Obamacare Will Be a Budget Buster
Does anyone think that a huge new entitlement program will lead to lower budget deficits? Sounds implausible, yet proponents of government-run healthcare claim this is the case according to the official estimates from the Congressional Budget Office and Joint Committee on Taxation.
To use a technical phrase, this is hogwash. This new 6-1/2 minute video, narrated by yours truly, gives 12 reasons why Obamacare will lead to higher deficits – including real-world evidence showing how Medicare and Medicaid are much more costly than originally projected.
By the way, this video doesn’t even touch on the mandate issue, which Michael Cannon explains is not being counted in order to make the cost of government-run healthcare less shocking.
Filed under: Government and Politics; Health, Welfare & Entitlements; Tax and Budget Policy
Disguised Health Care Costs: The $1.5 Trillion Fraud
If House Democrats hold a vote on their health-care overhaul this weekend, they might as well vote to abolish the Congressional Budget Office too.
It would be no more audacious (and much more honest) than the way they have gamed the CBO’s rules to hide $1.5 trillion of the cost of their legislation — which has to be the biggest fiscal obfuscation in the history of American politics.
C/P Politico
Medicare for Everyone?
According to The Hill, House Democrats are considering re-branding their new government-run health insurance program. A “public option” evidently isn’t catchy enough. Now they’re thinking, “Medicare Part E” as in, Medicare for Everyone.
By all means, model a new government program after Medicare, which:
- Drags down the quality of care for all patients, both publicly and privately insured
- Literally kills people by fueling the epidemic of deaths due to medical errors (as many as 100,000 annually)
- Is responsible for the fragmented delivery system about which the Left complains
- Has required one tax increase every four years, still has an unfunded liability approaching $90 trillion, and will therefore be the driving force behind income-tax rates essentially doubling by mid-century
- Has been expanded well beyond its original mission
- Didn’t save a single life in (at least) its first 10 years of operation
- Coerces people to choose it over private insurance
- Restricts enrollees’ freedom to spend their own money on medical care
- Is easily (and persuasively) parodied as a tool of the devil
Pleeeeease don’t throw me into that briar patch.
Filed under: Cato Publications; General; Health, Welfare & Entitlements
House Democrats Choose Dishonesty
I’m not a fan of the House Democrats’ proposed takeover of the health care sector. (If there’s one thing that legislation is not, it’s “reform.”) But at least House Democrats were honest enough to include the cost of the $245 billion bump in Medicare physician payments in their legislation, unlike some committee chairmen I could mention.
Unfortunately, House Democrats have since decided that dishonesty is the better strategy. They, like Senate Democrats, now plan to strip that additional Medicare spending out of health “reform” and enact it separately. (Democrats are already trying to exempt that spending from pay-as-you-go rules, making it easier for them to expand our record federal deficits.) Why enact it separately? Because excising that spending from the “reform” legislation reduces the cost of health “reform”!
But why stop there? Heck, enact all the new spending separately, and the cost of “reform” would plummet! Enact the new Medicaid spending separately, and the cost of “reform” would fall by $438 billion! Do it with the subsidies to private health insurance companies, and the cost of “reform” would plunge by $773 billion! All that would be left of “reform” would be tax increases and Medicare payment cuts. Health “reform” would dramatically reduce federal deficits! Huzzah!
Except it wouldn’t, because at the end of the day Congress would be spending the same amount of money.
The only good news may be this. If this dishonest budget gimmick succeeds, then Congress will have “fixed” Medicare’s physician payments. Absent that “must pass” legislation, the Democrats health care takeover would lose momentum, and would have to stand on its own merit. That would be good for the Republic, though not for the legislation.
(Cross-posted at Politico’s Health Care Arena.)
