曼哈頓政策研究所-在富人增稅之前先削減他們的開支（英文）-2021.5-16正式版

REPORT|May2021CUTSPENDINGFORTHERICHBEFORERAISINGTHEIRTAXESBrianRiedlSeniorFellowCutSpendingForTheRichBeforeRaisingTheirTaxesAbouttheAuthorBrianRiedlisaseniorfellowattheManhattanInstitute,focusingonbudget,tax,andeconomicpolicy.Previously,heworkedforsixyearsaschiefeconomisttoSenatorRobPortman(R-OH)andasstaffdirectoroftheSenateFinanceSubcommitteeonFiscalResponsibilityandEconomicGrowth.HealsoservedasadirectorofbudgetandspendingpolicyforMarcoRubio’spresidentialcampaignandwastheleadarchitectofthe10-yearde?cit-reductionplanforMittRomney’spresidentialcampaign.During2001–11,RiedlservedastheHeritageFoundation’sleadresearchfellowonfederalbudgetandspendingpolicy.Inthatposition,hehelpedlaythegroundworkforCongresstocapfederalspending,curbfarmsubsidies,andbanpork-barrelearmarks.Riedl’swritingandresearchhavebeenfeaturedin,amongothers,theNewYorkTimes,WallStreetJournal,WashingtonPost,LosAngelesTimes,andNationalReview;heisafrequentguestonNBC,CBS,PBS,CNN,FOXNews,MSNBC,andC-SPAN.Riedlholdsabachelor’sdegreeineconomicsandpoliticalsciencefromtheUniversityofWisconsinandamaster’sdegreeinpublicaffairsfromPrincetonUniversity.2ContentsExecutiveSummary..................................................................4Introduction.............................................................................5WhySubsidiestoWealthySeniorsShouldBeTargeted..............6SocialSecurity.........................................................................6Medicare..................................................................................9FarmSubsidies......................................................................11Conclusion.............................................................................13Endnotes................................................................................143CutSpendingForTheRichBeforeRaisingTheirTaxesExecutiveSummaryMembersofCongresshaveincreasinglydemandedlargetaxhikesonupper-incomefamiliesto?nancelargespend-ingincreasesontopofsoaringbaselinede?cits.Buteventhemostaggressivetaxhikesontherichwouldmakeonlyasmalldentinthelong-termbudgetde?cits,andtheywouldsigni?cantlyharmtheeconomy.Beforeconsideringanynewtaxes,lawmakersshould?rstreducefederalspendingbene?tsforhigh-incomefamilies.Thisbipartisanstrategywouldachieveboththeredistributivegoalsoftheleftandthespendingrestraintgoalsoftheright.Suchupper-incomespendingcutshaveseveraladvantagesovernewtaxes:1)theywillnotharmeconomicgrowth,2)theyincreasefuturepolicy?exibility,3)theyarebettertargeted,and4)theypromotepoliticalcompromise.SeveralprogramstargetspendingtowealthyAmericans.Thisreportfocusesonthreeofthelargest:SocialSecurity,Medicare,andfarmsubsidies,wherebasicreformscouldsaveupwardof$1trillioninthe?rstdecade,andsubstan-tiallymoreinfuturedecades.CUTSPENDINGFORTHERICHBEFORERAISINGTHEIRTAXESIntroductionAsstructuralbudgetde?citsgrowtotrillionsofdollarsandpoliticianspromiseevenmorespending,taxingtherichhasbecomeapopularsolutionto?nanceexpandedgovernment.Butlargetaxincreasesonhighearnersnotonlyareinsu?cienttoclosemuchofthesebudgetgaps;theywouldalsoreduceeconomicgrowthandkilljobs.Additionally,theyareoftenpoorlytargeted,buildexpectationsofhighergovernmentbene?tlevelslater,andreduceCongress’s?exibilitytotaxthesefamiliesforotherpurposesdowntheroad.Thegoalofredistributingincomedowntheladdercanbeaccomplishednotonlybytaxingtherichbutalsobycuttingfederalspendingthatdisproportionatelybene?tsthem.Thisapproachismorepro-growthandbettertargeted.Italsorepresentsaplausiblebipartisancompromisebetweenprogressiveswhowantthewealthytobearmoreofthecostsofgovernmentandconservativeswhoprefertosimplyreduceitssize.Thefederalbudgetisgrowingrapidly.Thenationaldebtheldbythepublichasincreasedfrom$5trillionto$22trillionsince2007,asaresultoftwodeeprecessions,$6trillioninstimuluslegislation(acrossbothrecessions),and$3trillionintaxcuts,aswellasannual(in?ation-adjusted)increasesinthecostofSocialSecurity,Medicare,andMedicaidofjustunder$1trillionperyear.Thenationaldebtheldbythepublicisprojectedtosoarto$35trillionby20301—or$42trillion,ifPresidentBiden’sentirecampaignagendaisenacted.2

