17. For methodology used in determining these estimates, see Appendix E "Assumptions Used to Estimate Costs for Long-Term Care Recommendations."

18. Over 80 percent of the new federal cost of the program would be new costs, that is, not offset by savings. This is because there would be so many new users of home care services and because of the increased use and higher payment rates for nursing homes.

19. Estimates for costs and use of services presented here are based on the Brookings/ICF LongTerm Care Financing microsimulation model for the elderly. Data on the nonelderly are too limited to include in the model. Estimates of expected total federal expenditures are developed by applying changes in use estimated for the elderly to the nonelderly population as well. Also estimates are based on 1989 costs applied to the population in 1993. To simplify the discussion it is assumed that this approximates 1990 costs applied to the population in 1990.

Chapter 5

The estimated new federal cost of the Commission's recommendations on health care and long-term care for people of all ages would be about $69.6 billion if fully implemented in 1990. Although some of these funds could be raised from reductions elsewhere in the federal budget, the Commission recognizes that new revenues will be necessary. Financing the program costs entirely through new taxes in 1990 would require $430, on average, from each nonpoor American adult. Different tax packages would spread the burden in different ways.

The Commission recommends that three criteria guide the selection of options for raising these revenues.

• Taxes should be progressive, requiring a higher contribution from those most able to bear increased tax burdens.

• Revenues should be able to grow fast enough to keep up with benefit growth.

• Contributions should come from people of all ages.

PROGRESSIVE TAXES

Different taxes distribute the burdens on taxpayers in different ways. Taxes are measured by their "progressivity." The more progressive the tax, the greater the share of income wealthier people must pay compared with those who earn less. By contrast, a “regressive" tax requires a greater share of income from lower-income people. Raising income tax rates for the wealthier, for instance, is highly progressive. On the other hand, imposing a sales tax on an item like food, which would place a greater burden on the poor, is regressive.

The justification for using a progressive tax rests on the premise that people with greater ability to pay should contribute more to government programs.

GROWTH

The extent to which revenue sources can be expected to grow over time varies. Costs for the pro

gram recommended by the Commission will rise as the population expands and ages, and as benefit costs increase. Choosing taxes that yield sufficient revenues to cover this growth avoids uncertainty about whether new taxes would be necessary or tax rates raised. Taxpayers would therefore have a predictable set of tax requirements. Furthermore, predictable growth in revenues provides a foundation for cost containment efforts. To cover program costs, revenues should increase by at least 8 percent to 9 percent annually. (This rate assumes full program implementation.)

CONTRIBUTIONS FROM EVERYONE

Because the Commission's recommended program would benefit everyone-the young and the old, workers and unemployed-all types of taxpayers should be asked to contribute to program costs. Taxes vary in the degree to which they are comprehensive-that is, inclusive of everyone. Specific excise taxes, for example, may not be comprehensive, since they primarily affect those with certain consumption patterns. The income tax, by contrast, is more comprehensive because it includes a wide range of income sources in its base. Using comprehensive revenue sources would help ensure that the scope of revenue sources matches the scope of the benefits-that Americans of all ages contribute to the proposed health and long-term care programs, just as all Americans would benefit from them.

REVENUE SOURCES AND OPTIONS

Possible taxes that could be used to finance the Commission's health and long-term care recommendations are listed in Appendix F. The list is illustrative rather than all-inclusive, and compares the amount of revenue likely to be raised from various sources. It also indicates how well each revenue source meets the Commission's three recommended criteria.

As a practical matter, any revenue package-or revenue option-must include at least one broad