Filed under: Cato Publications; Health, Welfare & Entitlements
More Health Reform Budget Gimmickry
When the Senate Finance Committee released CBO scoring of its health care reform proposal last week, we warned that its claim of reducing future budget deficits was achieved only through dishonestly assuming that Congress will implement a 21% reduction in Medicare payments that is scheduled under current law. We pointed out that Congress has been supposed to make those reductions since 2003, and never has. Now—surprise, surprise—Democrats have introduced a bill to eliminate the scheduled cut, at a cost of $247 billion. But Democrats cleverly are putting the new spending in a separate bill, so it won’t change scoring of health care reform. Have they no shame?
What They Aren’t Telling You About the CBO Score
The CBO report that said the health care bill won’t raise deficits makes it clear that the Baucus bill’s reduction in future budget deficits comes not from controlling government spending or reducing health care costs, but because of a rapid escalation in tax revenues.
The bill imposes a 40 percent excise tax on health-insurance plans that offer benefits in excess of $8,000 for an individual plan and $21,000 for a family plan. Insurers would almost certainly pass this tax on to consumers via higher premiums. As inflation pushes insurance premiums higher in coming years, more and more middle-class families would find themselves caught up in the tax.
In fact, overall, the tax increases in the bill are more than double the amount of deficit reduction. This isn’t a health care efficiency bill or a cost containment bill. It is a tax and spend bill, pure and simple.
‘No Child Left a Dime’
That’s my favorite placard from the Washington tea party protests on Saturday. No Child Left a Dime underlines perhaps the central concern of the protesters — the ongoing massive fiscal irresponsibility in Washington by both parties.
We’ve got deficits of more more than $1 trillion for years to come. Federal debt will approach World War Two levels within a decade. Even so, the Democrats are trying to ram through a $1 trillion health care expansion, and the head of the Republican National Committee, Michael Steele, is defending against any cuts to Medicare, the program that is the single biggest threat to taxpayers. People are marching not just because Obama and the Democrats are scaring their pants off, but because most Republicans in positions of power are spendthrifts as well.
The chart illustrates that no child will be left a dime because the government will have it all. This is the CBO’s “alternative fiscal scenario,” which essentially means the business-as-usual scenario if Congress doesn’t cut anything in coming years.
Note that the most rapidly growing box, the white box, is the program that Michael Steele doesn’t want to touch. The program is expected to grow by 6.3 percent of GDP by 2050. In today’s money, 6.3 percent of GDP is about $900 billion a year in added spending. So it’s like Steele doesn’t see anything wrong with tomorrow’s young families forking over an additional $900 billion a year in taxes on this one program, or about $7,700 a year for every American household.
It’s worse than that. The biggest box on the chart by 2050 is interest on the government debt, and by far the biggest contributor to the growth in interest is Medicare. So including interest, Michael Steele’s (ridiculous) Medicare position is sort of like supporting a more than $10,000 tax hike on every young family for this one program.
Come on Republicans, you can do better than that. How about starting simply by proposing some of CBO’s modest and commonsense Medicare reforms like raising deductibles?
(By the way, interest costs rise in coming years because of an excess of spending, not a shortage of revenues. Under this CBO scenario, all current tax cuts are extended, and yet federal revenues still rise as a share of GDP over time above the historical norm of recent decades).
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
Deficits, Spending, and Taxes
The White House and the CBO announced this week that:
The nation’s fiscal outlook is even bleaker than the government forecast earlier this year because the recession turned out to be deeper than widely expected, the budget offices of the White House and Congress agreed in separate updates on Tuesday.
The Obama administration’s Office of Management and Budget raised its 10-year tally of deficits expected through 2019 to $9.05 trillion, nearly $2 trillion more than it projected in February. That would represent 5.1 percent of the economy’s estimated gross domestic product for the decade, a higher level than is generally considered healthy.
What is the right response to these deficits?
One view holds that most current expenditure is desirable — indeed, that expenditure should ideally be much higher — so the United States should raise taxes to balance the budget. Taxes are a drag on economic growth, however, and unpopular with many voters, so this view presents politicians with an unhappy tradeoff.
