What You Should Be Reading: September 2026

Welcome back to “What You Should Be Reading,” a monthly series in which the Taxpayers Protection Alliance (TPA) equips readers with an arsenal of research on public policy to counter today’s anti-free-market prejudices.

This month’s edition takes aim at the Medicare Part D program, the presumed effectiveness of progressive taxation, and the prevailing hostility toward personalized pricing.

American Enterprise Institute: “The Uncertain Future of Medicare Part D and Options for Reform.”

The market created by the Medicare Part D program—which helps cover the costs of prescription drugs—is, to put it mildly, a conundrum. Part D is delivered through private insurers that compete for beneficiaries, but the federal government closely regulates their premiums and benefits and the plans private insurers may offer. And, most importantly, it also heavily subsidizes those plans. Embedded in this arrangement among beneficiaries, private insurers, and taxpayers is Medicare’s system of rules for cost-sharing in drug coverage. Those rules have not guided the Part D market as envisioned.

Projected federal Part D spending through 2035 has increased by roughly $650 billion relative to earlier estimates. “Medicare Part D costs have risen dramatically,” writes Benedic N. Ippolito of the American Enterprise Institute. “Plan offerings have declined, but remaining plans are more generous in key aspects while offering historically low premiums because of temporary federal subsidies. The costs of this arrangement are borne by taxpayers through sharply rising federal contributions.”

Ippolito estimates “that expiring subsidies could require 84–111 percent premium increases to maintain current benefits.” Sharp premium hikes may still be avoided if policymakers undertake the reforms Ippolito proposes in his report. However, “[o]ffsetting these increases with additional federal spending would be imprudent and could cost hundreds of billions of dollars over a 10-year budget window.” Given the federal government’s aversion to letting any seniors’ costs sharply increase, prudence might not prevail, even though taxpayers already are financing a trillion-dollar Medicare program.

“The Inflation Reduction Act (IRA) altered plan incentives and program generosity in important ways,” Ippolito explains. To reduce Medicare’s direct spending on drugs in the catastrophic phase—which begins once beneficiaries reach an annual spending threshold—Congress redesigned the financing arrangement so that, beginning in 2025, Medicare would cover only 20 percent of costs for brand-name drugs in that phase, instead of the former 80 percent, with the rest falling on insurance companies. Meanwhile, beneficiaries’ cost sharing in the catastrophic phase was set at zero, and annual out-of-pocket spending capped at $2,000, discouraging beneficiaries from economizing on costly treatments further still.

As expected, that sharp increase in insurers’ liability for beneficiaries who reach catastrophic-phase coverage was reflected in much higher monthly Part D bids, which nearly quadrupled in two years. Meanwhile, the IRA capped annual growth in the benchmark used to calculate beneficiaries’ premiums at 6 percent to shield enrollee premiums from spiking bids. The federal government covered the difference.

In 2025, despite larger subsidies and the benchmark growth cap, individual premiums would nevertheless have increased had the Biden administration not introduced yet another subsidy, the Part D Premium Stabilization Demonstration, which reportedly cost $6.2 billion.

“By June 2025, roughly 2.5 times as many enrollees had hit the catastrophic phase as in June 2023,” Ippolito notes. In 2026, he continues, “[e]nrollees bore only 13 percent of total costs.” Taxpayers bore the rest.

Instead of tackling the sources of rising drug spending, the government defaulted to throwing more money at the problem. In doing so, it shielded constituents from the market price of coverage as the program’s underlying spending soared. It now must contemplate whether to shift still more costs to taxpayers come 2030.

Read the full report here.

Cato Institute: “The Flat Tax Advantage.”

In recent decades, states have turned from multibracket income taxes toward flat taxes, often alongside lowering rates in general. But “[i]n the last decade, a handful of states have moved in the other direction, with Hawaii, Maine, Massachusetts, and New York raising their rates by 2 percentage points or more,” notes Adam Michel of the Cato Institute.

The governments of these states have stretched awkwardly into a position resembling the splits: promising more spending on subsidies and government services while having to balance their budgets. To spend more in the attempt to make life more affordable for residents, state governments must also tax them more—making them poorer—to afford that spending. Call it the paradox of “state-sponsored affordability.” Strained in this precarious stance, states have thus leaned harder on progressive taxation. “A graduated schedule lets policymakers raise revenue more easily, one bracket at a time,” Michel argues. A common assumption is “that a graduated system gives states more resources to fix fiscal imbalances. The data tell a different story.”

Ranking each state’s surplus or liability per taxpayer—the money available to pay its bills minus what it owes, divided by the number of taxpayers—Michel illustrates: “No-income-tax states had a median surplus of about $2,900 per taxpayer in 2023. Flat-tax states had a median surplus of $1,500. Graduated income tax states had a median liability of −$1,400.”

Weighing against this feeble case for graduated income taxes is the corpus of empirical literature on the advantages of flat taxes. First, they are associated with faster growth and higher incomes. Michel finds “that adopting a flat income tax is associated with roughly 1 percentage point faster growth in per capita income and state GDP four years after the reform,” or roughly $3,900 more income per resident.

“Second, mobile high earners respond strongly to rate differences. Third, flatness itself is associated with positive economic outcomes and better compliance. Finally, the case for flat taxes is strengthened by the political economy of a single rate that cannot be raised on a narrow minority.”

Those states that seek to end outmigration would be wise to adopt—or revert to—flat income taxes.

Read the full briefing paper here.

International Center for Law & Economics (ICLE): “ICLE Comments on the FTC’s Personalized Pricing Proposed Enforcement Policy Statement.”

Innocent until proven guilty must be the precept of regulating innovation if Americans’ lifestyles are to be improved and to become more affordable. That is not the approach the Federal Trade Commission (FTC) is considering in its proposed statement on personalized pricing.

As the ICLE argues in its comments to the FTC, the Commission “proposes to presume unlawful a practice whose prevalence it does not know and whose effects, by its own account, could benefit or harm consumers.”

As ICLE’s brief summarizes, the FTC cites studies to support three claims: personalized pricing is likely to increase business profits; it benefits some customers while harming others; and more “sophisticated” practices are less likely to benefit consumers. The first two claims, although “accurate as far as they go,” omit important nuances. “One theoretical paper shows that personalization under competition can reduce industry profits.” Likewise, ICLE asserts, “[b]ecause consumers are heterogeneous along indefinitely many dimensions…every pricing practice, including uniform pricing, benefits some consumers while harming others.”

In contrast, ICLE argues, “[p]ersonalized prices can intensify competition by letting a seller compete for a rival’s customers without cutting prices for all its existing buyers…and rivals can respond with targeted offers of their own, multiplying the potential benefits.” The most price-sensitive consumers, including those formerly priced out, could be offered lower prices and thus stand to benefit most.

As for the FTC’s claim that “the more sophisticated personalized pricing practices become, the less likely consumers are to benefit,” ICLE finds no support for that generalization in the cited studies.

For the FTC, the difference between the established and emerging forms of personalized pricing that appears to matter most––and that the FTC’s argument about sophistication implicitly spells out––is that personalized pricing is now being done by advanced technologies. And it is being enhanced by consumer data, also made available by these technologies—technologies regulators often poorly understand, whose effects they may fear and thus presume harmful.

Read the full comments here.

Note: TPA highlights research projects that contribute meaningfully to important public-policy discussions. TPA does not necessarily endorse the policy recommendations the featured authors make.