- The Washington Times - Sunday, March 11, 2001

Liberals have begun charging that the Bush administration's proposed tax cut could only come to pass at the expense of Medicare.

Of course, embattled liberals playing the "Medi-scare" card is not in itself new. However, recently they added a subtle new wrinkle. Now they seek to declare not merely the sacrosanctity of a Medicare surplus, but to expand the program's claim into the federal budget surplus itself. In short, rather than just trying to block a tax cut, this argument sounds the tocsin for a counteroffensive of increased spending.

Like a sleight-of-hand artist their method is twofold. The basic charge is that the Bush administration seeks to alter the share between Medicare's costs and those borne by the general taxpayer. Yet they don't do this by the more conventional route of claiming the Bush tax cut would use the Medicare "surplus." Instead, they attempt to distract our attention by admitting the Medicare "surplus" doesn't exist.

That there is no Medicare surplus is absolutely correct. Yet in so quickly dismissing an understanding of why there is no Medicare surplus, liberals are at the same time erasing the trail to their policy goal: to place a greater portion of Medicare's costs on the general fund, while at the same time denying the general taxpayer a real tax cut.

The reason there is no Medicare "surplus" is simple: the program spends far more than it collects in it's 2.9 percent portion of payroll taxes. In fact according to the Congressional Budget Office (CBO), the general fund will subsidize Medicare by $1.239 trillion over the 2002-2011 period.

The reason that sounds unbelievable is that most discussion of Medicare conveniently neglects the fact there are two Medicare trust funds. The Part A trust fund is funded by the 2.9 percent payroll tax and it is this one that runs a surplus on paper.

As with all federal trust funds, Part A's is no more than a "paper surplus." CBO stated in their latest budget report: "The federal government has more than 150 trust funds … [they] have no particular economic significance; they function primarily as accounting mechanisms to track receipts and spending for programs that have specific taxes."

Yet despite having no "significance," the Part A trust fund is earmarked real resources in particular another general fund subsidy termed "interest" on assets it of course doesn't really hold. CBO calculates this "interest" subsidy at $241 billion from 2002-2011 61 percent of Part A's overall surplus. Nor is this Part A's only general fund subsidy. In 1997, home health care expenses (about $9 billion annually) were gradually shifted to the general fund as well. Over 2002-2011 these would likely equal at least another $90 billion subsidy. All told, Part A's vaunted "surplus" is really closer to $60 billion over 10 years.

It is the artificial and illogical bifurcation of Medicare's spending that the Bush budgeteers rightfully would like to abolish. Yet it is with this accounting correction and the Bush administration's intention that, in the words of presidential spokesman Ari Fleischer, "Every dollar of Medicare should be used for Medicare" (i.e., including a prescription drug benefit) that liberals now take issue. The Washington Post editorialized on Feb. 4: "Implicit in that is the notion that the payroll tax should be responsible for a larger share of program costs, and the progressive income tax a smaller share, than in the past."

In even a brief examination of Medicare (both past and future) it is impossible to see anything but an ever-growing general fund subsidy. As just described, Medicare's Part A would be running a scant $60 billion excess of payroll tax receipts to expenses over 2002-2011.

Part B will run a $1.239 trillion deficit paid by the general fund over the same period (and we would do well to recall that Part B's subsidy has itself grown to 75 percent from its original 50 percent). Altogether, 33 percent of Medicare's net total spending will come from general fund revenues this year and will grow to 41 percent by 2011 according to CBO.

The "shift in the financing pattern" that The Post claimed is in reality toward a greater payment by the general taxpayer.

Finally, the spending liberal-in-fiscal-conservative-clothing argument contends that the Bush tax cut will leave the country unable to pay for future Medicare costs. This is true neither in the near-term nor the longer one. Mr. Bush's tax cut costs $1.6 trillion, this is just half of the $3.1 trillion non-Social Security surplus CBO projects for 2002-2011. As for the long-term, how future Medicare shortfalls would be paid by current surpluses is not explained. The key to solving these future shortfalls will be both reform and a strong economy not denying a tax cut which will only endanger the latter.

Liberals are quietly seeking to create a form of budgetary double indemnity. They seek to hide the already burgeoning general taxpayer subsidy of Medicare and at the same time deny the general taxpayers, who are picking up an ever increasing share of Medicare's costs, a tax cut they have earned. And to add insult to injury, the liberals are now seeking to lay claim to the surplus for massive new spending.



J.T. Young is the former deputy chief of staff for the Finance Committee in the U.S. Senate.


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