The alternative view holds that a substantial fraction of current expenditure is undesirable and should be eliminated, even if the revenue to pay for it could be manufactured out of thin air. To be concrete:
- Medicare and Medicaid encourage excessive spending on health care.
- The invasions of Iraq and Afghanistan encourage hostility to the U.S. and thereby increase the risk of terrorism.
- Drug prohibition generates crime and corruption.
- Agricultural subsidies distort decisions about which crops to grow, and where.
- And much, much more.
So, under this view, the United States can have its cake and eat it too: improve the economy and reduce the deficit without the need to raise taxes.
This approach is not, of course, politically trivial, since existing expenditure programs have constituencies that will fight their elimination.
But thinking about these two views of the deficits is nevertheless useful: it shows that discussion should really be about which aspects of government are truly beneficial, not just about the deficits per se.
Sen. Kennedy’s Budget-Breaking “Reform” Bill
It appears that the Obama administration has decided to disown the venerable Senator. No wonder. The Congressional Budget Office estimated the ten-year cost of Sen. Kennedy’s bill at $1 trillion, but admitted that its analysis was incomplete.
Now the consulting group HSI Network, LLC comes foward with an estimate of $4 trillion:
The Senate Committee on Health, Education, Labor and Pensions (HELP) have proposed a health reform bill called the Affordable Health Choice Act (AHC) that seeks to reduce the number of uninsured and increase health system efficiency and quality. The draft legislation was introduced on June 9th, 2009. The proposal provided adequate information to suggest what the impact would be of AHC using the ARCOLA™ simulation model. AHC would include an individual mandate as well as a pay or plan provision. In addition, it would include a means-tested subsidy with premium supports available for those up to 500% of the federal poverty level. Public plan options in three tiers: Gold, Silver and Bronze are proposed in a structure similar to that of the Massachusetts Connector, except that it is called The Gateway. These public plan options would contain costs by reimbursing providers up to 10% above current reimbursement rates. There is no mention of removing the tax exclusion associated with employer sponsored health insurance. There is also no mention of changes to Medicare and Medicaid, other than fraud prevention, that could provide cost-savings for the coverage expansion proposed. Below, we summarize the impact of the proposed plan in terms of the reduction on uninsured, the 2010 cost, as well as the ten year cost of the plan in 2010 dollars.
HELP Affordable Health Choices Act
- Uninsurance is reduced by 99% to cover approximately 47,700,000 people
- Subsidy – Tax Recovery = Net cost:
- $279,000,000,000 subsidy to the individual market
- $180,000,000,000 subsidy to the ESI market with
- Net cost: $460,500,000,000 (annual)
- Net cost: $4,098,000,000,000 (10 year)
- Private sector crowd out: ~79,300,000 lives
HSI figures that a lot more people will take advantage of federal health insurance subsidies, driving costs up far more than indicated by the CBO figure. (H/t to Phil Klein at the American Spectator online.)
Of course, no one knows what the bill would really cost in operation. But the history of social insurance and welfare programs is sky-rocketing expense well beyond original projections. Go back and look at the initial cost estimates for Medicare and Social Security, and you will run from the room simultaneously laughing and crying.
Health care reform would be serious business at any moment of time, but especially when the country faces $10 trillion in new debt over the next decade on top of the existing $11 trillion national debt. And with the $100 trillion Medicare/Social Security financial bomb lurking in the background, rushing to leap off the financial cliff with this sort of health care legislation would be utterly irresponsible.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
What’s a Trillion Dollars Among Friends?
If you’re Barack Obama, money is no object. The national debt exceeds $11 trillion. We’ve had about $13 trillion worth of bail-outs over the last year. The deficit this year will run nearly $2 trillion. The Congressional Budget Office warns of a cumulative deficit of some $10 trillion over the next decade.