Thiswouldleavethenationaldebtat130%ofGDP,orone-quarterhigherthanattheendofWorldWarII.Evenwithoutanynewlegislation,theCongressionalBudgetO?ce(CBO)projects$104trillioninnewborrowingoverthenext30years,bringingthenationaldebtto195%ofGDP.3

NearlyallthisdebtwillresultfromgeneralrevenuetransfersintotheSocialSecurityandMedicaresystemstoclosetheirwideningshortfalls,aswellastheaddedinterestcostsonthenationaldebtcreatedbytheseshortfalls.4Somenewtaxesontherichwilllikelybepartofanyrealisticplantosubstantiallyclosethisgap.5

Butthesetaxesalonewon’tcomeclosetostabilizingthenationaldebt.HypotheticallyseizingallannualhouseholdincomeearnedinAmericaabovethe$1millionthresholdwouldnotevenbalancetheshort-termbudget,muchlessaddressgrowinglong-termbudgetgapsor?nancenewspendingprograms.6

Evenifweweretodoublethetoptwoincome-taxratesto70%and74%,imposetheworld’slargestwealthtax,taxcapitalgainsasordinaryincome,imposea77%estatetax,andapplytheSocialSecuritypayrolltaxesallthewayuptheincomeladder—bringingmarginalincome-taxratesofnearly100%andsavingstaxedatsimilarrates—itwouldstillnotfully?nancePresidentBiden’sspendingagenda,muchlesstheunderlying$100trillioninborrowingthatisscheduledinthebaseline.7Lawmakersshouldtakeastrongerlookatcuttingspendingontherich.Whilemostfederalbene?tsgotothemiddleclass(particularlyintheSocialSecurityandMedicareprograms)andfederalantipovertyspendinghassteadilygrownto4%ofGDP,Washingtoncontinuestodistributecashandin-kindfederalbene?tstowealthyfamilies.Cuttingthisspendingbringsseveraladvantagesoverupper-incometaxhikes.EconomicGrowth.Whileeconomistsdebatethemagnitudeofthesee?ectsonthemargin,thegeneralconsensusisthatsteeptax-rateincreasesreduceincentivestowork,save,invest,andbeproductive.Theydistorteconomicdecision-making,incentivizeexpensiveavoidanceandevasionschemes,andoftendriveincomeawayfromthejurisdictionsdoingthetaxing.Evenif,asmanyeconomistsbelieve,thesecostscanbeoutweighedbythebene?tsoffederalredistributionprogramsor5CutSpendingForTheRichBeforeRaisingTheirTaxespublicgoods,itwouldstillbebesttominimizethosecostsasmuchaspossible.Reducingupper-incomespendingbene?tscanenhanceredistributionyetavoidmanyofthebroadernegativemacroeconomice?ectsoflargenewtaxes.theirfuturebene?ts,thendoublingtheirSocialSecuritytaxes(byeliminatingthepayroll-taxwagelimit)withoutacorrespondingbene?tincreasewillbreakthattax-to-ben-e?tlinkjustasmuchascuttingtheirfuturebene?ts.SocialSecurityexpertAndrewBiggsstates:“Itisnotclearwhylargebene?tcutsforhighearnerswouldreducetheirsupportforentitlementprograms,astheleftbelieves,butevenlargertaxincreaseswouldnot—unlessweassumethatthebest-ed-ucatedandhardest-workingAmericansareextremelybadatmath.”10

