Photo by Madison Agardi
The news has been filled with stories in recent days about Republicans desperately hunting for $2.0-$2.5 trillion (2-3 percent of the budget) in budget cuts over the next decade to cover the cost of extending tax cuts to the rich. While Elon Musk and his DOGE team have been screaming about corruption all through the government, they actually have found little that can be helpful here.
They appear to have found virtually nothing by way of actual corruption. Most of what they have been screaming about are small-budget allocations having to do with race, gender, or sexual orientation that they don’t like. Individually these programs are nickel and dime stuff, and even collectively they won’t come close to covering the cost of the tax cuts that Elon Musk and his billionaire friends need so badly.
Instead, the committees in the House and Senate working on designing a budget have focused on cutting Medicaid and SNAP, two programs that largely serve low and moderate-income families. The cuts being debated, if implemented, would deny tens of millions of people access to health care and reduce nutritional support that has meant a huge difference for millions of low-income children.
The cuts to Medicaid would also have a devastating impact on rural hospitals since it is a major source of revenue. Many would probably have to close.
But if the Republicans really want to find savings by eliminating government corruption, there is an obvious place to look. We pay twice as much for our drugs and other pharmaceutical products as people in other wealthy countries.
The reason is that the government grants them patent monopolies. While other governments also grant patent monopolies, they also negotiate drug prices or have some other mechanism that limits the ability of pharmaceutical companies to exploit these monopolies. The United States is alone in granting drug companies monopolies and then telling them to charge whatever they feel like.
It’s true that patent monopolies give the industry an incentive to develop new drugs, but we can provide that incentive through other mechanisms, like direct public funding. We had been providing over $50 billion a year in direct funding through the National Institutes of Health and other government agencies.
In the longer term we can increase this funding and let the new drugs that are developed be sold as cheap generics. This would also end the incentives to lie about the safety and effectiveness of drugs that led to the opioid crisis. (I discuss this in chapter 5 of my book, Rigged [it’s free].)
If we began to follow the practice of France, Germany, and everyone else, we could cut our drug bill in half or more. We are on a path to spend over $700 billion this year on pharmaceutical products. If we cut that in half by negotiating prices, that would save us more than $350 billion this year, well over the Republicans’ saving target.
It’s true that not all of this spending is done by the government, so the government would not directly be able to pocket all the savings, but it would likely get pretty close to its saving targets through this channel. In addition to the roughly half of spending that is paid by directly the government, the government subsidizes much of the rest through tax deductions.
People don’t pay taxes on employer-provided health insurance. If lower drug prices led insurers to reduce annual premiums by $100 billion, this is likely to lead to an increase in taxable income of roughly the same amount. And that would mean higher tax revenue.
In short, the Republicans and the DOGE crew are staring at an obvious place to save big bucks by slashing corruption, if they are prepared to go after the pharmaceutical industry with the same vigor that they have gone after programs they labeled as “DEI” or individuals who have tried to enforce the law when Donald Trump violated it.
Unfortunately, the Republicans in Congress are probably as scared of the pharmaceutical industry as they are of Donald Trump. This means we shouldn’t hold out breath waiting for lower drug prices. They will probably look to take away food and health care from low and moderate-income people. It is their way.
This first appeared on Dean Baker’s Beat the Press blog.
