In the latest issue of Virtual Mentor, a journal of the American Medical Association, I try to capture the multiple absurdities that make up ObamaCare. An encapsulation:

During the initial debate over ObamaCare, House Speaker Nancy Pelosi (D-CA) famously said, “We have to pass [it] so you can find out what’s in it.” One irreverent heir to Hippocrates quipped, “That’s what I tell my patients when I ask them for a stool sample.” The similarities scarcely end there…

ObamaCare supporters are ignoring the federal government’s dire fiscal situation; ignoring the law’s impact on premiums, jobs, and access to health insurance; ignoring that a strikingly similar law has sent health care costs higher in Massachusetts; ignoring public opinion, which has been solidly against the law for more than 2 years; ignoring the law’s failures (when they’re not declaring them successes); and ignoring that the law was so incompetently drafted that it cannot be implemented without shredding the separation of powers, the rule of law, and the U.S. Constitution itself. Rather than confront their own errors of judgment, they self-soothe: The public just doesn’t understand the law. The more they learn about it, the more they’ll like it…

This denial takes its most sophisticated form in the periodic surveys that purport to show how those silly voters still don’t understand the law. (In the mind of the ObamaCare zombie, no one really understands the law until they support it.) A prominent health care journalist had just filed her umpteenth story on such surveys when I asked her, “At what point do you start to question whether ObamaCare supporters are just kidding themselves?”

Her response? “Soon…”

(For more proof that ObamaCare supporters can draw from an apparently bottomless well of denial, see this article by Politico.)

ObamaCare–The Way of the Dodo is a post from Cato @ Liberty - Cato Institute Blog

Investors Business Daily reports on the latest glitch found in ObamaCare‘s 2,000-plus pages:

Because of a quirk in ObamaCare, people who buy health insurance through a federally run exchange may not be eligible for premium subsidies.

Government-created exchanges are places for individuals to shop and purchase health insurance. ObamaCare will require individuals and families to buy insurance, starting in 2014.

Those with incomes at 100% to 400% of the federal poverty level will be eligible for taxpayer funded subsidies — a tax credit to help pay for the premium.

It turns out that the legislation isn’t so clear, the latest example of what analysts predicted would be a stream of surprises from the mammoth health law.

Section 1311 of ObamaCare instructs state governments to set up an exchange. If a state refuses, Section 1321 lets the federal government establish an exchange in the state.

Yet ObamaCare states that the tax credit is available to people who are enrolled in an “an exchange established by the state under (Section) 1311.” It makes no mention of people enrolled in federal exchanges being eligible for the tax credit.

“There is this technical problem in the law,” said James Blumstein, a professor at Vanderbilt Law School. “I don’t see how you get around that.”

I guess the folks who chanted, “Read the bill!” seem a little less crazy now.

Regrettably, the IRS has tried to “get around” the clear meaning of the law.  In a proposed rule, the IRS writes that taxpayers will be eligible for ObamaCare’s “tax credits” — which are more government spending than  – if they are enrolled in a health plan “established under section 1311 or 1321” [emphasis added].  But that’s not what the law says.  As I told IBD:

“Congress did not delegate this discretion to the IRS,” Cannon said. “Congress created a tax credit for A, and the IRS is saying it applies to A and B. If the IRS offers this tax credit to federally run exchanges, the IRS will be assuming powers the Constitution vests only in Congress to alter the tax code and spend money.”

Citizens have until October 31 to share with the IRS their thoughts about the agency’s overly broad interpretation of its powers (see here).

More broadly, this bug feature means that states can block ObamaCare’s new entitlement spending, and possibly the entire law, just by refusing to create an Exchange:

“The whole structure of the law collapses without a state-run exchange,” said Michael Cannon, director of health policy studies at the libertarian Cato Institute. “That forces Congress to either repeal ObamaCare or significantly alter it.”

Yesterday, Rep. Michael Burgess (R-Texas) helpfully suggested that the so-called “Super Committee” should meet its target of $1.5 trillion in spending reductions by cutting ObamaCare’s new entitlement spending:

The Select Committee is getting to work, and I encourage both parties, all 12 members, to put the Affordable Care Act on the table, alongside other entitlements in need of reform…The easiest money to save is money you haven’t yet spent…This new select committee could easily achieve almost their entire target of reducing the nation’s deficit, and…almost every dollar would come from benefits that do not yet exist.

The wonderful thing about this newly discovered feature of ObamaCare is that states don’t have to wait for Congress to act.  They can reduce federal spending simply by not creating a health insurance Exchange.

Latest ObamaCare Glitch Enables States to Block New Entitlement Spending is a post from Cato @ Liberty - Cato Institute Blog

The Washington Post’s editorial board issued a challenge to the president and his Republican opponents: “show us your plans” for deficit reduction. In fact, the Post says it would be “delighted” to receive plans from its readers. However, the Post isn’t interested in “meaningless promises” to cut “waste, fraud, and abuse”—it wants specifics:

Here’s what we’re not looking for: pablum about eliminating unnecessary spending without identifying where. Gauzy rhetoric about making hard choices without making them. Meaningless promises about eliminating waste, fraud and abuse. Broad assertions about where to find the money — “Medicare savings,” “tax reform” — without specifics. Arbitrary spending caps without accompanying details about how those limits are to be met. If you believe, for example, that federal spending should be kept to a specific share of the economy — 18 percent? 20 percent? — show the plausible path to getting there.

