In 2011, Medicare and Medicaid made a combined $51 billion in improper payments, according to a new report from the Government Accountability Office. To put it another way, 6% of total spending in the two programs is wasted because of a) fraud and b) bureaucrats and contractors doing some of the same work.
Now, from 2013 through 2022, the government will spend roughly $12 trillion on Medicare and Medicaid, according to the baseline forecast from the Congressional Budget Office. Without reform, the two programs will waste roughly $720 billion if that 6% figure holds constant.
Now, that’s a lot of money. In fact, it’s almost the exact amount of revenue that would be gained by a) raising the top two income tax rates to 39.6% and 36% from 35% and 33%, and b) raising capital gains and dividend rates to 20% from 15%.
Letting those rates revert to Clinton-era levels would raise $759 billion, according to a New York Times analysis:
(Now, President Obama wants to go further, of course. He wants $1.6 trillion in tax hikes, including raising raising capital gains and dividend rates to above Clinton-era levels.)
The GAO report helps make my case that we shouldn’t be raising marginal tax rates on either labor income or investment income as a first step to dealing with America’s federal debt problem. A better path:
– First, cut spending and reform entitlements.
– Second, raise revenue through pro-growth economic policies including tax reform.
– Third, increase the overall tax burden if you still need more revenue.
But right now, Washington is going about things completely backward.