, in the context of worrying about the fact that our entitlements are insolvent, for me to say, “We should raise taxes to fix the insolvency, as this country once had a much higher tax rate and survived,” for you to then say, “well, revenues are higher now….”

    Unless, like Jaybird, you are endorsing the flatly wrong idea that cutting taxes raises revenues, a canard that has been brutally and unequivocally refuted even by conservative and libertarian writers.

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    • Raising taxes to a certain point is really not a problem. The Clinton rates were fine. The economy chugged along fine. All was well. I would even say that we should look into restructuring the rates after you hit $375,000 – little reason that someone making $375,000 should pay the same rate as someone making $5 million.

      The question becomes, at a certain point, when tax dollars begin effecting job creation, and when the downturn in jobs (regardless of revenue) begin effecting peoples’ livelihood. The government will never, through any entitlement, be able to provide as meaningful a subsistence as a job will.

      But again, I think we have room here. I think tax rates are reasonably low though the code itself could stand some reform, and could go up certainly to Clinton levels and be fine. I think cuts can be made from many other programs and especially defense. And I think we can provide safety nets and do a better more fiscally sane job than we’ve done with Medicare. The argument is not whether or not these entitlements should exist, but how we pay for them and implement them properly in the long run. Simply resorting to “raise taxes” is as bad an answer as the GOP “cut taxes” answer.

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    • “Unless, like Jaybird, you are endorsing the flatly wrong idea that cutting taxes raises revenues, a canard that has been brutally and unequivocally refuted even by conservative and libertarian writers.”

      I posted numbers comparing revenues in real dollars.

      It seems to me that the idea that revenues were higher (in real terms) in 1980 than they were in 2008 is factually inaccurate. I’ve provided numbers, I’ve adjusted for inflation, and given my sources.

      That said, it seems to me that if the number one thing that you want to do is fund a program that needs funding is find funds for it.

      Revenue strikes me as fairly reliable way to get funding.

      Now, it’s not like I’ve been saying “everyone knows that we’re to the right of the laffer curve!”

      In response to someone talking about tax levels of 30 years ago, I pointed out the difference between 1980 and 2008 revenue numbers in real terms.

      And the real revenues in 2008 were higher.

      If you could explain how this is a “canard”, I’d love to see it.

      Maybe you have different numbers. I’d love to see them.

      As it stands, however, I suspect that you’re speaking from ideology rather than familiarity with what actually happened.

      But if you have numbers, please! Post them!

      Or, sure. Accuse me of using canards. Whatever.

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    • http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

      That’s a document that discusses federal tax revenues in real dollar terms.

      The highest revenues (in real dollars, remember) happened in 2007. That’s an outlier, you say? Fair enough. Next highest was 2008. After that was 2006. After that was 2005. After *THAT* was 2000.

      The argument that to increase revenues we need to go back to Clinton-level tax rates is an interesting one worth discussing, I guess.

      But the argument that lower tax rates result in more real revenue for the government is one that seems to hold up in the face of tax rates when it comes to real revenue for the government.

      This is a measurable thing that actually happened and was actually measured.

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      • Whoops! Read the chart wrong!

        I read “current dollars” as “dollars in today’s terms” and not “current for the time”. Let me rewrite.

        The highest revenues (in real dollars, remember) happened in 2007. That’s an outlier, you say? Fair enough. Next highest was 2006. After that was 2000. After that was 2006. After that was 2008. Those are the only years that break the 2T mark (and, seriously this time, those are in year 2000 dollars).

        If you look at 1980, Revenues were a little over 1T. If you look at 1978 (30 years exactly), you have less than 1T. Go back to the tax rates of the 60s and you see revenues much, much less than 1T (though 1969 finally gets in spitting distance). The 1950s? Around *HALF* of 1T (remember, these are year 2000 dollars).

        If the most important thing is paying for a thing, it might be best to find out where the “sweet spot” is for taxation.

        In real dollar terms, it has not been demonstrated that 30 years ago found the sweet spot when it comes to getting revenue (in real dollars).

        But, of course, if you have numbers, I’d love to read them.

