Health Care Costs Pose a Larger Economic Burden than Prospective Social Security Tax Hikes

For Immediate Release: March 24, 2005

Contact: Debi Kar, 202-387-5080

Numerous politicians and commentators have claimed that the prospect of higher Social Security taxes in the future will threaten the living standards of our children and grandchildren. A new report from the Center for Economic and Policy Research (CEPR), which was co-authored by Dean Baker and David Rosnick shows that rising health care costs pose a much larger threat to living standards than any potential tax increases for supporting Social Security.

The report, “The Burden of Social Security Taxes and the Burden of Excessive Health Care Costs,” shows that the burden of excessive health care cost growth (defined as cost growth in excess of economic growth) over the years 1980 to 2004 was almost 7 times as large as the tax increase that the Social Security trustees project will be needed to keep Social Security fully solvent over its 75-year planning horizon. The excessive health care cost growth over this period imposed a burden that is 18 times as large as the tax increase that the Congressional Budget Office (CBO) estimates would be necessary to keep Social Security solvent.  

Furthermore, health care costs are projected to continue to grow far more rapidly than the economy. The Center for Medicare and Medicaid Services projection for excessive health care cost growth over the next decade is 4 times as large as the tax increase that the trustees project is necessary to keep Social Security solvent for its 75-year planning period, and 10 times as large as the tax increase that CBO projects is necessary. 

While health care costs pose a problem everywhere, no other country has such a failed health care system. The United States pays more than twice as much person for health care as other wealthy countries, yet it has shorter life expectancies. Rising health care costs pose an enormous threat to the federal budget, as was illustrated in the new Medicare trustees report, but more importantly they pose a threat to the economy and future living standards.

Given the large amount of attention devoted to the threat of higher Social Security taxes in the future, it is striking that the continuing run-up in health care costs – which is having a much larger impact on most workers’ welfare – is receiving so little attention.