Onceitisagreedthatwealthyfamiliesshouldbearalargerburdenofredistribution,highertaxesandsmallerbene?tsbothaccomplishthesamegoal.PolicyFlexibility.Hightaxesreducepolicy?exibilityintwoways.First,taxratescanriseonlysohighbeforetheeconomicharmbecomesoverwhelmingandnewrevenuesfallaway.Forexample,applyingthe12.4%SocialSecuritytaxtoallwageswouldcloseroughlyhalfthelong-termSocialSecurityshortfall.8

Itwouldalsoraisecombinedmarginaltaxrates(includingfederalincome,stateincome,andpayrolltaxes)onupper-incomefamiliespast60%inmanystates,whichapproachestherevenue-maximizingtaxrate,andthusSeveralprogramsdisproportionatelybene?twealthyAmer-leaveslittleroomfortaxesonthewealthytoclosethemuchlargerMedicareshortfallorto?nancenewgovernmentini-tiativesonsuchthingsasclimate,infrastructure,health,thesafetynet,K–12education,andcollegestudentdebtrelief.icans.Thisreportfocusesonthreeofthelargest:SocialSecurity,Medicare,andfarmsubsidies,wherebasicreformscouldsaveupwardof$1trillioninthe?rstdecade,andsub-stantiallymoreinfuturedecades.Second,exorbitanttaxincreasescreateexpectationsoflargefuturegovernmentbene?ts,especiallyforsocialinsuranceprograms.Andthemorethatgovernmentlocksintheselargebene?ts,themorepoliticallydi?cultitwillbetounwindorrepealthosebene?tsdowntheroadascostsescalate.Maximizingtaxratesandlockinginuna?ordablespendingpromiseswouldparalyzefuturegovernments.WhySubsidiestoWealthySeniorsShouldBeTargetedSocialSecurityandMedicarewerecreatedinerasinwhichmostseniorcitizensenduredlowincomesandlittlesavings.Bycontrast,today’sseniorsarethewealthiestcohortinthewealthiestcountryinitswealthiestera.11

Whilesomeseniorsstillstruggle,averagehouseholdretireeincomegrewmorethantwiceasfastasworking-agesalariesbetween1979and2016(thelatestdataavailable).12

Andthewealthiest10%–20%ofseniorsaredoingremarkablywell.Fourmillionretireehouseholdsholdmorethan$1millionininvestableassets,and1.1millionhouseholdsholdmorethan$3.5million.13