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        • It seems to me that the idea that revenues were higher (in real terms) in 1980 than they were in 2008 is factually inaccurate.

          But, of course, I never said any such thing. Find where I said that. Oh, right, you can’t– you’re just lying when you say that I did. This is why you’re unserious, Jaybird, not because of your political views, but because of your consistent dishonesty.

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          • What I found is where you said this: “Right. Our top tax rates are half of what they were 30 years ago. The republic will survive, but it needs revenue. “Cut taxes, cut taxes, cut taxes” is not”

            That’s the entirety of the comment (it sort of ends abruptly).

            If you weren’t saying that the tax rates of 1980 were relevant to the tax rates of today, what were you saying? You certainly seem to have been implying that we should have those tax rates.

            Were you not saying that?

            You went on to say “Except that, outside of fantasyland, raising taxes does not reduce revenues. Sorry, but even Megan McArdle has pointed this out time and again.”

            I’m not a follower of Megan McArdle, per se. I see her as a nice person who writes interesting stuff from time to time.

            If I wanted to post numbers, however, I would.

            I did.

            I even asked a handful of follow-up questions that you ignored. I guess I had to piece together your opinion on the relevance of 1980’s tax revenues from between your accusations of others using canards.

            I’ll ask this, then.

            How are 1980 tax rates relevant to the discussion? Why did you bring them up?

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            • They are relevant because we taxed at a far higher rate, and continued to enjoy a stable and growing economy. You are trying to make a point based on the idea that reducing taxes at American levels of taxation increases revenue. This is a notion that has been flatly refuted, without equivocation or doubt, by every economist I’ve read who has weighed in on the question. Take the briefest moment to research the claim, and you’ll see that’s the case. I’m sorry, but your conjecture and deduction is not sufficient for me to favor your opinion over that of many perfectly credentialed and respected economists, particularly when so many of them are generally opposed to higher taxation on ideological grounds.

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              • You’re hand-waving.

                I posted numbers, charts, and links to inflation calculators.

                You’re making appeals to debates that you are failing to provide links for.

                “Take the briefest moment to research the claim, and you’ll see that’s the case.”

                I did research the claim.

                I posted my links.

                Will you now tell me to google it and come back when I’ve discovered your proof of the contrary which is, I’m certain, out there to be googled because you’ll be damned if you do my homework for me?

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      • But the argument that lower tax rates result in more real revenue for the government is one that seems to hold up in the face of tax rates when it comes to real revenue for the government.

        It does not hold up, even remotely, to a consideration of real evidence. This was debated, at some length, in the blogosphere, for a long time. And numerous libertarian and conservative bloggers (indeed, all the honest ones) dropped the claim that lower taxes increases revenue. And you know why? Because it isn’t true.

        Don’t take my word for it. Listen to La McArdle, who has posted again (and again and again) refuting the claim that lower taxes raises revenue. (A money quote: “at American levels of taxation, cutting taxes does not raise revenue”.) Or Tyler Cowen. Or any number of other bright libertarians who don’t like taxes.

        This debate was had, publicly and loudly, and the question has been settled by reasonable people. It just isn’t true.

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        • Links!!! If we’re going to have this debate we should have links to support our arguments. Jaybird has provided links, and the numbers he’s come up with support his point – though very possibly there are other factors that may dispute his point. So for those of us watching this unfold, some links to McArdle and Cowen disproving supply side economics would be helpful. Or better yet, something from Bartlett maybe…

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          • http://unrepentantindividual.com/2005/10/02/the-useless-laffer-curve/

            Here’s an interesting discussion about how the laffer curve isn’t interesting, particularly and suggests it be replaced with the Warbiany Curve.

            I’m still under the impression that, in real (inflation adjusted dollars) the sweet spot has been in and around the tax rates from the last 10 years rather than to be found 30 years ago.

            Then again, maybe nobody is arguing that we need to return to the tax rates of 30 years ago or that they’re even relevant to current taxes in the slightest and my thinking that people think that is dishonesty on my part.