Now Obama-style health care “reform” will add another $1 trillion in increased spending over the same period. And the ultimate cost likely would be higher, perhaps much higher. Reports the Congressional Budget Office:
According to our preliminary assessment, enacting the proposal would result in a net increase in federal budget deficits of about $1.0 trillion over the 2010-2019 period. When fully implemented, about 39 million individuals would obtain coverage through the new insurance exchanges. At the same time, the number of people who had coverage through an employer would decline by about 15 million (or roughly 10 percent), and coverage from other sources would fall by about 8 million, so the net decrease in the number of people uninsured would be about 16 million or 17 million.
These new figures do not represent a formal or complete cost estimate for the draft legislation, for several reasons. The estimates provided do not address the entire bill—only the major provisions related to health insurance coverage. Some details have not been estimated yet, and the draft legislation has not been fully reviewed. Also, because expanded eligibility for the Medicaid program may be added at a later date, those figures are not likely to represent the impact that more comprehensive proposals—which might include a significant expansion of Medicaid or other options for subsidizing coverage for those with income below 150 percent of the federal poverty level—would have both on the federal budget and on the extent of insurance coverage.
Then there is the more than $100 trillion in unfunded Medicare and Social Security benefits.
Just who is going to pay all these bills?
Don’t worry, be happy.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
Social Security: Debating the Ostriches
Over at Salon, Michael Lind takes me to task for raising the alarm about the latest Social Security Trustees report showing that a) Social Security’s insolvency date is growing closer, and b) the system’s unfunded liabilities have increased dramatically since last year’s report.
Like most of those who resist having an honest debate about Social security’s finances, Lind relies on a combination of economic flim-flam and political sophistry to obscure the true problem. For example, Lind points out that when I quote the Trustee’s assertion that the system’s unfunded liabilities currently top $17.5 trillion, that “assumes there are no changes made between now and eternity.” Well, duh! All estimates of US budget deficits assume that spending won’t be cut or taxes raised enough to eliminate the deficit. In fact, when I get my Visa bill and it shows how much I owe, it doesn’t tell me anything about whether I will or can pay that bill in the future. Obviously, if we raise Social Security taxes, cut Social Security benefits (or create personal accounts), we can reduce or even eliminate the program’s unfunded liabilities.
Lind then returns to the hoary idea of the Trust Fund. He objects to my characterization of the Trust fund “contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much the government owes the system.” This, he says, is the same as saying “government bonds backed by the full faith and credit of the U.S. government, a government that has never defaulted on its obligations in its entire existence since 1776, are not actual assets?” He points out that millions of Americans invest in government bonds through their retirement programs and consider them assets. “Are U.S. government bonds “actual assets” when they are part of IRAs but not “actual assets” when they are owed to the Social Security system?” he asks.
That’s right. If I write you an IOU, you have an asset and I have a debt. If I write an IOU to myself, the asset and debt cancel each other out. I haven’t gained anything, else it would be a whole lot easier to pay my bills. When Lind invests in a government bond, he has an asset and the government has a liability. But when the government issues a bond to itself (ie. Social Security), the asset and liability cancel each other out. There’s no net increase in assets.
But don’t take my word for it. This is what Bill Clinton’s budget had to say about the Trust Fund in FY2000:
These Trust Fund balances are available to finance future benefit payments…but only in a bookkeeping sense….They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of Trust Fund balances, therefore, does not by itself have any impact on the government’s ability to pay benefits.
Lind then switches course and says, ok, forget about the Trust Fund. Think about Social Security like we do about defense spending. “Why do we never hear of the “unfunded liabilities” of Pentagon spending — the third of the big three spending programs (Social Security, Medicare, defense) that take up most of the federal budget? Defense spending comes out of general revenues, not a dedicated tax.”
Actually, that is a valid comparison. Both defense and Social Security spending for any given year are ultimately paid for out of that year’s tax revenue. The composition of the tax revenue is largely irrelevant. And, when taxes don’t equal expenditures, we get budget deficits. Those deficits will eventually have to be paid for by raising taxes or cutting spending.