Relatedly,CBOdatashowthat6.3millionelderlyAmericansliveinhouseholdsthatcurrentlyearnannualmarketincomesofatleast$87,200forsomeonelivingaloneor$123,400foratwo-personhousehold—including2millionseniorsinhouseholdsearningmorethan$174,100(oneperson)or$246,200(twopeople)annually(Figure1).Totheextentthatsuchhighpostretirementincomesderivefromannuitiesor401(k)-styleinvestments,theysuggestinvest-mentportfoliosthatarewellintothemillionsofdollars.BetterTargeting.Thepersonpayingthehightaxratestodaymaynotbearoundtocollecttheearnedgovernmentbene?tslater.Thisproblemwouldnotapplytoparingbackspendingbene?ts.PoliticalCompromise.Spendingcutsareneverpopular.Yetmanywealthyfamilieswouldsurelyacceptsmallercurrentandfuturegovernmentbene?tsinreturnforlimitingthesubstantialtaxincreasesthattheymayotherwiseface.Additionally,conservativeswaryoftaxincreasesmaybewillingtoaccepttheprogressivegoalsofexpandingredistri-butionthroughthisalternativeroute.CriticsofthesecutswillcontendthatprogramslikeSocialSecurityandMedicareenjoybroadsupportbecausetheyareuniversal,andthusanymeans-testingwillrenderthemasunpopular(andpronetocuts)aswelfare.Butmeans-testedprogramshaveprovedextraordinarilypoliticallyresilient.Since1965,federalantipovertyspendinghassteadilyrisenfrom0.5%–4.0%ofGDP9—acrossRepublican-andDemo-cratic-ledgovernments—andprogramslikeMedicaidhavebeenexpandedwiththestrongsupportofstatereferenda.Norisittruethattheseprogramsareentirelyuniversal;Medicarebene?ts,forexample,havebeenincome-related,withoutunderminingprogramsupport.Itisnottruethatmeans-testingwillleadtodrastic,across-the-boardcuts.SocialSecurityFirst,let’sexamineSocialSecurity.DespiteconventionalwisdomthatSocialSecurityrecipientsaremerelygettingbackwhattheypaidintothesystem,therealityisthatthetypicalaverage-incomemarriedcoupleretiringtodaywillreceive$698,000inlifetimebene?tsfrom$625,000inlife-timeSocialSecuritycontributions(?guresadjustedintonetpresentvalue).14Furthermore,thereisnoreasontobelievethatlargetaxincreaseswouldnotundermineprogramsupportamongwealthyfamiliesjustasmuchasbene?tcuts.IfwealthypeoplesupportSocialSecuritybecausetheirtaxes?nance?High-earningAmericans,inparticular,receivelargeannualbene?ts:6FIGURE1.Morethan6MillionElderlyIndividualsLiveinHouseholdswithHighMarketIncomes3.02.81.51.51.50.50.081–90%($140,600)91–95%($199,500)96–99%($331,700)Top1%($1,877,500)IncomePercentileandAverageHouseholdMarketIncomeSource:CongressionalBudgetOffice,“TheDistributionofHouseholdIncome,2017”O(jiān)ctober2,2020,anditsTableBuildercalculator.Marketincomeincludesretirementdistributions,butnotgovernmentbenefitsortaxes.CBOincomepercentilesarerankedforallhouseholds,althoughaverageincomelevelsreflectthoseofelderly-headedhouseholdsineachpercentilegroup.?Atypicalhigh-earningcouplewillcollect$836,000inbene-Figure2showsinitialbene?tsforaretiringcouplewithone?tsfrom$812,000incontributions(innetpresentvalue).15

averageearnerandonehighearner,byyearofretirement.ThesedatasuggestthatSocialSecurityisnotmerelysocial?Thetypicalhigh-earningcoupleretiringin2020willreceiveapproximately$50,000in?rst-yearbene?ts,comparedwith$42,000foracouplewithtwoaverageearners.16insurance—whichwouldinsureagainstlowincomes—butratherauniversalsystemcurrentlydesignedtopaylargebene?ts(exceedinglifetimecontributions)eventowealthyAmericans.ThiscontributestowideningSocialSecurityde?-?Onanindividuallevel,initialbene?tsforsomeoneretiringin2021canbeashighas$37,776—or$46,740,ifretiringatage70.17

