Employment-Based Health Benefits and Taxation: Implications of Efforts to Reduce the Deficit and National Debt

Source: Paul Fronstin, Employee Benefit Research Institute, EBRI Issue Brief #360, July 2011

The United States is facing severe financial issues. The federal budget ran a deficit in 36 of the years between 1971 and 2010, increasing the debt held by the public from $300 billion to $9 trillion. The debt as a percentage of gross domestic product (GDP) increased from 28 percent in 1971 to 62 percent in 2010. Overall debt is about currently $14 trillion when intragovernmental holdings, such as the Social Security and Medicare trust funds, are considered. Under current law, the Congressional Budget Office (CBO) projects that debt as a percentage of GDP will reach 74 percent by 2030 and 84 percent by 2040. More realistically, the CBO projects that debt as a percentage of GDP will reach 100 percent in 2023 and 200 percent in 2037, when changes to current law are incorporated. Known as the “alternative fiscal scenario,” the CBO assumes the following changes will take place to current law: renewal of the 2001/2003 tax cuts on income below $250,000, continued Alternative Minimum Tax (AMT) patches, continuation of the estate tax at 2009 levels, and continued Medicare “doc fixes.”

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