Amen. Chris Edwards and I have been beating the drum for Republican policymakers in particular to get specific about what they would cut. Chris recently noted that with the exception of Sen. Tom Coburn (R-OK), Sen. Rand Paul (R-KY), and perhaps a few others, Republicans aren’t putting much effort into identifying programs to terminate. And I have noted that “It’s more common to hear Republicans blubber on about ‘reducing waste, fraud, and abuse’ in government programs and ‘saving’ the pillars of the welfare state (Social Security and Medicare) for ‘future generations.’”

As for deficit reduction ideas from Washington Post readers, we have a balanced budget plan on our Downsizing the Federal Government website. In fact, not only do we have a plan, we have over three dozen essays on numerous government agencies that provide details on what programs to cut and why.

Washington Post Asks for Budget Plans is a post from Cato @ Liberty - Cato Institute Blog

The budget deal announced last night offers two sets of potential cuts in military spending.

The first set of potential cuts, created by the budget caps, target “security” spending. That includes the Pentagon, State, foreign aid, the Department of Homeland Security and Veterans (the discretionary portion of Veterans spending, to be precise). The deal caps “security” spending at $684 billion for this fiscal year and $686 for the next. That requires little pain; the 2012 security cap is only $5 billion below what we’ll spend on those categories in fiscal 2011. The White House claims that the caps will generate $350 billion in savings from base defense spending for ten years. They get there, dubiously, by projecting security spending at the capped level across the decade, even after the caps expire, and counting as savings the difference between that spending trajectory and what CBO now projects. They are also assuming that all the savings go to defense, even though Republicans will try to make the other security categories absorb the pain.

The second set of potential cuts, which occur automatically if the Joint Committee fails to reach its spending cut goals, target defense spending directly. This could add $500 billion in defense cuts over ten years, the White House says.

Assuming that is true, the maximum amount of defense cuts possible here is $850 billion. That is a cut of roughly 15 percent compared to planned spending based on the president’s February 2011 budget submission — not including the wars. It is roughly on par with the cuts proposed by the Bowles-Simpson Commission. The total savings are much lower, roughly half, if you compare the cuts to what we actually spend now, rather than the increases we were planning on in past planning documents.

And remember, that $850 billion is a maximum; it may not materialize. It will be lower, if, as hawks hope, the cuts fall on the non-defense elements of the security category. It will be lower if the Joint Committee finds other accounts to cut, avoiding the triggers.

Still, that possible amount is enough to make hawks apoplectic. We are sure to hear more complaints about “gutting or “hollowing out” the force. But let’s keep some facts about military spending in mind:

The Pentagon’s budget has more than doubled over the past decade, and current projections call for the Pentagon to receive more than $6 trillion from U.S. taxpayers through 2021. If its budget got cut by 15 percent, that would return us to roughly 2007 levels. That hardly seems like “gutting“. After such cuts, we would still account for more than 40 percent of global military spending, and our margin of military superiority over any combination of rivals would remain unrivaled.

The focus should now shift to strategy. The White House says the Pentagon’s ongoing roles and missions review will guide the first round of security cuts. The aim is to eliminate military capabilities that are unnecessary or provided by multiple services. We should go deeper, looking to what missions, allies, and possible wars, we can jettison.  The recommendations should guide not only the first set of cuts, but also the second. That means making recommendations for the Joint Committee on additional defense cuts and preparing for automatic cuts should they occur. There is nothing preventing those cuts from being achieved by retiring force structure required by needless missions—such as defending rich allies that can defend themselves.

We should also keep in mind that this deal hardly solves our deficit problem and does not exhaust the possible savings we should seek. Deeper military cuts are possible and could even enhance security given the right strategy.

Military Spending and the Budget Deal is a post from Cato @ Liberty - Cato Institute Blog

The just-released 2011 annual report of the Social Security Trustees shows a significant worsening of the program’s finances.

Last year we were told that we would see payroll tax surpluses over benefit expenditures for a few more years — until 2015. That won’t happen according to the 2011 report; the program will now add to federal deficits in every future year — and increasingly so, which will ramp-up financial pressure to downsize other federal programs, increase taxes, or create yet more debt.

Note that both Republicans and Democrats negotiating over how to reduce federal deficits and the national debt have resolved to leave Social Security untouched for now.  That leaves the program’s finances to fester and worsen — increasing the costs of future adjustments and burdens on future generations.

Many people, especially those who favor early reforms, say that the Social Security trust funds “don’t matter.”  Note, however, that they lock up future federal revenues for Social Security benefit payments — on par with future dedicated payroll taxes.

The lock-up effect of the Social Security trust funds  is demonstrated by the fact that the program’s cash flow deficits today are not forcing any benefit cuts or payroll tax increases.  This can continue until the year 2036 according to the 2011 report.

But if we allow the situation to continue for that long, fixing the program will require a permanent benefit cut of at least 25 percent or a payroll tax increase of at least 40 percent of payrolls in 2036 and beyond.

