Financial Crisis Ahead

It happened in New Zealand in 1984, in Sweden in 1994, and in Canada in 1995.  Each of these nations suffered a painful financial crisis, slashed the size of its overgrown welfare state, and returned to health. That’s where we’re headed in the next decade.  We’re running trillion-dollar deficits, and Medicare runs out of money in 2026.  Less than 7 years from now!  Medicare is just one of many social-safety-net programs that have been growing faster than the economy, and faster than the federal budget, for decades.  Dozens of nations are in the same fix, so it’s extremely likely that one of them has a better idea about managing the resulting funding problems, and the negative effect on work ethic and family structure.

Sweden now balances its budgets every year, and provides a welfare system that covers anything and everything;  but $15-an-hour workers pay income tax at 32%, and pay a 25% sales tax on many items.  The government owns less than a quarter of the nation’s wealth, so this is not a socialist country, and, a government-funded website, wants you to know that.  It insists that Sweden is “an example of how to optimise market capitalism”, and points out that it “scrapped inheritance tax in 2005 and a wealth tax in 2007.”  The Swedes learned, through trial and error, that there’s a limit to the tax revenue you can squeeze from the rich, and from corporations.  The corporate tax rate is only 21.4%.

The U.S. collects about 27% of GDP in taxes, while Sweden collects 44%.  In between are Canada and New Zealand, at about 32% of GDP.  Canada’s debt has been rising lately, but New Zealand’s is among the lowest in the world—despite a top tax rate of just 33%. 

So let’s see why the Kiwis are doing so well.  The big, obvious thing is that New Zealand spends only 8.7% of GDP on health care.  Three-quarters of that is spent by the government.  The rest comes out of private pockets and is spent at private hospitals and clinics.  

So they have a big private system, and coverage for all citizens, and they spend literally half of the 17% of GDP that we spend.  Even more shocking is that our government spends 11% of GDP on health care;  nearly twice as much as Americans spend on private health care, and nearly twice as much as New Zealand’s government spends.

Our federal, state, and local spending on health care is two trillion dollars a year;  far more than any other government in the world.  How big is two trillion?  The IRS now collect $3.4 trillion a year in taxes, and that’s the most that the IRS has ever collected in history. 

If we could emulate New Zealand we could actually reduce our government spending, and have a robust private system that is free of the heavy cost burdens of Medicaid and Medicare, which have been driving up health care costs for decades. 

Medicaid, Medicare, the Veterans Administration, Obamacare, SCHIP, and HIS are gobbling up the federal budget.  If we can fix health care, Social Security and the other problems get easier.