What About Cutting Spending?

In their oped in the Washington Post today, Henry Aaron and Isabel Sawhill argue that raising taxes will be necessary to close the fiscal gap and help pay for the new spending that is part of health care reform. They suggest a VAT dedicated to health spending is the best approach.
Aaron is the grandfather of the argument that the only real fiscal problem is health care spending (see here) though he has also argued that that doesn’t necessarily mean that cuts in health care should finance the entire solution

, (see here) though he has used the argument to try to insulate Social Security.

The authors should be commended for advocating the kind of tough choice that will be needed to deal with the nation’s fiscal imbalances. But a significant tax increase is not the only way to address the problem. Yes, taxes have to be on the table. So do major spending cuts.
Focusing on slowing the growth of health care costs before expanding coverage would be a good start. As the authors point out, the types of reforms being debated in Congress will make the health care fiscal situation worse before it gets better (if it ever does).
Additional measures that could be included in a health care bill include:
  • Capping the employer-provided health care exclusion
  • Restricting Medigap coverage 
  • Reducing Medicare payment rates in high-spending areas
  • Enacting medical malpractice liability reform
Or if the country wants to spend more on health, we could offset that by spending less on other things. Some options include:
  • Means-testing entitlements
  • Eliminating outdated government programs
  • Cutting farm subsidies
  • Reducing the number of government contractors
Tax increases will have to be part of the solution, but before we jump headlong into creating a new government revenue stream, we should try to scale back some of the trillions of dollars in spending already on the books.