Episode 957: Wealth Taxes in Blue States

Summary

Newt’s World, Episode 957: Wealth Taxes in Blue States

Host: Newt Gingrich (Gingrich 360)
Guest: Jack Salmon (Gibbs Scholar and Research Fellow, Mercatus Center, George Mason University)
Date: March 20, 2026

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Episode Overview

In this episode, Newt Gingrich sits down with economist Jack Salmon to discuss the recent push for wealth taxes in traditionally "blue" states such as California, New York, Washington, and others. The conversation dives deeply into the fiscal, economic, and political consequences of these taxes—especially their impact on high earners, state budgets, and interstate migration. Salmon places these state movements in both a national and international context, drawing lessons from European attempts at similar policies. The discussion also extends to the looming federal fiscal crisis, highlighting looming trust fund depletions for Social Security and Medicare.

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Key Discussion Points and Insights

1. The Wealth Tax Trend in Blue States

• Eight states, including California, Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York, and Washington, have introduced or considered wealth taxes targeting high-net-worth residents.
• These taxes include direct wealth levies, surtaxes, and capital gains tax hikes, mostly justified by state “budget shortfalls.”
• Washington state is considering a nearly 10% annual tax on earnings over $1 million, on top of other recent high-income taxes (03:10).

Notable Quote:

“They just seemed very determined on chasing their tax bases away.”
—Jack Salmon (04:57)

2. The Washington State Case Study

• Washington was previously a no-income-tax state, drawing innovators and entrepreneurs.
• Over the last decade, state spending doubled, prompting new taxes rather than spending restraint.
• Enacted a 7% capital gains tax in 2021, then later proposed a 9.9% tax on income above $1 million.
• This drove out high earners including Jeff Bezos, who moved to Florida and took billions in taxable revenue with him.

Notable Quote:

“By 2021, the state policymakers proposed... a 7% capital gains tax on those making $250,000 and above… Some of the highest earning taxpayers in the state left the state... Jeff Bezos… moved to Florida and took his tax dollars with him.”
—Jack Salmon (06:02)

3. Migration & Tax Base Erosion

• Evidence shows a significant exodus of high earners:
  • 2,300 left Washington in 2021, 6,400 in 2022 (11:11).
  • The top 1% of earners contribute ~40–50% of all state income tax revenue (15:27).
• Similar trends seen in California, with billionaires like Elon Musk and others relocating.

Notable Quote:

“Even a sort of a marginal decrease in the number of those residents has a significant long term impact... on the potential revenues that those states can reap.”
—Jack Salmon (15:27)

4. International Lessons

• Most European nations have abandoned wealth taxes due to capital flight and administrative burdens.
• UK’s socialist government in the 1970s rejected wealth taxes after realizing the costs likely outweighed revenues.

Notable Quote:

“Even the socialist government in the 1970s [in the UK] came to the conclusion that the cost of administering the tax would probably outweigh any net revenues gained.”
—Jack Salmon (09:16)

5. California’s Billionaire Tax Ballot Initiative

• Proposed 5% one-time tax on worldwide net worth over $1 billion, applicable to anyone resident as of January 1, 2026.
• Even Governor Newsom opposes, citing harm to state competitiveness (19:18).
• Academic analysis predicts actual negative fiscal impact: instead of $100 billion in revenue, the state may lose $25 billion in present value, as departing billionaires take away future tax contributions (19:18–23:09).

Notable Quote:

“It will actually lose the state $25 billion. Just under $25 billion. So this tax proposal that is being proposed to close a supposed health care funding gap would actually lose the state $25 billion in net present value.”
—Jack Salmon (22:50)

6. The Ideology Behind Wealth Taxes

• Many on the political left frame wealth taxes as simple solutions to fiscal shortfalls, ignoring both math and economic behavioral responses.
• Wealth taxes have high administrative costs, encourage tax avoidance, and result in “capital flight.”