citsthatmustbefundedbygeneralrevenues.FIGURE2.InitialSocialSecurityBene?tforaRetiringCouplewithOneHighEarnerandOneAverageEarner(adjustedforin?ation)$80,000$73,600$69,700$66,100$62,700$59,200$60,000$40,000$20,000$0$55,800$52,100$48,900$48,200202020252080208520402045205020552060YearTurning65Source:UrbanInstitute(2020),table16.AnaverageearnerhasearningsequaltotheSocialSecurityAdministration’snationalaveragewageindexeachyear.Ahighearnerearns160%oftheaveragewage.7CutSpendingForTheRichBeforeRaisingTheirTaxesSocialSecuritybene?tsforthewealthyarealsosettosteeplyriseforfutureretirees—withbene?tlevelsreplenishingalargerpercentageoftheirlifetimeearnings—becausebene?tsaredesignedtogrowsigni?cantlyforeachsucceedinggener-ation,evenadjustingforin?ation.18Imaginetwoindividuals,30yearsapart,whobothretireatage65,havingearned160%oftheaveragewageindexovertheirlifetime.Thepersonwhoretiresin2020wouldreceive?rst-yearSocialSecuritybene?tsof$28,182,whilethepersonretiringatage65in2050willbeginwith$37,642ininitialbene?ts(adjust-edforin?ation)—alevelthatis34%higher.19mostofthesebene?tswillbesubjecttoincometaxes,itisstillanenormouscosttothefederalgovernment.TheunsustainabilityofSocialSecurity’s?nancesiswellknown.Between2020and2050,thesystemisprojectedtocollect$55trillioninpayrolltaxesandtaxesonbene?tsandtopayout$74trillioninbene?ts—creatinga$19trillionshortfall.Muchofthatshortfallwillbefundedbyfederalbor-rowingthatwill,inturn,add$12trillionininterestpaymentsonthenationaldebt,andbringthetruedrainonthefederalbudgetto$31trillion(Figure3).23Repaying$3trilliontotheSocialSecurityTrustFunddoesnotchangethese?guresWhateverthemeritsofgenerationalincreasesinSocialSecu-becausethatrequiresoutsidetaxesandborrowingaswell.ritybene?tsforlow-andmiddle-incomeretireesmaybe,itismuchmoredi?culttojustifythemformillionsofcurrentandfutureretireeswhohavemillionsofdollarsinsavingsClearly,Washington’soverpromisesonSocialSecuritywillrequiredi?cultdecisions,anditmakesthemostsensetostartwiththewealthiestretirees.Ratherthaneliminatingtheandhighpostretirementincomes—especiallywhenSocialSe-current$142,800wagecaponSocialSecuritytaxesandthencurityisrunninglargede?cits.FormerSocialSecuritypubliccancelingthecorrespondingbene?tincreases—whichwouldtrusteeCharlesBlahousnotesthat,forAmericansbornintheharmtheeconomyandleavelittleroomtoraisetaxesfor1960s—whowillberetiringoverthenext15years—thehigh-est-earningquintilewill,onaverage,receiveenoughSocialSecuritybene?tstocover49%oftheirtargetpostretirementincome.20Thatisquitegenerous,giventhedegreeofsavingsandpensionsalsoavailableforthishigh-incomegroup.upper-incomeretireesinordertocloseremainingde?cits—itmakessensetotrimbene?tsforupper-incomeretirees.Solutions:Attheriskofminoroversimpli?cation,SocialSecuritybene?tsarecalculatedatretirementby?rstindex-ingalllifetimewages(cappedatacertainannualincome)totheeconomy’ssubsequentgrowthofwages(ratherthanpricein?ation)tocreateapresent-daywageequivalent.Thentheprogramcalculatestheaverageindexedmonthlyearnings(AIME)forthehighest-earning35years.TheinitialSocialSecuritybene?treplacesthosewagesatamarginalrateof90%ofthelowestearnings(currentlythe?rst$11,952annu-alized),followedby32%ofmedium-levelearnings(between$11,953and$72,024annualized),andthen15%ofthemarginalearningsabovethatlevel.ThesethresholdsarealsoWhatdoesthiscost?Overthenextdecade,CBOprojectsthatSocialSecurity’sOldAgeandSurvivorsInsurance(OASI),thelargestfederalprogram,willcost$12.8trillion.21Approx-imately$1.6trillionofthatspendingwillgotoone-personhouseholdsearningatleast$87,200andtwo-personhouse-holdsearningatleast$123,400inmarketincome(adjustedforin?ation).Thisincludes$500billioninbene?tsforretiredone-personhouseholdsearningatleast$174,100(one-personhousehold)or$246,200(two-personhouseholds).22WhileFIGURE3.SocialSecurityFacesa$31TrillionShortfallover30Years—$28TrillionifIncludingtheTrustFund$85.3$90InterestCosts$11.8DarkBlue=TransfersfromredeemingtheSocialSecurityTrustFund.