Most left-leaning politicians and analysts are unwilling to entertain any benefit cuts today.  They favor tax increases today.  But those will fall on today’s and future workers, destroying their incentives to work and ability to save for the future.

Retirees, on the other hand, can continue to enjoy Social Security benefits that are much more generous compared to what they paid in when working.  So to hold all, including well-off, retirees harmless from a “shared sacrifice” approach to fixing Social Security’s finances seems unfair.

The trust fund also “matters” because it provides fodder to the argument of left-leaning politicians that the program’s finances are sound, backed by $2.6 trillion in Trust Fund treasury securities.  That $2.6 trillion sounds like a lot of money to the average Joe on the street. But consider that past and current generations, who together contributed an extra $2.6 trillion to Social Security, are now owed much more under the program’s current laws — a whopping $18.8 trillion according to the 2011 report.

The program’s long-term actuarial deficit (over 75 years) is now 2.2 percentage points of payrolls.  That’s 30 basis points larger than was the case in last year’s report, by far the largest increase in recent memory . That’s surely because of poorer prospects today compared to last year of experiencing a rapid recovery of productivity, output, and payroll tax revenues.

Finally, Mark Warshawsky, my friend and colleague on the Social Security Advisory Board, notes that this year’s Trustees’ report has been released on a Friday during the afternoon — the right day to release bad news because policymakers and the public are usually busy planning or traveling for weekend activities.

The 2011 Social Security Trustees Report — Harbinger of Bad News is a post from Cato @ Liberty - Cato Institute Blog

From my latest Kaiser Health News op-ed:

When 34 Senate Democrats joined all 47 Republicans last week to repeal ObamaCare’s 1099 reporting requirement, their votes confirmed what their talking points still deny: ObamaCare will increase the deficit, no matter what the official cost projections say…

This public-choice dynamic [of concentrated benefits and diffuse costs] is why the Congressional Budget Office, the chief Medicare actuary, and even the International Monetary Fund have discredited the idea that ObamaCare will reduce the deficit. It is one of the principal reasons why, as Thomas Jefferson wrote, “The natural progress of things is for liberty to yield, and government to gain ground.” In other words, the game is rigged in favor of bigger government.

It also explains why the Obama administration is sprinting to implement ObamaCare in spite of a federal court having struck down the law as unconstitutional. The White House needs to get some concentrated interest groups hooked on ObamaCare’s subsidies – fast.

Read the whole thing here.

’1099′ Repeal Speaks Volumes About ObamaCare is a post from Cato @ Liberty - Cato Institute Blog

Following up on what Dan and Chris have said …

If the co-chairs of President Obama’s fiscal commission were serious about reducing federal spending and deficits, they would have proposed eliminating the federal deficit, rather than “reduc[ing] it to 2.2 percent of GDP by 2015.”  Yawn. They would have proposed cutting federal spending (currently, 24 percent of GDP and rising) to match federal tax revenue (currently at 15 percent of GDP).  But the co-chairs proposed only to “bring spending down to 22 percent and eventually 21 percent of GDP.”  Not only does that elicit another yawn, but since the co-chairs only asked for half a loaf, they won’t even get that much.

If the co-chairs were serious about reducing federal spending and deficits, they would have proposed a balanced-budget amendment.  They would have proposed block-granting Medicaid.  They would have proposed implementing Medicare vouchers immediately.  (Vouchers are the only way to reduce Medicare spending while protecting seniors from government rationing.  They would also change the political dynamics that repeatedly stymie efforts to reduce Medicare spending.)  Instead, the co-chairs propose the same ol’ failed strategy of trying to limit Medicare and Medicaid spending using government price-and-exchange controls, which they euphemistically describe as “rebates” and ”payment reforms.”  Along the same lines, they propose strengthening IPAB, ObamaCare‘s rationing board.  IPAB’s mandate is — you guessed it — to ration care by fiddling with Medicare and Medicaid’s price and exchange controls.  It will therefore inevitably fall prey to the same political buzzsaw.  To appease Republicans, the co-chairs propose unwise and unconstitutional federal rules that would prevent patients injured by negligent physicians from recovering the full amount they are due (euphemism:  medical malpractice liability “reform”).  Finally, the co-chairs propose that if federal health spending continues to grow faster than GDP growth plus 1 percent, Congress should consider “a premium support system for Medicare” (which could mean vouchers) and “a robust public option and/or all-payer system” for people under age 65 — a debate that wouldn’t even begin until 2020.

Fiscal Commission members, congresscritters, and citizens who are serious about reducing federal spending and deficits — and who are looking for specific ways to cut government spending — should instead consult Cato’s excellent web site DownsizingGovernment.org.

Obama’s Fiscal Commission and Health Care Spending is a post from Cato @ Liberty - Cato Institute Blog

More and more figures on the right — especially some darlings of the all-important tea party movement — are coming forward to utter a conservative heresy: that the Pentagon budget cow perhaps should not be so sacred after all.

Senator-elect Rand Paul of Kentucky was the latest, declaring on ABC’s “This Week” on Sunday that military spending should not be exempt from the electorate’s clear
desire to reduce the massive federal deficit.