Notable Quote:

“The economic literature and the math itself just doesn't support the simple fact that we can't fix our fiscal shortfalls by taxing a very small tax base that provides much of the growth, the innovation, [and] the jobs.”
—Jack Salmon (23:13)

7. Federal Fiscal Crisis Looms

• Trust fund depletion for Social Security and Medicare expected by 2032–33, risking 23–24% benefit cuts or increased taxes.
• Cumulative shortfall: roughly $120 trillion over 30 years (33:48).
• At the federal level, rising interest costs and ballooning debt ($2.5 trillion increase in just the past nine months, per Salmon) exacerbate the issue.
• States—especially those dependent on federal transfers—are vulnerable when Washington inevitably curtails aid (30:06).

Notable Quote:

“We’re running $2 trillion deficits with no end in sight... Our entitlement programs are growing well beyond our potential economic growth rates.”
—Jack Salmon (25:12)

8. Red vs. Blue States: Policy Divergence

• Red states, flush with migrating high earners, are lowering taxes and broadening their tax base.
• Salmon cautions: red states should save windfalls for future fiscal shocks and reduce federal dependency (25:12).
• The secondary effects of blue state tax increases include stagnating cultural/creative activity as high-net-worth individuals—who fund arts, philanthropy, and new ventures—leave (24:17).

9. Health Care Spending and Reform

• US health care spending (17–18% GDP) is a structural barrier to fiscal balance.
• Salmon and Gingrich agree fundamental reforms are needed, especially around transparency and consumer empowerment.
• All interest groups resist change, making substantial reform difficult.

Notable Quote:

“There's a deeply structural problem that makes the system opaque and gets rid of any sort of transparency. There's a much sort of deeper problem that we have with our healthcare system that really requires fundamental reform.”
—Jack Salmon (35:54)

10. Glimmers of Hope & Calls for Optimism

• Newsom's opposition to California’s wealth tax shows potential moderation.
• History shows bipartisan solutions (balanced budgets of the 1990s, 1983 Social Security reforms) are possible—though today's challenges are even more pressing.

Notable Quote:

“You really have to try and find little pieces of hope where you can... when you were speaker of the House in the 1990s, there was some bipartisan work done on this front and the fiscal position did improve.”
—Jack Salmon (37:46)

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Selected Notable Quotes with Timestamps

• “They just seemed very determined on chasing their tax bases away.” —Jack Salmon (04:57)
• "We learned lessons... the capital left, the millionaires packed up and moved to lower tax jurisdictions." —Jack Salmon (09:16)
• “Even a marginal decrease in the number of those residents has a significant long term impact... on the potential revenues that those states can reap.” —Jack Salmon (15:27)
• “This wealth tax won't raise $100 billion. It will actually lose the state $25 billion.” —Jack Salmon (22:50)
• "We can't fix our fiscal shortfalls by taxing a very small tax base... This tax base is also the most mobile." —Jack Salmon (23:13)
• "We're running $2 trillion deficits with no end in sight and that's only getting worse." —Jack Salmon (25:12)
• "The problem that we're facing now is about twice as large in terms of the fiscal costs as it was in 1983." —Jack Salmon (32:32)
• "There's a deeply structural problem that makes the [healthcare] system opaque and gets rid of any sort of transparency." —Jack Salmon (35:54)
• "You really have to try and find little pieces of hope where you can..." —Jack Salmon (37:46)

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Key Timestamps

• 03:10 – Introduction of Jack Salmon, overview of Washington’s wealth tax
• 06:02 – Details on Washington’s tax policy changes and resulting exodus of wealthy residents
• 09:16 – International comparisons, lessons from Europe and UK
• 11:11–12:39 – Evidence of theft, bureaucracy inefficiency, and migration data
• 15:18–17:15 – Impact and magnitude of high earners’ departures
• 17:56 – Economic “unseen” second-order effects: loss of entrepreneurs, jobs, and sporting events
• 19:18–23:09 – Deep dive on California’s billionaire tax initiative and Hoover Institution analysis
• 25:12 – Advice for red states, federal fiscal risk, and future federal funding cuts
• 30:06–32:32 – Spiraling federal debt and trust fund countdown
• 33:48–35:18 – Social Security and Medicare insolvency timelines
• 35:54–36:27 – Healthcare spending as a structural fiscal issue
• 37:46–38:56 – Reasons for optimism and historical perspective

