Fact or fiction? Stimulus could help pay the bills

Claim: Investing more stimulus funds in manufacturing would generate tax revenue to help pay for health care.

One of our readers suggests a way to pay for insuring more Americans: investing money from the $787 billion stimulus in manufacturing companies. This reader's reasoning: Investing stimulus funds in manufacturing, where employment has shrunk by nearly 6 million since 1998, would create jobs. The workers and their employers would pay Medicare taxes, helping pay the benefits of people enrolled in Medicare. (Of course, janitors and cashiers also pay taxes; and there are almost 10 times as many service jobs as manufacturing jobs.) The average manufacturing wage is nearly $40,000 a year. If manufacturing employment were increased by 10 percent, it would mean 1.1 million more jobs which, at a $40,000 wage, would produce about $1.3 billion in Medicare tax revenue. The workers' income taxes would also help pay for the Medicaid program for low-income people. So what's not to like about this idea?

Fact or fiction?
Fact. An additional $1.3 billion in Medicare revenue would be a fraction of the program's $468 billion in annual costs. Congress could reallocate more of the stimulus money to manufacturing, but the decline in U.S. manufacturing employment has been a long-term development. In 1950, manufacturing jobs accounted for nearly one third of the labor force. By 2008, only about one in 10 American jobs was in manufacturing. An injection of billions in stimulus money seems unlikely to reverse this trend. One reason for the decline in manufacturing jobs: productivity growth, (more output from fewer workers) which averaged better than 4 percent annually over the past 20 years. In the insurance reform bill, Democrats propose to cut $192 billion from Medicare by requiring hospitals, hospices and other medical providers to show the kind of productivity improvements seen in the manufacturing sector for the past 20 years.

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