Politics & Policy

Sticking It to Little Elizabeth

A huge tax burden awaits my newborn granddaughter.

What a special day July 29 was for me. On that day, my family welcomed the birth of my first grandchild, Elizabeth Jane Feulner. The birth of a grandchild gives us a chance to take stock of who we are and where we’re going. As a conservative, I tend to be an optimist. And why not, considering all the improvements we’ve witnessed over the last few decades?

For example, medical science has cured polio and virtually wiped out diseases such as measles and whooping cough, which frightened parents back when I was born.

I’ve also watched governments, both here and abroad, embrace the free market. Under Margaret Thatcher, the British sold off most nationalized industries back in the 1980s. Companies became more efficient and more profitable, which created more jobs.

Meanwhile, the United States lifted federal price controls on businesses as varied as airlines and phone companies. That gave consumers real choices and drove down prices. These changes helped create the climate that made the explosive economic growth of the last 20 years possible. Even today, our growth outpaces that found in Europe and Asia.

But I can’t ignore a dark cloud that’s hanging over Elizabeth and the members of her generation. It’s the possibility that Congress and President Bush will approve a fatally flawed Medicare “reform” law.

The House and Senate have both passed legislation that would tack a huge prescription-drug entitlement onto the flailing Medicare program. Lawmakers estimate this measure would cost $400 billion over the next decade, although the final cost would probably be much higher. Lawmakers will try to iron out their differences after the August recess, and President Bush has indicated he’ll sign whatever they agree on.

But my colleagues here at The Heritage Foundation have been running the numbers. Economists Brian Riedl and William Beach recently wrote that, should either bill become law, a baby born today would inherit, in 2030, an extra tax burden averaging $1,125 per household. And that whopping bill, which would only get larger in subsequent years, is simply for the proposed drug benefit; Elizabeth’s generation will have to pay still more to keep Medicare and Social Security afloat even without it.

In 2030, she’ll be on the hook for a 15.3 percent Medicare payroll tax, plus $2,855 in extra taxes needed to cover the shortfall in the current Medicare program. These taxes also will rise over the next 40 years, which means Elizabeth will be so busy paying for everyone else’s retirement she won’t be able to save up enough money for her own.

What would Elizabeth get for all that spending? Nothing. All of it would go to provide retirement support for older generations. Other governmental obligations won’t go away, either. Elizabeth will have to pay still more in taxes to run the government and provide a military to protect ourselves.

It doesn’t have to be like this. Three out of four seniors already have prescription-drug coverage, either through their former employer or through a supplemental plan. Congress should go back to the drawing board and craft a drug benefit aimed only at the 25 percent of seniors who really need one.

They should also modernize Medicare by reforming it along the lines of the Federal Employees Health Benefit Program, which already covers federal employees, retirees, and their families.

These sensible reforms would give seniors a true choice of health-care plans and help hold prices down for everyone. Plus they would mean my granddaughter wouldn’t someday have to choose between paying her taxes and saving for her own retirement.

I think we owe Elizabeth at least that much.

— Ed Feulner is president of The Heritage Foundation.


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