His comments follow similar musings by leading fiscal hawks Sen. Tom Coburn of Oklahoma and Gov. Mitch Daniels of Indiana, a presumptive contender for the GOP nomination in 2012.  Others who agree that military spending shouldn’t get a free pass as we search for savings include Sen. Johnny Isakson, Sen. Bob Corker, Sen.-elect Pat Toomey—the list goes on.

Will tea partiers extend their limited government principles to foreign policy?  I certainly hope so, although I caution that any move to bring down Pentagon spending must include a change in our foreign policy that currently commits our military to far too many missions abroad.  To cut spending without reducing overseas commitments merely places additional strains on the men and women serving in our military, which is no one’s desired outcome.

If tea partiers need the specifics they have been criticized for lacking in their drive for fiscal discipline, they need look no further than the Cato Institute’s DownSizingGovernment.org project.  As of today, that web site includes recommendations for over a trillion dollars in targeted cuts to the Pentagon budget over ten years.

Meanwhile, the hawkish elements of the right have been at pains to declare military spending off-limits in any moves toward fiscal austerity.  That perspective is best epitomized in a Wall Street Journal op-ed by Ed Feulner of the Heritage Foundation, Arthur Brooks of AEI and Bill Kristol of the Weekly Standard published on Oct. 4—a month before the tea party fueled a GOP landslide.  (Ed Crane and I penned a letter responding to that piece.)  Thankfully, it looks like neoconservative attempts to forestall a debate over military spending have failed. That debate is already well along.

Conservative Rift Widening over Military Spending is a post from Cato @ Liberty - Cato Institute Blog

From my oped in today’s Investors Business Daily:

Rep. Paul Ryan’s (R-Wis.) “Roadmap for America’s Future” proposes even tighter limits on Medicare’s growth, leading columnist Bruce Bartlett to opine, “the Medicare actuaries have shown the absurdity of the Ryan plan by denying that Medicare cuts already enacted into law are even worthy of projecting into the future.”

On the contrary, experience and public choice theory suggest that the Ryan plan has a better shot at reducing future Medicare outlays than past efforts, because the Roadmap would change the lobbying game that fuels Medicare’s growth.

For more on Ryan’s Roadmap, click here.  For more on Medicare, read David Hyman’s Medicare Meets Mephistopheles.  For more on public choice economics, click here.

Bending the Cost Curve: Ryan’s Roadmap Would Succeed Where ObamaCare Fails is a post from Cato @ Liberty - Cato Institute Blog

An article in today’s The USA Today titled, “With Many Still in Dark, Groups Shed Light on Health Care Law,” aims to correct misinformation about ObamaCare.  Ironically, the article is itself a monument to misinformation.

It begins:

True or false: The new health care law will cut Medicare benefits for seniors. It will slash Medicare payments to doctors. It will ration health care.

In three polls conducted last month, large percentages of Americans answered “true” to each statement. All three are false.

In fact, two of the three statements are 100-percent true.

First, ObamaCare will cut payments to the private health insurance companies that provide coverage to the 20 percent of Medicare enrollees who participate in the Medicare Advantage program.  That will eliminate many types of coverage for seniors in Medicare Advantage.  That should be painfully obvious, but if you require confirmation, visit FactCheck.org.  ObamaCare will also ratchet down the price controls that Medicare uses to pay hospitals and many other health care providers.  It should likewise be obvious that that will reduce access to services that are ostensibly “guaranteed” to all enrollees.  But again, if you need confirmation, check in with Medicare’s chief actuary, who works for President Obama.  We can debate whether that’s good or bad.  What’s not up for debate: ObamaCare in fact “will cut Medicare benefits for seniors.”

Second, it is also true — ipso facto – that ObamaCare “will ration health care.”  To ration is to limit consumption.  When ObamaCare reduces coverage for Medicare Advantage enrollees and reduces access to care for all Medicare enrollees, it limits seniors’ consumption of medical care.  We can debate whether that’s good or bad.  What’s not up for debate: that is rationing.

Finally, yes, it is technically false that ObamaCare “will slash Medicare payments to doctors.”  But since current law will slash Medicare payments to doctors if Congress does nothing, and since an earlier version of ObamaCare would have eliminated those cuts, but ObamaCare’s architects dropped that provision so as to make ObamaCare appear deficit-neutral… well, perhaps the public can be forgiven if it confuses “eliminating a provision that would have prevented cuts in Medicare payments to doctors” with “slashing Medicare payments to doctors.”

USA Today continues:

The debunked idea raised by opponents during congressional debate that “death panels” could make end-of-life decisions is seen as real by nearly half of those surveyed.

I’ll rate this statement misinformed and misleading.

First, Sarah Palin’s claim about “death panels” was true at the moment she said it, even if she didn’t know why.

Second, by rationing Medicare enrollees’ access to medical services (see above), ObamaCare will effectively make end-of-life decisions for seniors.  According to Medicare’s chief actuary, ObamaCare could force one in six hospitals to stop accepting Medicare patients.  If ObamaCare results in there no longer being a hospital bed waiting for Grandma at the end of her life, that’s an end-of-life decision.  It wasn’t a personalized decision.  It’s not even necessarily the wrong decision.  But let’s drop this nonsense about ObamaCare not making end-of-life decisions for seniors.  And ObamaCare did create a panel that will make many of these implicit rationing decisions.  It’s called the Independent Payment Advisory Board.