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Summary and Takeaways

This episode offers a comprehensive, data-driven critique of blue state wealth taxes, arguing they are counterproductive—driving out the very taxpayers states need, deepening fiscal woes, and prompting long-term economic and cultural decline. Drawing on economic history, migration data, and recent fiscal trends, the discussion warns red states to prepare for reductions in federal support. Both speakers emphasize the need for fundamental reform—especially in healthcare—and bipartisan willingness to make tough fiscal choices.

For further research and articles: Visit mercatus.org

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Tone: Direct, data-oriented, skeptical of state-level wealth tax efficacy, cautiously optimistic about the possibility of bipartisan fiscal reform.

Transcript

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[E]

On this episode of Newts World, about eight states, including California, Connecticut, Hawaii, Illinois, Maryland, Minnesota, New York and Washington have introduced or considered legislation targeting the wealth of high net worth residents with a quote wealth tax. Now, the state of Washington is facing a budget shortage and lawmakers are debating a proposal that would create a nearly 10% annual tax on personal earnings over a million dollars. Because of the proposed blue state wealth taxes, many high net worth individuals are moving out of their home states to states like Florida and Texas. To understand this, what I think is an insane policy, I'm really pleased to welcome my guest, Jack Salmon. He is a Gibbs Scholar and Research fellow at the Mercatus center at George Mason University where he focuses on economic and fiscal policy with an emphasis on federal budgets, taxation, economic growth and institutional analysis. Jack, welcome and thank you for joining me on NewtsWorld.

[F]

Thank you for having me on Speaker King. Rich I appreciate the opportunity to speak about this.

[E]

You know, I'm very impressed with the quality of work being done at the Mercatus center in general at George Mason University. Beyond this high taxation thing, what are your general focuses as a scholar?

[F]

So I mostly focus on federal budgets, federal taxation and spending, debts and deficits. So the stuff that's often quite depressing in the policy space. But I've been paying increasing attention to what's happening at the state level because I've noticed in recent years, particularly sort of post Covid years, that there's been a movement of blue states towards applying surtaxes and additional capital gains. And now we're seeing proposals for wealth taxes on high earners. They just seemed very determined on chasing their tax bases away.

[E]

I've been watching this in particular reading Steve Moore's newsletter. I think it's stunningly stupid because we have a good history of this. We've seen countries like France try this sort of thing and drive so many people out of the country that they had to repeal it. Let's start with the Washington state because five years ago Washington was one of the nine states that had no income tax. Now they passed a 9.9% tax on income over a million dollars. What happened to change it so dramatically?

[F]

Yeah, you're right. Washington was actually one of the more attractive states as it relates to tax competition. There's a reason why there's so many sort of well known businesses based in Seattle and in the state broadly. Right. Costco is from Washington state, the Amazon headquarters in Seattle. And there's been a net positive movement of particularly high earning individuals, entrepreneurs, innovators into that state in large part because of its competitive tax policy. Well, what's happened is we're told that it's sort of a budget problem, right? We have budget shortfall, but in reality, what it is, a spending problem. In Washington State, the level of spending has doubled in the past decade alone. And so by 2021, the state policymakers proposed to implement for the first time a 7% capital gains tax on those making $250,000 and above. A few years later, they again had a budget shortfall. Part of this is because some of the highest earning taxpayers in the state left the state. This doesn't just include people in that bracket, the 250,000 and above, but it includes billionaires like Jeff Bezos, who have been in that area for many years. He moved to Florida and took his tax dollars with him. In fact, in 2024 alone, Jeff Bezos filed to sell 75 million shares. He sold $13.5 billion in stock. And that's revenue that the Washington state won't be collecting in its coffers because of that. Now again, they're in a position where they have another budget shortfall and it's not a revenue problem. Right. If anything, they're chasing their tax base away, as we've seen. And now they're proposing to apply a 9.9% income tax on those making over a million dollars. And this is on top of the new taxes they proposed since 2021. This would mean that the highest taxpayers in Washington state are paying a marginal rate north of 18%. That's just at the state and local level. At the federal level, we're talking about a 58% marginal tax rate. Any entrepreneur or innovator or anybody who plans to invest in their business in that state is looking to leave. And it's a perfectly rational response.