$57.4$60$2.9TheTrustFundcontainsnoeconomicresourcesandmustberedeemdbyProgramOutlaysnewtaxesandborrowing.PayrollTaxes&Bene?tTaxesInotherwords,itdoesnotsavefuturetaxpayersadimeorreducethetrueshortfall.$30$0$73.5$54.52020–50Revenues2020–50OutlaysSource:CalculatedusingtheCBO2020Long-TermBudgetOutlook.Interestcostsreflectthosedirectlyattributableto2020–2050SocialSecurityshortfalls.8adjustedannuallybynationalaveragewagegrowth.Fromthatinitiallevel,bene?tsriseannuallywithpricein?ation.termshortfallby5%–10%.30Again,theinteractionofthesepoliciesmayreducecumulativesavings.ReformslimitedtoBene?tsareadjusteddownwardforthosewhoretirebetweenthewealthiestseniorswillnotbesu?cienttoclosetheentire62andthenormalretirementage(currently66yearsandtwomonths,andgraduallyrising),andadjustedupwardforthosewhoretirelater,uptoage70.24long-termSocialSecuritygap—ahighereligibilityageandbene?tchangesreachingfurtherdowntheincomelinearelikelyrequired—buttheyarethelowest-hangingfruitandasensibleplacetostart.Optionstotrimbene?tsforthewealthyinclude:Amoreambitiousplantoreducethe$500billioninsched-uledbene?tsoverthenextdecadeforretiredhouseholdsearningatleast$174,100(one-personhouseholds)or$246,200(two-personhouseholds)—beyondjustfreezingCOLAsandalteringbene?tsforfutureretirees—couldalso?nanceanincreaseintheminimumbene?tforlow-incomeseniorsandalargerbene?tincreasethatkicksin20yearsafterretirement,whensavingsareoftenrunningout(suchbene?tincreasesshouldbeconsideredonlyinthecontextofmakingSocialSecurityfullysolvent).Forupper-incomefam-ilies,thesedeeperSocialSecuritycutsmaystillbepreferabletoliftingthepayroll-taxwagecapandpushingtheirmarginaltaxratesashighas60%.?Reducingthe15%replacementrate(forearningsabove$72,024)to5%;25?Settinginitialbene?tsbyconvertinglifetimeearningsintoanAIMEusingpricein?ationratherthan(moregenerous)wagein?ationforthetop20%ofearners—aconceptknownas“progressiveindexing”;26and?Cancelingouttheannualcost-of-livingadjustment(COLA)forbene?tsforretiredindividualsearningatleast$92,750andcouplesearningmorethan$185,500(thresholdadjustedannuallyforin?ation).27Precisesavingsestimatesareunavailablepartlybecauseoftheinteractivee?ectsofvariousproposals.However,datafromtheSocialSecurityAdministrationsuggestthat,byitself,thesavingsfromcancelingupper-incomeCOLAswouldrampupquickly,from$100billioninthe?rstdecadeto$2trillionover30years.28By2050,thispolicywouldbeclosingasmuchasone-?fthoftheprojectedannualSocialSecurityshortfall.Reducingthetopreplacementratefrom15%to5%couldreduceSocialSecurityshortfallsby10%overthelongterm—andsooner,ifcurrentretireesarenotexempted.29Progressiveindexingoftheinitialbene?tsoftherichest20%offutureretireeswouldsavenegligibleamountsinthe?rstdecadebutmayreduceSocialSecurity’slong-MedicareAddressingMedicare’supper-incomesubsidiesisevenmorestraightforwardthanaddressingthoseofSocialSecuritybecauseMedicareisbasedonevenlessofasocialinsurancemodel.Thetypicalaverage-incomecoupleretiringin2020willreceiveastaggering$522,000inMedicarebene?ts(netofpremiumspaid)despitepayingonly$161,000inlifetimeMedicaretaxes(Figure4).Ahigher-earningcouplewillalsoreceive$522,000innetbene?tsdespitepayingjust$209,000inMedicaretaxes(all?guresadjustedfornetpresentvalue).31FIGURE4.TheTypicalRetiringCoupleWillReceive$3inMedicareBene?tsforEvery$1PaidintotheSystem—andAlsoComeOutAheadinSocialSecurity$700,000$600,000$500,000$698,000$400,000$300,000$200,000$100,000$0$522,000$625,000Bene?tsReceivedBene?tsReceived(netofTaxesPaidInpremiumspaid)$161,000TaxesPaidInSocialSecurityMedicareRepresentstypicalaverage-incomemarriedcoupleturning65in2020.Calculationsrepresentexpectedpresentvalues.Source:UrbanInstitute(2020),table15.9CutSpendingForTheRichBeforeRaisingTheirTaxesFIGURE5.SoaringGeneralRevenueSubsidiesforMedicarePartsB&DAreDrivingBudgetDe?citsUpward$779$699Note:MedicareB&Dbene?tsarenotearnedwithpayrolltaxes$663$605$561$517$436$445$448$380$360$333$2972018201920202021202220232024202520262027202820292030Source:CongressionalBudgetOffice(March2020).Figuresreflectnetcostingeneralrevenuesafterseniorpremiumsarereceived.Lower2029figurereflectsaquirkinpaymentdatesfor2028and2029.FIGURE6.MedicareFacesa$71TrillionCashShortfallovertheNext30Years$87.3InterestCosts$27.0Medicare’s$71trillionshortfall$60$30equals67%ofthetotalfederalbudgetde?citprojectedbyCBOoverthe2020–2050period.ProgramOutlaysAnnualprojectedshortfall:2020:2.0%ofGDP2050:4.6%ofGDP(9.9%includinginterestcost).$16.7$60.3PayrollTaxes&HITrustFund2020–50Revenues2020–50OutlaysSource:CalculatedusingtheCBO2020Long-TermBudgetOutlook.Benefitsarenetofseniorpremiums.Interestcostsreflectthosedirectlyattributableto2020–2050Medicareshortfalls.LargeMedicarePartA(hospitalinsurance)bene?tsforup-per-incomefamiliescanbepartiallyjusti?edonthegroundsthat,likeSocialSecurity,theyarepartially“pre-funded”withpayrolltaxes.However,MedicarePartB(physicianbene?ts)andPartD(prescriptiondrugs)arenotpre-fundedwithpayrolltaxesatall.Thevastmajorityofenrolledretireespaypremiumsequaltoapproximately25%ofthecostofcoverage(wealthierretireespayhigherpremiums),aswellassomelimitedcopaysanddeductibles.Thetaxpayerscovertherest.Thus,MedicarePartsBandDarereallyage-basedwelfareprograms,notsocialinsurance.CBOestimatesthat,by2030,MedicarePartsBandDwillhaveacombinedgrossbudget-arycostof$15,111perenrolleeannually.Thiswillbe?nancedbyanaverageseniorpremiumpaymentof$3,944andataxpayer-fundedsubsidyof$11,167perenrolledretiree.32Thatmodeliscertainlyjusti?edforlower-incomeseniorswhoseresourcesarelimited.Butitisnotjusti?edwhenapplied,forexample,tothe4millionretireehouseholdsthat10holdatleast$1millionininvestableassets.Clearly,thesefamiliescana?ordtopayafewthousanddollarsmoreperyearinMedicarePartBandDpremiums.withthehardest-hitseeinganadditionalannualcostof$4,000,or4%oftheirincome.Thesecostsarecertainlya?ordableforretireeswithincomeswellintothehundredsofthousandsofdollars.Theywouldalsosavethefederalgovernmentapproximately$470billionoverthedecade—ormore,whenaccountingfortheincreasingratesofbabyboomersretiringwithhigherincomes.37

Congresscouldalsoexpandthesavingsbygrowingthesebracketsataratelowerthanin?ation.Overseveraldecades,thesavingswouldaccu-mulatesteeply.FederalMedicarePartBandDsubsidies—netofpremiums—willcost$5.5trillionoverthenextdecade.Theirunsustain-able8%annualgrowthwillpushtheannualcostfrom$360billionto$779billionoverthatperiod(Figure5).33

Between2020and2050,theMedicaresystemwillcollect$17trillioninpayrolltaxesandothercollectionswhilespending$60trillioninbene?ts—plusanadditional$27trillionininterestpaymentsonthenationaldebtdirectlyattributabletotheseshortfalls.This$70trillion,three-decadeshortfall,showninFigure6,isunsustainable,asisMedicare’s4.6%ofGDPannualshortfallby2050(10%ofGDP,includinginterest).34LawmakersneednotexemptMedicarePartAfromreforms.LikeSocialSecurity,the“earning”ofbene?tswithlifetimepayrolltaxesdoesnotmeanthatupper-incomebene?tscannotbeparedback,possiblywithamodestlyhigher