But my guess is that people tell pollsters that ObamaCare will make end-of-life decisions because they understand the Golden Rule, and that he who pays the piper calls the tune.  So long as the government purchases medical care, it will be the government that decides who receives it and who doesn’t.  And ObamaCare gave government a lot more of the gold.

USA Today packed a lot of misinformation into this one sentence:

The National Council on Aging posed 12 questions about the law to 636 seniors and found that fewer than 17% of them knew half the answers.

Actually, it’s NCOA that doesn’t know the answers.  Here are a few of their poll’s true-false questions:

• “The new law will result in future cuts to your basic Medicare benefits.” A plurality of seniors (42 percent) responded “true.”  And they’re right: as Medicare’s chief actuary has explained and as NCOA should know, ObamaCare will reduce access to care for Medicare enrollees.  That’s a benefit cut, unless you think “coverage without care” counts as a benefit.  Yet according to NCOA, the correct answer is “false.”  Just 22 percent of seniors agreed.
• “Under the new health reform law, Medicare Advantage plans will cut benefits and increase premiums.” NCOA says the correct response is “don’t know,” and that’s the answer that 56 percent of seniors gave.  Perhaps seniors haven’t read the chief Medicare actuary’s report, which found that ObamaCare “will result in less generous benefits packages” in Medicare Advantage and “when the MA provisions will be fully phased in, enrollment in MA plans will be lower by about 50 percent.”  But NCOA should have read that report, and should therefore know that the correct answer is “true.”
• “The new law is projected to increase the federal budget deficit over the next ten years and beyond.” Again, a plurality (49 percent) responded “true.”  Again, they’re right.  Yet NCOA thinks the correct response is “false.”  No doubt NCOA would point to the Congressional Budget Office projections that ObamaCare will reduce the deficit.  But those projections are valid only if  ObamaCare “remain[s] unchanged throughout the next two decades, which is often not the case for major legislation.” The CBO wrote this would particularly be a problem with ObamaCare, which “would maintain and put into effect a number of policies that might be difficult to sustain over a long period of time.”  So one could reasonably interpret the CBO to have projected an increase, not a decrease in the deficit.  Alternatively, seniors could have been thinking about former CBO director Douglas Holtz-Eakin, who projected in The New York Times that ObamaCare “would raise, not lower, federal deficits, by $562 billion.”  There are lots of reasons why “true” is in fact the correct answer.  (One of them is that NCOA used the passive construction “is projected.”)  Only 14 percent of seniors agreed with NCOA.
• “As a result of the new law, the solvency of the Medicare Trust Fund will be extended by about 9 years to 2026.” A majority of seniors responded “don’t know” (54 percent), while another 22 percent responded “false.”  Either answer is more correct than NCOA’s preferred answer (“true”).  There are no assets in the Medicare “trust fund.”  Thus there is no date by which those non-assets will be exhausted.  Indeed, the “trust fund” has absolutely no effect on Medicare’s solvency.  The very premise of this question is a fraud.  Someone needs to educate seniors about the Medicare trust fund, but NCOA is not the group to do it.
• “The health care reform law will cut Medicare payments to doctors.” A plurality of seniors responded “true” (45 percent), while only 14 percent of seniors gave NCOA’s preferred response (“false”).  But again, perhaps seniors can be forgiven on this one (see above).

USA Today should have dug a little deeper.

More misinformation:

More than four in 10 people in the Kaiser poll wrongly believe the law included a government panel to make end-of-life decisions for Medicare patients.

Again, ObamaCare does include a panel that would implicit rationing decisions, including for Medicare patients at the end of life (see above).

More misinformation still:

As the Department of Health and Human Services issues the regulations needed to implement the law, it’s trying to get the facts out through its website, healthcare.gov. The Centers for Medicare and Medicaid Services is helping, most recently with a cable TV ad featuring Andy Griffith.

FactCheck.org found that Andy Griffith used “weasel words” to “mislead” seniors about ObamaCare.  How is USA Today not aware of that?

USA Today Abets ObamaCare Supporters’ Misinformation Campaign is a post from Cato @ Liberty - Cato Institute Blog

The debate on extending the Bush tax cuts has begun. Those opposed to extension argue that the cuts would greatly increase the federal deficit.

The first thing to note is that extending all the 2001 and 2003 tax cuts would lose the government about $216 billion a year in 2012 and rising amounts after that (see page 16). By contrast, federal spending in 2011 will be almost $2 trillion higher than in 2001 when the first Bush tax cuts were passed. Thus, in a rough sense, spending increases have had a nine times greater impact on our changed budget situation since 2001 than have tax cuts.

How big were the Bush tax cuts compared to previous tax legislation? One way to compare different tax bills is to look at the initial projections of the effects when they were passed. I assembled the figure below based on official scores of past tax legislation, as reported by the CBO at the time. The revenue effects of each tax bill are measured over the first five years as a share of GDP.

The figure shows that the Bush tax cuts were small compared to the Reagan tax cuts of 1981. The Revenue Act of 1978 was also a big tax cut. Note that the Tax Reform Act of 1986 was scored as being revenue neutral, and thus isn’t shown.

