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Rising Health Costs Undermine Future Tax Cuts

If you like tax cuts, you are going to have to learn to love reducing health cost inflation.

And working through schools is the only realistic large-scale strategy to prevent (rather than “manage”) the chronic conditions that cause the vast majority of health care costs.

Yes, many decades ago, income taxes were a much bigger burden on middle-class American families, while health costs were quite low.  So, as health costs rose far faster than incomes, tax cuts shielded families from the financial impact of ever-more-expensive health care. 

[A serious unintended consequence: tax cuts reduced potential pressure from the public to address rising health costs.]

However, federal income taxes are now much lower as a percentage of household income.  As health care costs continue to drive federal budgets and unprecedented deficits, there is less and less room for federal tax cuts—and Medicaid costs are also pressuring state budgets and limiting potential state tax cuts.

Income, taxes & costs graphic

Notes on Family Taxes vs Health Costs

As you can see from the above chart:

For middle-income families, health spending now requires more than twice as much of their household income as in 1980.

In addition, those same families now spend more than twice as much on health care as they pay in income tax.

What is more, as you can see in the chart:

If you actually factor in that close to 50% of federal income taxes now go toward government health care spending, middle-income families are paying 10-15% or more of their income for their (AND others’) health costs, when health-related taxes that they pay are taken into account.

One major implication:  In order to afford significant future tax cuts, we need to reduce health care cost increases.  And to reduce health cost increases, we need to prevent chronic diseases much more effectively.  And as should be clear from the rest of this website—that requires supporting chronic disease prevention through schools.

(Please see our latest slide deck for more details, including details on these calculations.)

Read More: Why State and not Federal?
Read More: Controlling Government Spending