Current projections by the Congressional Budget Office suggest that unless we reform entitlements programs, government spending will reach 40 percent of GDP by mid-century. Paying for all that government will be a crushing burden of debt and taxes for our children and grandchildren.
No amount of obfuscation by defenders of the status quo can obscure that fact.
Church of Universal Coverage Begins Its Campaign against that Pesky CBO
Last Monday, when lobbyists for the six biggest health care industry groups joined President Obama to announce their support for reducing health care spending by $2 trillion over 10 years, I penned and voiced my suspicion that the real motivation was to pressure the Congressional Budget Office to assume that Democrats’ health care reforms would reduce spending, despite the lack of evidence. My wife said that hypothesis sounded a little . . . conspiratorial.
Last Thursday, when it was revealed that there was no actual agreement and that the White House basically manipulated the industry to get a week’s worth of good health care press, I started to doubt whether strong-arming the CBO was really the goal of that media stunt. Then Jonathan Cohn set me straight.
In an article for The New Republic aptly titled, “Numbers Racket,” Cohn acknowledges that the biggest problem facing Democrats is that the $2 trillion cost of universal coverage has to come from somewhere. Cohn, like many Democrats, complains that the “curmudgeonly” CBO isn’t letting reformers off the hook by assuming that universal coverage will (partly) pay for itself. Cohn also acknowledges that pressuring the CBO was a likely purpose of last week’s media stunt:
The CBO took nearly the same positions back in 1994 — a fact not lost on either the White House or congressional leaders, who have communicated their concerns publicly and privately. One apparent purpose of bringing industry leaders to meet Obama this week was to showcase the potential for cutting costs; see, the administration seemed to be signaling, even the health care industry thinks it can save money by becoming more efficient.
Democrats have set their sights on legislation that would give government enormous power over Americans’ earnings and medical decisions. The main political obstacle to those reforms is their cost, thus Democrats are pressuring the CBO to pretend that those costs don’t exist. The CBO (and everybody else) should resist the Democrats’ effort to make truth yield to power.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
How Does It Feel to Be at the Table Now?
On Monday, the Obama administration held a well-publicized love-fest with lobbyists for the health care industry. It turns out that rather than a “game-changer,” the event was a fraud. And the industry got burned.
At the time, President Obama called it a “a watershed event in the long and elusive quest for health care reform“:
Over the next 10 years — from 2010 to 2019 — [these industry lobbyists] are pledging to cut the rate of growth of national health care spending by 1.5 percentage points each year — an amount that’s equal to over $2 trillion.
By an amazing coincidence, $2 trillion is just enough to pay for Obama’s proposed government takeover of the health care sector.
Yet The New York Times reports that isn’t the magnitude of spending reductions the lobbyists thought they were supporting:
Hospitals and insurance companies said Thursday that President Obama had substantially overstated their promise earlier this week to reduce the growth of health spending… [C]onfusion swirled in Washington as the companies’ trade associations raced to tamp down angst among members around the country.
Health care leaders who attended the meeting…say they agreed to slow health spending in a more gradual way and did not pledge specific year-by-year cuts…
My initial reaction to Monday’s fairly transparent media stunt was: “I smell a rat. Lobbyists never advocate less revenue for their members. Ever.” The lobbyists are proving me right, albeit slowly. (Take your time, guys. I don’t mind.)
Filed under: Cato Publications; Government and Politics; Health, Welfare & Entitlements
So Much for the Obama Administration’s Fiscal Free Lunch
So far the Obama administration has been enjoying the ultimate fiscal free lunch. Massive borrowing, massive spending, lower taxes, and low interest rates.
Alas, all good things must come to an end.
The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried.
As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in borrowing for the government.
Last week, the yield on 10-year Treasury notes rose to its highest level since November, briefly touching 3.17 percent, a sign that investors are demanding larger returns on the masses of United States debt being issued to finance an economic recovery.