The figure also shows that the combined effect of tax cuts from 1997 forward were not large enough to offset the tax hikes under Reagan and the first Bush between 1982 and 1993.

I have a detailed discussion of federal tax policy between 1994 and 2004, here.

How Big Were the Bush Tax Cuts? is a post from Cato @ Liberty - Cato Institute Blog

Ezra Klein and Jonathan Chait argue the only way government could reduce inefficient Medicare spending was to create a new health care entitlement program.  Think about that.

The worst part is, they’re not entirely wrong.  And that same system will now be controlling your health care and an ever-growing share of your income.

Why Politics Is Stupid is a post from Cato @ Liberty - Cato Institute Blog

Republicans on the Senate Appropriations Committee have announced support for caps on the discretionary spending portion of the federal budget. According to press reports, discretionary spending under the cap for fiscal year 2011 would be approximately $20 billion less than what the president has proposed.

Appropriators — often referred to as the “third party” in Washington — exist to do one thing: spend other people’s money. Getting appropriators to agree to place any sort of limit themselves is a plus.

However, it’s hard to get excited about spending $20 billion less than the president. As the following chart shows, discretionary outlays have soared in the past decade:

With three months still to go in the current budget year, the federal deficit has already hit the trillion dollar mark. By year’s end the government will have borrowed about $1.4 trillion. It’s like the entire discretionary budget — defense and hundreds of other activities — are all financed by borrowing from the next generation.

Republicans apparently want agitated voters to see this gesture as evidence that the party is serious about out-of-control spending and deficits. But capping spending at the already exorbitant levels that Republicans helped reach isn’t exactly a big reform. Instead, Republicans need to propose the elimination of entire agencies and major programs for them to be taken seriously as a party willing to confront the nation’s looming financial crisis.

GOP Spending Cap is a post from Cato @ Liberty - Cato Institute Blog

There’s a lot to learn about what’s going on in federal education policy today, and none of it is good.

First, Steven Brill offers a revealing look at the Race to the Top evaluation process in a piece that can be added to the ever-growing pile of evidence that Race to the Top isn’t even close to the objective — or, I’d add, powerful — catalyst for meaningful reform that the Obama administration insists it is.

Second, it appears that congressional Democrats are preparing to pass a Harkin-proposed, Obama-endorsed, $23 billion bailout for teachers by attaching it to an “emergency” appropriation for the war in Afghanistan. (Passing major — and highly suspect – education legislation by attaching it to something totally unrelated? Sound familiar?) And what’s the nice thing about “emergency” legislation? No need to worry that the outlay would add to our already insane federal deficit; that can’t be allowed to interfere with saving the world (or public schooling lard).

Finally, looming on the horizon is the release of final standards from the Common Core State Standards Initiative. The Obama administration is trying to coerce all states to adopt the standards by linking adoption to Race-to-the-Top competitiveness and, potentially, Elementary and Secondary Education Act funding.

The good news is that on June 2 — potentially the very day the standards will be released — you can catch what has sadly been a rarity so far in the push for national standards: a real debate about whether national standards will actually improve educational outcomes.  My answer is that there is no meaningful evidence that national standards drive superior results, but joining me to debate that right here at Cato will be the Heritage Foundation’s Lindsey Burke, Sandra Boyd of Achieve, Inc., and the Fordham Foundation’s Michael Petrilli. It will be a debate that must be replicated across the country before we make any further move to adopt one standard for every public school in America. You can register here to see our debate live, or catch it online at Cato.org.

The feds are on the move in education, and the more we learn about their plans, the more obvious it is that they must be stopped.

Fed Ed on the Move is a post from Cato @ Liberty - Cato Institute Blog

Federal Reserve Chairman Ben Bernanke gave a speech in Dallas yesterday where he inadvertently discredited claims that ObamaCare would reduce health care costs and the federal deficit.  According to The Washington Post:

Federal Reserve Chairman Ben S. Bernanke warned Wednesday that Americans may have to accept higher taxes or changes in cherished entitlements such as Medicare and Social Security if the nation is to avoid staggering budget deficits that threaten to choke off economic growth…

While the immediate audience for the speech was the Dallas Regional Chamber, his message was intended for Congress and the Obama administration…

Bernanke has urged Congress to address long-term fiscal imbalances in congressional testimony before, but usually only when he is asked about them by lawmakers. His speech Wednesday aimed to reach a broader audience, steering away from technical economic speak and using plain, sometimes wry, language — a rare thing for a Fed chairman.

The non-partisan Congressional Budget Office projects the annual federal deficit will be at least $700 billion in each of the next 10 years.  Deficit spending is a form of taxation without representation, because it increases the tax burden of generations who cannot yet vote (often because they are as yet unborn).  Bernanke wants us to end deficit spending.  Kudos to him.

But consider the timing of his speech.  Why wait until April 7, 2010, to deliver that message directly to the public?  Why not give that speech in January? Or February? Or any time before March 21?

The reason is obvious: Bernanke held back to appease his political masters.

Until three weeks ago, the nation was locked in a debate over whether Congress should enact ObamaCare, the most sweeping piece of social legislation in American history.  That law includes two new health care entitlements — the very type of government spending driving the federal budget further into the red.  Democrats rigged the bill so that the CBO was obliged to score it as deficit-reducing, but 87 percent of the public weren’t buying it.