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          • Here we go:

            Jon Chait, of course, wrote a whole book about the flat falsehood of the claim that lowering taxes raises revenue at anything resembling American levels of taxation. Here’s a long article in which he details the main points:

            http://www.tnr.com/story_print.html?id=880f4273-e2d6-4914-b15b-ffcce401155a

            Here’s a great article that talks about the flat dishonesty of the Laffer curve in contemporary politics:
            http://www.newyorker.com/online/2007/10/29/071029on_onlineonly_surowiecki?currentPage=1

            Here Megan goes on at some length about “ridiculous” Laffer curve claims, in the process complaining that libertarians don’t actually believe in the Laffer curve.

            This is a good one: “I agree that any Laffer-type arguments offered by the administration are wrong, and should not be taken seriously, and that Republicans should be pressure not to deploy them.”

            http://meganmcardle.theatlantic.com/archives/2007/09/supply_me.php

            “Somewhere in between, the curve must maximise. Unfortunately for conservatives looking for practical justifications for tax cuts, that point is at some rate higher than current American income taxes.”
            http://meganmcardle.theatlantic.com/archives/2007/08/a_laffer_curve_for_cigarettes.php

            From a list of ten great mistakes from economists, Tyler Cowen:
            “6. The more exaggerated claims about the Laffer Curve.”
            http://www.marginalrevolution.com/marginalrevolution/2009/01/famous-economis.html

            Here is Tyler Cowen asserting that no one takes the Laffer Curve seriously anymore:

            http://www.marginalrevolution.com/marginalrevolution/2007/09/how-big-is-supp.html

            Against all of these people who have studied this question at length, and with consultation of vast amounts of empirical data, I have… Jaybird, a few context-free statistics from a cursory Google search, and his deduction. In the face not only of libertarian and conservative abandonment of the idea so pervasive that many complain about the Left bringing it up, I’m afraid I can’t privilege 45 seconds of research, a paltry amount of statistics, and junior high deduction. Just can’t do it. See, actual smart people who do this for a living considered this question, for a long time, and they answered it. We are nowhere near the right hand side of the Laffer curve, even if we believed it was an accurate model.

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              • “The fact is that it is only in very exceptional circumstances that there would even be the possibility of a tax cut that would so stimulate growth that it would pay for itself. Even the Bush Administration admits this. The 2003 Economic Report of the President (pp. 57-58) says, ‘Although the economy grows in response to tax reductions…it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity.'”

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            • Thanks for the links. But I think that all these same people would argue that raising tax rates too high is similarly silly. Nobody, so far as I can tell, is saying that the only reason to oppose tax-hikes is ideological. In Bartlett’s column last week he explicitly stated that the only way for supply side economics to really work is through long-term cuts, not through brief reprieves like we’ve seen the last few years. He also said that going back to Clinton era rates would not be the end of the world – after all, the economy was quite peachy during those years. He did not, however, claim that raising taxes to pre-1980 levels would be a good idea, nor does Cowen or McArdle or many others. The problem with saying that we can always pay for ever-expanding programs is that they will require continuous rate-hikes. At some point that does begin to eat into the economy, job-rates, etc.

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              • Sure. But I wasn’t saying, and did not say, “we should go back to 1980 era tax rates.” I was saying that, clearly, with a top individual tax rate half of what it was a few years before my birth, significantly raising taxes is not some crazy idea dreamed up by socialists. If we can’t pay for what we need, we should raise our taxes so that we can. That doesn’t mean doubling the top tax rate, but it does require, I think, an appropriate historical context for what our tax rates have been like in the recent past.

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            • Hrm. You must not understand my argument.

              I am not saying that “WE ARE ON THE RIGHT SIDE OF THE LAFFER CURVE!” I’m more saying that, when it comes to revenues, the sweet spot is somewhere around where we’ve been in the last 10 years.

              Have I not made that explicit enough?

              I could find the comments above where I said stuff like “Now, it’s not like I’ve been saying “everyone knows that we’re to the right of the laffer curve!””

              My comments were specifically discussing such things as the tax rates of 30 years ago (28, really) versus todays.