[E]

Ronald Reagan was so strongly in favor of the three year tax cut and supply side economics that really turned the whole country around in the 80s. As a movie actor, the tax rate at one point was 92%. And so he had many friends who'd make one movie a year and then they quit because they'd say the next movie I make, I'm going to get 8%. Why would I go out and work for six months with the government taking all of my money? That really to him was such a practical example of how taxes can kill incentives, kill entrepreneurs, kill people from working, that he was passionate about tax cuts. Now I'm really curious. When you start Talking about a 58% marginal tax rate and you watch literally in real time, very wealthy people leave. Why do the state legislators not sort of get the hint?

[F]

It's a good question. At some point you start to think that much of the fiscal policy in these states is driven less by genuine concern for filling the fiscal gap and instead there's some sort of ideological reasons behind it. You touched on it earlier. We have several examples in Europe where they've applied these significantly higher marginal tax rates or wealth taxes. For example, in 1990 there were a dozen European countries with wealth taxes. By 2019, there were only three left. Why was that? It's because we learned lessons. The capital left, the millionaires packed up and moved to lower tax jurisdictions. And the cost of administering on an annual basis the value of assets itself. My home country in the UK in the 1970s flirted with the idea of, of imposing a wealth tax. But even the socialist government in the 1970s came to the conclusion that the cost of administering the tax would probably outweigh any net revenues gained. And so even they didn't impose a wealth tax during that period. I think part of the reason we've seen this wave is there was somewhat of a windfall of revenues from the COVID stimulus money that went to the states. We're talking about hundreds of billions of dollars. Some wise states built rainy day funds or perhaps lowered their tax rates to sort of use those windfalls in that way. But many blue states decided to double down and significantly increase their spending, launch new programs, new educational programs, expand healthcare programs to people in the middle class and even undocumented immigrants in some states. And so that's why they've ended up with these shortfalls that they now have. And it's actually in some ways the blue states having these massive shortfalls that's pushing these high earning individuals out of the state. It's actually a boon for the red states to be able to keep cutting their taxes because they've now got a growing tax base of new residents coming in, particularly high earning individuals.

[E]

Washington State had $600 million stolen from the COVID money. Because part of what you get into with these things is that you have bureaucracies that are inefficient, that can't keep up with the crooks. We just saw this in Minnesota, where their estimate is somewhere between 9 and 16 billion was stolen in California during the COVID cycle. Maybe the Most bizarre example, $20 billion in Covid money was stolen by prisoners in the state prisons using the California State Prison computer system. So you have these states that these huge bureaucracies, the bureaucracies absorb more and more money and they punish the people who they're relying on for money. And people aren't stupid. I mean, if you're successful enough to be wealthy at the level we're describing, you're successful enough to have advisors who say to you why are you staying here and paying us when you could go to Texas or Tennessee or Florida? And I noticed that in Washington state there are 2,300 high earners left the state in 2021 and it's 6,400 more left the state in 2022.

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[E]

When you lose people on that scale, when Washington State's not that big, I mean, they're only taking the tax base with them, aren't they?

[F]

Yes, and although those numbers might not seem that grand in the grand scheme of sort of millions of residents, I'm just focusing there on the highest earners that the IRS data has available. And so just to give an example, I'm not entirely sure on the sort of distribution or contributions of tax revenues in Washington State, but in many states, including California, the top 1% of earners contribute between 40 and 50% of all income tax revenues. So this is a really important base. Even a sort of a marginal decrease in the number of those residents has a significant long term impact on the sort of potential revenues that those states can reap.

[E]

When you talk about people like Howard Schultz from Starbucks or Jeff Bezos from Amazon, I mean, they're taking huge quantities of wealth with them when they leave. These are folks who are dramatically reducing the amount of revenue that's being taxed in their state. You had mentioned earlier that Bezos had sold $13.5 billion in Amazon stock. How much of that would he have paid to Washington State if he was still there? Because he left?

[F]

I believe that sale was 2024, so that would have been taxed at 7% above the $250,000 threshold. So we're talking about billions of dollars. So last year in 2025, they added an additional 9.9% capital gains for income above a million dollars. So that capital gains tax has actually gotten even more burdensome since he made those sales. So had he made those sales in 2025, his bill would have been even larger by quite a significant margin. So we're talking about billions of dollars in lost revenue because of the exodus of these billionaires from these states.

[E]

The Seattle Seahawks general manager, John Schneider was worried about signing free agents because they're going to be taxed so heavily. And I saw some number that the super bowl, in a lot of these states, if you're in that state for one day and you earn money that one day they want to tax it. And the amount that they were taxing the players in the super bowl was larger than the amount they were getting paid for playing that particular game. Then there was this real sense of if the blue states are going to lose having these kind of sporting events because they make it too expensive on the athletes to be worth going and doing it.

[F]

Yes, in economics, I think a lot of economists who spend a long time in this field, they forget some of the sort of foundational basics of economics. And one of them is trade offs. Right. When these state policymakers impose these taxes, the things they have in mind, funding their new programs, their new ambitions and all these sorts of things, what they don't consider is what Frederick Bastiat would call the unseen. Right? These are the secondary order effects. These are the unintended consequences of these policies. It's that you don't have these sports teams in your state. You don't have these entrepreneurs or these business leaders or these billionaires who create jobs in your state. It's not just the revenues that are leaving, it's the startups that aren't happening. It's the jobs that are leaving with those businesses. It's the business headquarters that are moving to different cities and states around the country. And so these are the sort of secondary order effects that these policymakers really aren't considering or perhaps overlooking.

[E]

There's been an initiative to put a California billionaire tax on the rolls by having people vote on it. And it would impose a one time 5% tax on the worldwide net worth of individuals worth more than a billion. So I suspect this is why people like Elon Musk and others are leaving California, because the idea that the state's going to take 5% of everything they have worldwide gets to be real money.

[F]