If Bernanke really wanted to warn the American public about the dangers of rising budget deficits, then a congressional debate over creating two new entitlement programs would be the most important time to deliver that message.  Democrats would have responded that ObamaCare would reduce the deficit.  But since voters believe ObamaCare to be a budget-buster, Bernanke’s warning would have dealt ObamaCare a serious blow.

Had Bernanke delivered his populist warning before January 28, it could have jeopardized his confirmation by the Senate to a second term as Fed chairman.  Had he done so between January 28 and March 21, he would have suffered a storm of criticism from Democrats (and possible retribution when his term came up for renewal in 2013) because his sensible, responsible warning would have made moderate House Democrats more skeptical about ObamaCare’s new entitlements.

So Bernanke pulled his punches.  As Dick Morris would put it, anyone who doesn’t think that political concerns affected Bernanke’s timing is too naive for politics.

Bernanke’s behavior thus reveals why ObamaCare’s cost would exceed projections and would increase the deficit.

Knowledgeable leftists, notably Tom Daschle and Uwe Reinhardt, recognize that Congress is no good at eliminating wasteful health care spending because politics gets in the way.  (Every dollar of wasteful health care spending is a dollar of income to somebody, and that somebody has a lobbyist.)

The Left’s central planners believe they can contain health care costs by creating an independent government bureaucracy that sets prices and otherwise rations care without interference from (read: without being accountable to) Congress.  ObamaCare’s new Independent Payment Advisory Board is a precursor to what Daschle calls a “Health Fed,” so named to convey that this new bureaucracy would have the same vaunted reputation for independence as the Federal Reserve.

Yet Fed scholar Allan Meltzer reports, and Bernanke’s behavior confirms, that not even the hallowed Federal Reserve can escape politics:

In reading the minutes of the Fed and watching what they do, the Fed has always been very much afraid of Congress…The idea of having a really independent agency in Washington, that’s just not going to happen…[The Fed] is very much concerned — always — about what the Congress is doing, and doesn’t want to deviate very far from that.

Politics affects Bernanke’s behavior and the Fed’s behavior.  Politics will defang the Independent Payment Advisory Board, and many of  ObamaCare’s other purported cost-cutting measures.  ObamaCare’s cost will outpace projections. The deficit will rise.

Repeal the bill.

By Pulling His Punches, Bernanke Shatters ObamaCare’s Credibility is a post from Cato @ Liberty - Cato Institute Blog

From Robert J. Samuelson’s column in today’s Washington Post:

When historians recount the momentous events of recent weeks, they will note a curious coincidence. On March 15, Moody’s Investors Service — the bond rating agency — published a paper warning that the exploding U.S. government debt could cause a downgrade of Treasury bonds. Just six days later, the House of Representatives passed President Obama’s health-care legislation costing $900 billion or so over a decade and worsening an already-bleak budget outlook.

Should the United States someday suffer a budget crisis, it will be hard not to conclude that Obama and his allies sowed the seeds, because they ignored conspicuous warnings. A further irony will not escape historians. For two years, Obama and members of Congress have angrily blamed the shortsightedness and selfishness of bankers and rating agencies for causing the recent financial crisis. The president and his supporters, historians will note, were equally shortsighted and self-centered — though their quest was for political glory, not financial gain.

I hope Samuelson is wrong, but it’s probably a good idea to behave as if he’s right, and repeal ObamaCare’s new entitlement spending.

ObamaCare’s New Entitlement Spending “Sows the Seeds” of a Budget Crisis is a post from Cato @ Liberty - Cato Institute Blog

The board game Monopoly first took off during the Great Depression. A different game has become popular during today’s Great Recession. In this game, politicians race against high unemployment to create jobs in order to save their own. The players (politicians) have unlimited tax and borrowing authority, and can call upon friendly economists to help them maneuver. The players even get to keep score, although the media can penalize shoddy scorekeeping. Ultimately, voters will decide which players win and lose in the fall elections.

Okay, I’m being facetious. But as politicians continue to throw trillions of dollars at the economy in a vain effort to create jobs, and the media continues to go along with it by obsessing over meaningless job counts, the entire spectacle has become surreal. If government job creation is a game, the losers have been the taxpayers underwriting it, as well as the employers (and their employees) who are closing shop, laying off workers, or not hiring because of uncertainty over what big government schemes will be next.

Two news articles point to this “regime uncertainty” being generated by Washington.

First, the government’s chief technology officer, Aneesh Chopra, received a somewhat hostile reception at the recent Consumer Electronics Show in Las Vegas according to the BBC:

“The government doesn’t spur innovation or entrepreneurship. The government often gets in the way,” said Mr. [Gary] Shapiro, president of the Consumer Electronics Association (CEA) which stages CES.

It [CEA] also had little support for President Obama’s $787 billion stimulus act calling it “panic spending” and warned of the growing federal deficit.

“The government is often a barrier,” said Mr. Shapiro. “High taxes and regulatory bureaucracy are barriers.”

Mr. Chopra’s response was typical of the political-bureaucratic mindset:

He said the US government was planning a summit with a number of chief executives from the “most innovative companies in the country to directly advise us to make government more efficient and more effective”.