              I’ve said before, I’ll say again, I think that the sweet spot is somewhere around where we are now.

              And I’ve posted charts showing as much… showing the revenue of the government in inflation-adjusted dollars.

              You’ve posted a number of links arguing against the proposition that we’re still on the right of the laffer curve. Those links would be more appropriate if that was, in fact, what I’ve been arguing. (Indeed, when you say “Here Megan goes on at some length about “ridiculous” Laffer curve claims, in the process complaining that libertarians don’t actually believe in the Laffer curve.”, I checked to see if she specifically discusses any claims that I’ve been making. Nope. Tyler Cowen’s link including the dreaded #6 doesn’t really address anything I’ve said either… did you just put “laffer curve Tyler Cowen” into google? You’re throwing links without addressing the arguments that I’m making… For the record, I don’t think it’s intellectual dishonesty on your part. I’m guessing you just didn’t understand my argument.)

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              • No, I’m afraid your wrong. Read the Bruce Bartlett piece. The claim that we are anywhere close to the tax rates necessary to see greater revenue from lower taxes is just not on. If the Bush Administration economic team is willing to admit that, it’s pretty damn conclusive. Again– the consensus view among economists is that we are nowhere close to the point where reducing taxes raises revenue. And, again, these are eminently qualified people who have looked at vast data sets. You are a guy with Bing and one cherry-picked data set that has not been contextualized or considered for accuracy (or adjusted for population). I’m sorry to say that the vast consensus on this issue is against your argument, which I understand and reject. You’re just a guy with DSL; your argument is facile; that’s all.

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                • The Bartlett piece discusses the 2003 tax cuts and his statements are nowhere near as strong as you are making them.

                  As I have said earlier, if we want to go back to pre-2003 tax cuts, that’d be a discussion worth having. As I said, I do think that the sweet spot is somewhere in the last 10 years… which includes 1999.

                  I’d say something about how I do not think that 1980 tax rates would be bad but, as has been pointed out, no one has even implied that 1980 tax rates are desirable.

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            • But Freddie – no one, and so far as I can tell, this includes Jaybird, is arguing that current rates of taxation or even that Clinton-era rates of taxation are so high as to justify claims that further tax cuts would increase revenue (or that modest tax hikes would fail to do so). However, Jaybird and others have pointed out evidence that returning to marginal tax rates of 70% or more, as you seem to be advocating, would in fact reduce revenues in the affected tax brackets. That’s the claim that is at issue here.

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              • Freddie has gone to great lengths to point out that he was not, in any way, advocating to a return of the tax rates of 30 years ago when he said “Right. Our top tax rates are half of what they were 30 years ago. The republic will survive, but it needs revenue. “Cut taxes, cut taxes, cut taxes” is not”.

                That needs to be restated.

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              • See, saying “Tax rates were so much higher then” indicates that there is a lot of room to maneuver. We could raise them quite a bit. That isn’t, in fact, even suggesting we should move to 1980 era tax rates. But, also, in terms of the empirical question, I think Jaybird, and anyone who agrees with him, is simply incorrect to assert that raising taxes to 1980s levels would reduce tax revenue. I have posted at length arguments to this effect. But you could, you know, call an economics professor. They’ll tell you.

                And, I’m sorry to say, I am not impressed with my fellow Gentlemen on this issue. This is not a matter of controversy. Dedication to listening to all opinions does not mean pretending as though one opinion is even basically credible when the overwhelming consensus is that it is not.

                Mischief managed.

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                  • Really?

                    According to http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

                    1980 tax revenue as a percentage of GDP was 19%.

                    1999 was 20%
                    2007 was 18.8% (which, while lower than 19%, it’s certainly within a stone’s throw).
                    Indeed, 2000 and 2001’s rates, as a percentage of GDP, were also higher than 1980’s.

                    2002-2009, of course, were under 19%… but, within the last 10 years, there were higher percentages of GDP to be gained from the taxes… which, may I restate, fall within the last 10 years.

                    Luckily, no one has been arguing that we need to return to 1980 rates, have they?