Yes. And this proposal is perhaps far more insidious even than these surtaxes and capital gains taxes on the rich. First, I'll sidestep the idea that this is a one time tax because let's face it, there's no such thing but a 5% tax on the net worth of residents who were resident in the State as of 1st January, 2026. That's what the proposal says. It's a ballot initiative for later this year and it's so bad that even Governor Newsom is campaigning against it. That tells you just how harmful this could be. And the argument being used for proponents of this wealth tax is that it's going to be used to sort of offset the health care funding shortfall that they're claiming is caused by cuts to Medicaid funding in the states. First, I have to note very importantly that this is actually a tax scheme that they're talking about. So many states, such as California, created these medical provider taxes whereby the state would tax medical institutions and then they would reimburse them with the money they taxed them with and claim a federal match for Medicaid funding. So this was actually just cheating the federal taxpayer of dollars for money that was sort of essentially made up. These sorts of schemes were limited and heavily restricted by the one big beautiful bill, tax reform, later last year, which was a very important reform in my opinion. That's what they're claiming is causing these medical funding shortfalls. Not the fact that the state of California has increased its spending by 68% since 2019 alone. Not the fact that the state of California has expanded Medicaid to many middle aged income households and the state of California has expanded Medicaid to many undocumented immigrants within its state that has led to this massive explosion in health care funding. So that's the excuse they're using for why they need this wealth tax. But then you have to consider, as I mentioned earlier, the top percent pays a huge disproportionate amount of income taxes in the state of California. And we've already seen that many people in the highest sort of wealth deciles are leaving. Many left before the residency requirement came into place. So they've already anticipated this wealth tax being enacted. In fact, the proponents argued this tax would raise about $100 billion. And there was a very detailed analysis published by the Hoover Institution at Stanford University by Joshua Rao and other economists there, where they actually did a legitimate deep dive into what that number would realistically look like once they considered the fact that the initial Review had ignored the fact that three of those billionaires had left the state before the petition even existed. That was about $6 billion from their revenues gone. Then they looked at six who left before the deadline came into place. Now their $100 billion falls to $67 billion. Then they accounted for the departures that weren't made public by using economic analysis based on the literature in terms of the cost and the trade offs, it turns out that the average billionaire in California pays between 3 and 6 billion dollars in income taxes every year. So that's a loss. Once they calculated the net present value, in other words, they looked at the lifetime income tax contributions of those who would leave, they found that this wealth tax won't raise $100 billion. It will actually lose the state $25 billion. Just under $25 billion. So this tax proposal that is being proposed to close a supposed health care funding gap would actually lose the state $25 billion in net present value.

[E]

Why is it so hard to get that across?

[F]

It's deeply problematic, but it's much more of a sort of narrative messaging that we're seeing that all of our fiscal shortfalls can be solved by simply taxing billionaires and millionaires. We're also seeing this more and more at the federal level. Every few years we have Bernie Sanders and his company coming out with proposals for wealth taxes Mark to market type taxes. So these are annually applied wealth taxes. He doesn't hide the fact that this isn't a one time. Unlike California, the economic literature and the math itself just doesn't support the simple fact that we can't fix our fiscal shortfalls by taxing a very small tax base that provides much of the growth of the innovation. Of the jobs, this tax base is also the most mobile. They're also the most savvy. They also have the best accountants, so they know how to get around these sorts of things. But ultimately you're going to end up with hugely costly administrative costs, little to no additional revenue, if not negative, and the worst possible outcome is capital flight.

[E]

We see that happening between states. It's one of the amazing things of the American system is that you can just pick up and leave. And so you have a constant migration away from high cost to lower cost. I think what we're seeing now in both New York and California is that for a long time they could get away with higher taxes because the quality of life was such that the local cultural things were such, et cetera. But then they somehow reached tilt and now people are just sort of giving up and just moving the secondary effects of all that in terms of who's going to be around to sustain the opera, who's going to be around to go to plays and Broadway, et cetera, we could be watching a really profound shift in activity and creativity away from these very high cost blue states to the rest of the country, I think.

[F]

So it seems as though red states are increasingly moving towards lower tax rates while blue states are moving towards taxing the rich. And they're really departing further and further over time. And I think we're going to continue to see those sorts of migrations of high earners from blue to red states. But I would also caution the red states to use the additional revenues wisely. This is where my primary interest in the federal fiscal situation comes into play here. Because I think given how dire the federal fiscal situation is, we're only about six years away now from Social Security and Medicare trust fund depletions. That's going to be a serious fiscal Burden in about six or seven years. We're running $2 trillion deficits with no end in sight and that's only getting worse. And our entitlement programs are growing well beyond our potential economic growth rates. And the first sets of spending that are going to be the low hanging fruit are funds to the states. So I think if we come to a sort of fiscal inflection point as my colleague Veronica Rugey calls it, in a few years time it will be the state funding, the state federal funding that gets cut first. It's probably one of the first things on the chopping board. So I think if the red states are wise, they'll use these broadening bases, this growing tax base of high earners to build rainy day funds and to start if they can, to lower their dependence on federal funding. Because I know there are many states including red states that receive 30, 40% of their revenues from the federal government and that simply isn't sustainable.