Ah, another summit.

In the other article, the CNBC headline says it all: “Many Reluctant to Hire Because of New Taxes, Rules.” The article makes it clear that what businesses don’t need is another orchestrated summit:

The prospect of increased federal and state regulation and taxes has been particularly disruptive to the hiring plans of small- and medium-sized businesses, which have historically generated about two-thirds of the nation’s jobs. “I don’t really see the private sector hiring much in the next few months,” says Brian Bethune, an economist at Global Insight. “For the small-business sector there is just too much uncertainty about what happens beyond 2010.”

In reporting that its small business optimism index fell for the second straight month in December, the National Federation of Independent Business Tuesday said members’ No. 2 reason for not expanding payrolls was the prospect of government policy initiatives…”We’re hearing it more and more from our membership,” says Bill Rys, the NFIB’s tax counsel. “At the federal level, there’s uncertainty about tax rates, health care costs, energy costs. You also have what’s going on at the state and local levels, with new fees and taxes. They’re reluctant to jump back in.”

Unfortunately, instead of heeding the business community’s message, the Obama administration is focusing its energies on tinkering with the game’s scorekeeping. From ABC News:

The Obama administration has taken some heat and mockery for using the nebulous and non-economic term of jobs being “saved or created” by the $787 billion stimulus program.

So it’s gotten rid of it.

In a little-noticed December 18, 2009 memo from Office of Management and Budget director Peter Orszag the Obama administration is changing the way stimulus jobs are counted.

The memo, first noted by ProPublica, says that those receiving stimulus funds no longer have to say whether a job has been saved or created.

“Instead, recipients will more easily and objectively report on jobs funded with Recovery Act dollars,” Orszag wrote.

In other words, if the project is being funded with stimulus dollars – even if the person worked at that company or organization before and will work the same place afterward – that’s a stimulus job.

The American people are rightly growing tired of this nonsense. But it’s important that they understand that the idea of government job creation was flawed from the get-go. The government cannot simply wave a magic wand and create jobs without making private sector jobs disappear at the same time because of higher taxing and borrowing. There is no free lunch with government.

Federal Job Creation is a post from Cato @ Liberty - Cato Institute Blog

I caught a lot of flack from my Republican friends for my post blaming the FY2009 deficit on Bush instead of Obama. Well, I must be a glutton for punishment because I can’t resist jumping (albeit reluctantly) to Obama’s defense again. I’m venting my spleen for two reason. First, FoxNews.com posted a story headlined “Obama Shatters Spending Record for First-Year Presidents” and noted that:

President Obama has shattered the budget record for first-year presidents — spending nearly double what his predecessor did when he came into office and far exceeding the first-year tabs for any other U.S. president in history. In fiscal 2009 the federal government spent $3.52 trillion …That fiscal year covered the last three-and-a-half months of George W. Bush’s term and the first eight-and-a-half months of Obama’s.

This story was featured on the Drudge Report, so it has received a lot of attention. Second, Bush’s former Senior Adviser wrote a column for the Wall Street Journal eviscerating Obama for big budget deficits. Given Bush’s track record, this took considerable chutzpah, but what really nauseated me was this passage:

When Mr. Obama was sworn into office the federal deficit for this year stood at $422 billion. At the end of October, it stood at $1.42 trillion.

I’m a big fan of criticizing Obama’s profligacy, but it is inaccurate and/or dishonest to blame him for Bush’s mistakes. At the risk of repeating my earlier post, the 2009 fiscal year began on October 1, 2008, and the vast majority of the spending for that year was the result of Bush Administration policies. Yes, Obama did add to the waste with the so-called stimulus, the omnibus appropriation, the CHIP bill, and the cash-for-clunkers nonsense, but as the chart illustrates, these boondoggles only amounted to just a tiny percentage of the FY2009 total — about $140 billion out of a $3.5 trillion budget.

There are some subjective aspects to this estimate, to be sure. Supplemental defense spending could boost Obama’s share by another $25 billion, but Bush surely would have asked for at least that much extra spending, so I didn’t count that money but individual readers can adjust the number if they wish. Also, Obama used some bailout money for the car companies, but I did not count that as a net increase in spending since the bailout funds were approved under Bush and I strongly suspect the previous Administration also would have funneled money to GM and Chrysler. In any event, I did not give Obama credit for the substantial amount of TARP funds that were repaid after January 20, so the net effect of all the judgment calls certainly is not to Bush’s disadvantage.

Let’s use an analogy. Obama’s FY2009 performance is like a relief pitcher who enters a game in the fourth inning trailing 19-0 and allows another run to score. The extra run is nothing to cheer about, of course, but fans should be far more angry with the starting pitcher. That having been said, Obama since that point has been serving up meatballs to the special interests in Washington, so his earned run average may actually wind up being worse than his predecessor’s. He promised change, but it appears that Obama wants to be Bush on steroids.

Defending Obama…Again is a post from Cato @ Liberty - Cato Institute Blog

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.)

House Democrats Choose Dishonesty is a post from Cato @ Liberty - Cato Institute Blog

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.

Reports the New York Times:

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!

So Much for the Obama Administration’s Fiscal Free Lunch is a post from Cato @ Liberty - Cato Institute Blog