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                    • Sorry, dude, you made an embarrassing mistake, and it’s game over. You’ve repeatedly said 2007 was the highest revenue, but in fact, as a percentage of GDP, it’s lower than it was in 1980, the year you mock. And, more importantly, you seem completely unaware of the fact that you have been arguing about numbers that have of course grown because of increases in population. That’s game over, it’s a curb stomp, it’s a done deal, sorry, thanks for playing.

                      And, of course, you keep trying to be cute. You do see, of course, that by saying that we once had a much higher tax rate, there was room to increase the tax rate. I mean, you actually do, and you have. But you keep throttling this idea that I was really saying that we should go back to 1980 tax rates, even though I never said anything of the kind, and even though you know it’s dishonest.

                      This is why, Jaybird, you’re a troll; because you keep lying. Again, and again. When you keep broadly hinting that I was saying we should go back to 1980 tax rates, you’re lying. And you know it. Pushing an utterly discredited, totally refuted supply-side economics? That’s just wrong. Continuing to lie about what I’ve said because you know how brutally your one (1) piece of evidence was just eviscerated, that’s what makes you a troll.

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                    • I don’t see the difference between 19% and 18.8% as a curb stomp, myself.

                      Additionally, had I moved back 30 years to 1978 rather than 28 years to 1980, we’d see that the numbers for 1978 were 18%.

                      As curb stomps go, I’ve been stompeder.

                      But let’s look at the numbers on the chart that I’ve provided: Going from 1945 to 2008 sway back and forth between 15% and 20% (with only two exceptions per direction).

                      Now, if you want to say that I was reading the chart wrong and reading the real numbers (real numbers, I understand, adjust for inflation, purchasing power, and such things as population) and should have read this line in the chart rather than that line, that’s one thing.

                      I provided every single source I used.

                      I did not paraphrase them improperly and even asked you to provide numbers (and pointed out how the links I provided could give a starting point to numbers that you’d want to provide).

                      Instead, I have been attacked as only a devotee of Martin Buber could attack someone who provided charts and numbers.

                      Anyhow, as I’ve said before, I think that the sweet spot can be found in the last 10 years. Indeed, the highest number as a percentage of GDP is found in the last 10 years.

                      I stand by that, Marty.

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                    • And, once again, you’re wrong. And, once again, you are not merely wrong, but flying in the face of the consensus of people who know a great deal more about this stuff than you or I. I don’t think that your attempts to read one chart and then contradict the carefully researched and meticulously argued positions of the majority of credentialed economists means much. Your opinion doesn’t impress me. I think our thoughts are clear.

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                    • “And, once again, you’re wrong.”

                      If it is not the case that the sweet spot has happened in the last 10 years, when has the sweet spot happened?

                      According to http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=200

                      Revenues in real dollars were highest in 2007.
                      If you don’t like “real dollars” (and who does? It’s a tricky concept!), we can look at revenues as a percentage of GDP and see that the five highest happened in 2000, 1999, 1998, 1945, and 1944.

                      If you like neither real dollars nor as a percentage of GDP, what numbers do you like? Why do you like them?

                      Indeed, the original discussion was paying for stuff that we have an obligation to pay for.

                      What percentage of revenue would provide the most bang for the buck?

                      Perhaps you could post some links showing where you think the sweet spot is.

                      Or, of course, you could engage in name-calling, mischief management, and curb stomping. It’s all good.

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        • I posted numbers adjusted for inflation.

          You’re waving your hand saying that this is settled.

          If you could post some numbers, I’d appreciate it. As it stands, it certainly seems that, in real terms, the most revenue the government has collected since 1940 (in inflation-adjusted dollars) has been in 2007.

          If you could explain to me that, no, we actually had more revenue when we had higher taxes, I’d appreciate you posting numbers demonstrating this rather than hand-waving that this is settled.

          It seems to me that the argument that the tax rates in 2000 were the sweet spot is one that you could make.

          I don’t see how the tax rates from 30 years ago would be particularly relevant… given that, in inflation-adjusted dollars, revenues were a lot lower.