[A]

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[B]

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[C]

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He made an interesting point which is that when the politicians in Washington really hit the crunch. At some point, one of their first reactions is going to be to quit subsidizing the states, which will also, correct me if I'm wrong, but I think it also then disproportionately hurt the very blue states that have already driven out their tax base by raising taxes too much and are the most dependent on federal money.

[F]

I believe so, yes. By this point, the tax basis would have been narrowed even further, assuming that they don't change course soon. But I just hope that the red states that are cutting their taxes, they also use some of those extra revenues to sort of prepare for the worst possible outcome when that federal funding tap gets turned off eventually. Because I think that is a real risk, particularly as we move towards these significant shortfalls in terms of trust funds, but also just the trajectory we're on. I mean, I think Yesterday we hit $39 trillion. The public debt is $31.4 trillion. It's increased by $2.5 trillion just in the last nine months. Not even the last year. The last nine months debt held by the public has increased by two and a half trillion dollars. That's about sixteen and a half thousand dollars per federal taxpayer just in the last nine months. We are spending 22 cents on every tax dollar just on servicing the debt at this point. And that's only getting worse based on projections. And in my opinion, those projections by the budgetary institutions, including the cbo, have more rosy assumptions built in. I think it's worse than what they're showing. So I think we need to be prepared for that. And the states also need to be prepared for when this happens. Because as you pointed out, they'll be the first sets of spending categories that get placed on the chopping block. Because the more politically popular programs, the entitlement programs, but also the debt servicing obligations are going to be the last things that get cut.

[E]

When I was speaker, we passed the only four consecutive balanced budgets in the last hundred years. I do not understand, both in the Congress and in the executive branch, this mindset that you can keep running up the credit card and it will never come due. Historically, that's not how life occurs.

[F]

Yes, and it's a million miles away from where we are now, where we were in the 90s. I mean, when you were Speaker, I believe we had real budgets completed in the real manner as intended. And we haven't had those for many decades. I mean, the 90s is a good example. But also the 1983 Social Security reform. A lot of people forget just how close we came in the early 80s to trust fund depletion with Social Security. This isn't the first time we've gotten this close. We were about one year away from there being no money left in the Social Security system. And it was a last minute fix and it was painful. I mean, they had to raise the retirement age over those years. They had to raise the federal insurance contribution taxes, the payroll taxes on workers. But the problem that we're facing now is about twice as large in terms of the fiscal costs as it was in 1983. So even if we leave it until the last minute to come up with a fix is going to be incredibly painful.

[E]

One of the things I think we've got to somehow bring much further to the front of the conversation is the fact that I think current projections are that Social Security will go broke in about 2032, which is not very far away. What's your sense of the timing on both Social Security and Medicare trust funds?

[F]

So both the Social Security and the Medicare trust fund trust, these reports find that, yeah, it's about 2032, it might be 33. So we're six or seven years away from that point where the trust fund effectively reaches zero. At that point, these programs can only afford to pay out as much as they receive in revenues. So there'll be quite a significant shortfall. For Social Security, I believe it's about 23 or 24%. So by default, the government is supposed to cut benefits by about 23% starting in 2023. Now whether or not they do that is another question. Alternatively, they may raise taxes or possibly the worst possible outcome, they borrow it with general funds and we could end up with significant inflation. Either way, this is a countdown that's coming up quick. And it's very significant because both Social Security and the Medicare hospital insurance trust fund deplete around the same time. I've calculated the 30 year shortfall including the interest cost of these two programs, and it's about $120 trillion of shortfalls for both programs plus the interest cost. So that's over 30 years. That's money that we don't have to support those two programs that we're going to have to get from somewhere. That's going to be either a heavy tax burden or it's going to be inflated, which is going to just create inflation like it would make 2021 look fairly tame in comparison. So we really have a big pending problem there.