While that is still low by historical standards — it averaged about 5.7 percent in the late 1990s, as deficits turned to surpluses under President Bill Clinton — investors are starting to wonder whether the United States is headed for a new era of rising market interest rates as the government borrows, borrows and borrows some more.
Already, in the first six months of this fiscal year, the federal deficit is running at $956.8 billion, or nearly one seventh of gross domestic product — levels not seen since World War II, according to Wrightson ICAP, a research firm.
Debt held by the public is projected by the Congressional Budget Office to rise from 41 percent of gross domestic product in 2008 to 51 percent in 2009 and to a peak of around 54 percent in 2011 before declining again in the following years. For all of 2009, the administration probably needs to borrow about $2 trillion.
The rising tab has prompted warnings from the Treasury that the Congressionally mandated debt ceiling of $12.1 trillion will most likely be breached in the second half of this year.
Last week, the Treasury Borrowing Advisory Committee, a group of industry officials that advises the Treasury on its financing needs, warned about the consequences of higher deficits at a time when tax revenues were “collapsing” by 14 percent in the first half of the fiscal year.
“Given the outlook for the economy, the cost of restoring a smoothly functioning financial system and the pending entitlement obligations to retiring baby boomers,” a report from the committee said, “the fiscal outlook is one of rapidly increasing debt in the years ahead.”
While the real long-term interest rate will not rise immediately, the committee concluded, “such a fiscal path could force real rates notably higher at some point in the future.”
Alas, this is just the beginning. Three quarters of the spending in the misnamed stimulus bill (it would more accurately be called the “Pork and Social Spending We’ve Been Waiting Years to Foist on the Unsuspecting Public Bill”) occurs next year and beyond, when most economists expect the economy to be growing again. Moreover, much of the so-called stimulus outlays do nothing to actually stimulate the economy, being used for income transfers and the usual social programs.
However, we will be paying for these outlays for years. Even as, the Congressional Budget Office warns, the GDP ultimately shrinks as federal expenditures and borrowing “crowd out” private investment. Indeed, the CBO figures that incomes will suffer a permanent decline–even as taxes are climbing dramatically to pay off all of the debt accumulated by Uncle Sam.
And you don’t want to think about the total bill as Washington bails out (almost $13 trillion worth so far) everyone within reach, “stimulates” (the bill passed earlier this year ran $787 billion) everything within reach, and spends money (Congress approved a budget of $3.5 trillion for next year) within reach. Indeed, according to CBO, the president’s budget envisions increasing the additional collective federal deficit between 2010 and 2019 from $4.4 trillion to $9.3 trillion.) Then there will be more federal spending for wastral government entities, such as the Federal Housing Administration; failing banks, which are being closed at a record rate by the FDIC; pension pay-offs for bankrupt companies, administered by the Pension Benefit Guaranty Corporation; and covering the big tab being up run up by Social Security and Medicare, which currently sport unfunded liabilities of around $100 trillion.
Oh, to be an American taxpayer — and especially a young American taxpayer — who will be paying Uncle Sam’s endless bills for the rest of his or her life!
Filed under: Finance, Banking & Monetary Policy; Government and Politics; Health, Welfare & Entitlements; Tax and Budget Policy
Federal Tax Rates
Conveniently timed as Tax Day approaches, the Congressional Budget Office has released new data on the taxes paid by each income group. The CBO data includes federal income taxes, payroll taxes, and excise taxes, which amounts to almost the entire federal tax grab.
The CBO calculates tax rates by quintile from the lowest-earning to the highest earning households. These tax rates are simply total federal taxes paid by the group divided by total income earned by the group.
The chart makes clear that we have a very graduated or redistributive tax system, which some people call “progressive.” President Obama doesn’t think that the 25.8% rate paid by the top quintile is progressive enough, so he plans to penalize that group with an income tax rate hike.
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