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  11. I’m sorry, but any such study that doesn’t even take into account the time value of money just cannot be taken seriously. Taking future values into account, the gap narrows greatly.

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  12. Who cares what they paid in? The people being helped by Medicare are our parents, siblings, relatives, friends, neighbors, etc. Should we put them out in the streets instead? “Sorry Mom, but you’ve reached your Medicare limit, so I’ll be picking you up from the hospital and dropping you off at the homeless shelter.”
    Where is your soul?

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      • “If we don’t find ways to reform the system we will not be able to pay for it, and then yes – our seniors will be faced with extremely subpar services.”
        But you seem to be opposing tax increases at the outset of the discussion. Let’s say there was no more efficiency to be wrung out of the system, would you then support a tax increase to cover grandma?

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      • They are facing them now. Arguing about whether they paid in their fair share is shameful. It’s like asking if your children have done enough work to warrant their continued feeding. By all means let’s tackle the funding problem, but not from the heartless point of view of calculating who has earned the treatment. That’s work best left to the mythical death panel.

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    • Wait so it is moral for you to demand that I pay for your family and friends’ health needs, regardless of how effective the treatment would be or if I even know you? How is it moral to take from me to pay for you? On some promise that I would have the same right if the shoe was on the other foot?

      And no one is stopping you from providing care for your family and friends (in fact up until the last century that was pretty much how the world cared for its elderly, sick and infirmed, not through gov’t largesse). Not saying that is the proper way to structure a health system, but you betray yourself when you insist that I ought to pay for your family and friends’ healthcare without volunteering to do so yourself first.

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      • My family and friends are your family and friends. Go back a few generations and you find that you’re related to half your neighborhood.

        My point is that while it’s worthwhile to look for more efficient ways to fund and deliver health care for all, wearing out the abacus to divine who paid what as justification for who gets care, is sub-human.

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        • It’s not really about justification for who gets care – it’s the sort of long-term thinking necessary to make sure those who really do need care get it. The lack of means-testing in both social security (which I realize is not the same issue or nearly as pressing) and Medicare is really a problem. Even Obama thinks we should means-test Medicare, and he’s right! Egalitarianism and solidarity can only go so far before they run into very real, practical problems.

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          • Means testing is unrelated to what one paid in the past. My comment addressed Biggs’ focus on who paid how much.

            As for “even Obama thinks…”, that carries little weight with me. What Obama says he thinks, and what he shows he thinks seems to vary frequently. The list of campaign positions he’s failed to address after taking office is long and well-documented.

            Personally, I dislike means-testing for health care. It leads to different levels of care quality. I see health care as a fundamental human right, as outlined in the Declaration of Independence. Health care is necessary for Life, the first inalienable right declared by the founders. The U.S. Constitution also charges congress with the duty to promote the general welfare, and to levy taxes for this purpose. Clearly health is the primary measure of general welfare, as all other things are nearly worthless in comparison.

            I applaud efforts to increase the efficiency of providing health care for all, but have no patience for those who would rather continue to ration it based on individual wealth, be it earned, inherited, found, or stolen.

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            • Health care is also someone else’s labor and/or someone else’s property.

              Of course, the Declaration of Independence and Constitution had blind spots when it came to recognizing everybody’s right to their own labor and/or property. Keep the tradition alive, I guess.

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              • No, the Constitution has no “blind spots” there. Rather, it expressly allows for taxation to fund the operations of the government.

                The existence of the United States government is what gives your property meaning. You wouldn’t even own your property if the United States government hadn’t stolen it from the Native Americans.

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              • Firefighting and police protection are someone else’s labor as well. Do you propose means-testing 911 calls? We all pay taxes, in varying amounts (there’s some reasonable means-testing!) and we all get our police and fire protection. Is your health less important to you than your house or property?

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                    • (Couldn’t find a reply button under your comment so I’ll put it here.)
                      Medical treatment is for the uninsured is refused every day. You are probably referring to emergency care, but your need for care doesn’t end when you’re stabilized.

                      My point? You call for means-testing in providing money for health care. I point out that you don’t require it for any of the other public services, so why for the most important public service of all, on of the inalienable rights laid out in the Declaration of Independence. Don’t blame me if we wandered away from our original comments; we got here hand-in-hand.