[E]

And that becomes almost a vicious circle because faced with a pain level on that scale, the politicians flinch and then the pain level gets worse and then they flinch again. The other big factor here, I spend a lot of my time on health reform because when you have a health system that's at 17 or 18% of the gross domestic product, you can't get to anything like a balanced budget until you have a dramatic improvement in the effectiveness of the health system. That becomes another one of those topics that people don't want to deal with.

[F]

Yes, along with Social Security, that's the primary driver of our long term unsustainable fiscal trajectory. It's ultimately the health care costs. It doesn't seem to be getting much better. I mean, that's fundamentally a structural problem in that 90% of dollars spent on healthcare aren't between the provider and the consumer by a third party, whether that's the government or an insurance company. There's a deeply structural problem that makes the system opaque and gets rid of any sort of transparency. There's a much sort of deeper problem that we have with our healthcare system that really requires fundamental reform.

[E]

I've been a very strong advocate for, for transparency so that you can know both in quality and cost before you make a health decision. I learned the hard way. It comes down to show me the money. All these groups, whether they're hospitals, pharmaceuticals, insurance companies, doctors, you name it, all these groups look up and say, but I want mine. It really makes it very hard to reform the system. And yet I think if you did get to transparency and to real choice by the consumers of health care, they would in fact save an enormous amount of money in a way that you will never get to by having the bureaucrats try to do it. People will not accept cuts, but they will accept savings. And the difference is, savings is when you don't pay for something you don't need, and it cuts when you're afraid they just took away money you do need. And it's politically very hard to cut health care. I think it's very easy to find savings, except that every interest group will then fight you. Do you get any sense that the left may be on the edge of learning that driving successful people away is not a smart strategy?

[F]

I have to be glass half full working in fiscal policy because it's mostly doom and gloom, as you can imagine. So I try to see the silver lining when someone like Gavin Newsom comes out and says, I'm strictly opposed to this proposal because this will chase away the wealthiest individuals in our state. That acknowledgement alone gives me some hope. Now, I don't know if that's just a moderating position because he may be planning to run for a certain position in a couple of years. But it does signal that there are some sensible people still in positions of power who deep down behind all of these sort of ideological rhetoric, they do still understand the basic economics, the unintended consequences of imposing these sorts of proposals for wealth, taxes and whatnot. You really have to try and find little pieces of hope where you can. Plus, when you were speaker of the House in the 1990s, there was some bipartisan work done on this front and the fiscal position did improve, which if you're around in the 70s and 80s, it was pretty bleak and you may not have thought that was possible, but it was done and we had a balanced budget briefly. So, you know, I think we can get there again. It's going to be more painful than it was in the past, but I have to be optimistic in this role.

[E]

Listen, I think the work you're doing is really important. I think you're right. This is an issue which is suddenly going to loom over all of us. Having smart people study it is going to be a big factor in our ability to get through this. So I want to thank you for joining me. Our listeners can follow the work you're doing at the Mercatus center by visiting the [e-mail] and I really appreciate Jack you're taking the time to share these ideas with us today.

[F]

Thank you for having me on. Speed Gingrich. I really appreciate you having me on and I really enjoyed this conversation.

[E]

Thank you to my guest, Jack Salmon. Newt World is produced by Gingrich 360 and iHeartMedia. Our executive producer is Garn C. Sloan. Our researcher is Rachel Peterson. The artwork for the show was created by Steve Penley. Special thanks to the team at Gingrich360. If you've been enjoying Newt's world, I hope you'll go to Apple Podcast and both rate us with five stars and give us a review so others can learn where it's all all about. Join me on [e-mail] I'm Newt Gingrich. This is Newts World.

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