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  13. The money deducted from pay by a boomer in 1970 or anytime up to eligibility was supposed to be put into a fund but that was perverted and spent. If the 64 K had been put into a real trust over the 40 years I dare say that what would be taken out for medical later would have barely tapped into it. This is another false argument. So people are not supposed to get health care in this country because we continue to blow wads of money on stupid wars.

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  14. Yes, today’s senior citizens are getting more than they paid for. But the calculations for future retirees are going to be more in balance, because the Medicare tax rate increased greatly in the 1980s. Note, I said “more in balance”, not “in balance”. Something still needs to change. Reining in the growth of medical costs generally would be a big help.

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  15. The problem with this analysis is that it assumes (implicitly) that the money paid in Medicare taxes gets somehow “saved up” to pay for Medicare benefits. That’s not true. The money paid over the past forty years in Medicare taxes was spent to provide benefits for then existing Medicare recipients. Since Medicare started in 1964, none of these recipients had ever paid in 40 years worth of taxes. Moreover, the benefits one gets out of Medicare bear no relation to the taxes one puts into it. It’s not an insurance system; it’s a tax that is collected from some people to pay for other people’s benefits.

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  16. So we can choose to debate one tiny point – whether or not taxes could be raised without doing damage to the economy, and whether or not those tax hikes would provide enough revenue or not – or we could look at the larger issue, which is basically that no matter how high you take your tax rates, costs in health care entitlements will continue to rise. Indeed, it is quite likely that more spending will simply lead to more taxes and that the attitude that this can always be paid for with new taxes will lead to more and more spending. In other words, it’s no way to run a program or to make decisions about health care.

    So – to those who say “cut taxes” and those who say “raise taxes” I just have to say, there’s more to the story. How we spend the money, how we go about running these programs, what sort of taxes we propose and how those taxes effect investment elsewhere – this all matters. This probably matters more than quibbling over tax hikes or tax cuts since the former is going to be difficult politically beyond a certain point, and the latter is simply impossible.

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    • Health Care is a positive good.

      If someone has something bad and wants to keep going for it (most of us, I’d think), there is always one more doctor, one more treatment, one more specialist, one more prescription, one more therapy, one more attempt to make. Maybe the next one will work.

      Hell, even if modern doctors say “sorry, there’s nothing we can do”, there are folks that you can still go to on the grey market that will say “here, try this, try that, take this vitamin, breathe this incense, ring this bell”.

      As medical tech gets better, we’re capable of keeping more and more people alive longer and longer. Stuff that we used to put in hospice can now be treated with surgery. Stuff that we used to treat with surgery can now have outpatient treatments. Stuff that we used to give outpatient treatments for have prescriptions now.

      Of course, everyone is still going to die. In most every case, it will still feel premature and like something ought to have been done… surely there must be one more specialist, one more therapy, one more prescription that could have done something…

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      • I suspect the leak in our health care system has less to do with actual health care costs than it does with insurance company profits. I agree that people are frequently going to want to try one more thing as the end nears, especially if the patient is under 80 or under 70, but I also know that many people understand that prolonging death is different than prolonging life. I trust families more than for-profit insurance companies, on where to draw that line.

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    • Hear, hear.
      I would like to add the caveat that the current American system does produce more new medical tech than anywhere else in the world, and I strongly suspect that the level of profit possible in the system has something to do with that.
      But the increasing level of costs are not sustainable under ANY system of paying for them, and the current system has some deep injustices built into it. So we need a system that first and foremost does something about costs (letting the insurers of whatever form negotiate more vigorously as a block for pharma prices, having an equivalent of NICE to keep down unnecessary and expensive procedures, whatever, but something) .
      Second, we need a system that is a bit more just in its allocation. Not everyone gets a sweet union or white collar job. Some people even want to start their own small business, and others prefer working for such businesses.
      Third, it would be good if we could preserve as much as possible of what is good in the current US system: the progress in developing new treatments and new tech, and the system’s flexibility.

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