Senate Vote on Rand Paul’s Budget

Posted by Tad DeHaven

Last week, a motion to proceed on a budget resolution introduced by Sen. Rand Paul (R-KY) was decisively defeated in the Senate (7 in favor, 90 opposed). Paul’s proposal would have balanced the budget in five years (fiscal year 2016) through spending cuts and no tax increases. Social Security and Medicare would not have been altered. Instead, the proposal merely instructed relevant congressional committees to enact reforms that would achieve “solvency” over a 75-year window.

That’s hardly radical.

Paul’s proposed spending cuts were certainly bold by Washington’s standards, but they weren’t radical either. For example, military spending would have been cut, in part, by reducing the government’s bootprint abroad. From the Paul proposal:

The ability to utilize our immense air and sea power, to be anywhere in the world in a relatively short amount of time, no longer justifies our expanded presence in the world. This budget would require the Department of Defense to begin realigning the over 750 confirmed military installations around the world. It would also require the countries that we assist to begin providing more funding to their own defense. European, Asian, and Middle Eastern countries have little incentive to increase their own military budgets, or take control of regional security, when the U.S. has consistently subsidized their protection.

Over 750 confirmed military installations around the world. That’s enough to make a Roman emperor blush. Isn’t continuing to go deeper into debt to subsidize the defense of rich allies the more “radical” position? (See these Cato essays for more on downsizing the Department of Defense.)

Other cuts included eliminating the Department of Housing & Urban Development, the Department of Energy, and most of the Department of Education. But unlike most Republicans, Paul didn’t apologize for the cuts or use the debt dilemma as a cop out. Instead, he explains in his plan why these federal activities are counterproductive and should be devolved to the states or left to the private sector.

It’s disappointing that Paul could only get seven Republicans and no Democrats to support his budget. For all the bluster about needing to cut spending, not raise taxes, and stop the Obama administration’s big government agenda, most Republican senators said “no dice” when given the chance to vote in favor of a plan that would accomplish all three objectives and balance the budget in five years.

On the Politics of Deficits and Debt

Posted by Roger Pilon

Today POLITICO Arena asks:

How will yesterday’s largely symbolic Senate vote rejecting the Ryan FY 2012 budget plan affect the 2012 political fortunes of Republicans, especially those facing possible Tea Party-fueled primary challenges?

My response:

Yesterday’s Senate vote was simply an effort by Democrats to capitalize on the outcome of Tuesday’s NY-26 election. It changed nothing on the ground. Responding to that election, most congressional Republicans, far from deserting the Ryan plan, have only rallied more strongly behind it.

And well they should, because there’s nothing worse in politics than disarray, as wayward moderate Republicans will likely discover in 2012. What 2010 showed was that deficits and debt are dominating our politics like never before. Democrats haven’t come to grips with that. Like Sen. Jeanne Shaheen (D-N.H.) yesterday, they castigate the Ryan plan for ending Medicare “as we know it.” Yet they have no plan of their own.

One can criticize the Ryan plan from a number of perspectives, but at least it’s moving in the right direction. If Republicans stay on course, they should do well in 2012. Columnists like the Post‘s E.J. Dionne may continue to delude themselves into thinking that NY-26 marked the end of the Tea Party. I doubt it. But if he’s right, we’re really in trouble.

NY-26 Post Mortem

Posted by Roger Pilon

Today POLITICO Arena asks:

Reacting to yesterday’s NY-26 election results, Paul Ryan this morning said, “I saw the ads. I saw burning people’s Medicare cards. If you can scare seniors into thinking that their current benefits are being affected, that’s going to have an effect. And that is exactly what took place here.” Do Republicans have a messaging problem on Medicare?

My response:

Some Republicans have a messaging problem — that partially explains the NY-26 result. Others, like Paul Ryan, are telling it straight, for which they should be commended.

Medicare “as we know it” will soon end, as every honest analyst has recognized. If Democrats continue to demagogue the issue, we have a character problem on our hands. And if enough voters fall for that flim-flam, we have a national problem of lethal proportions. Hard reality doesn’t play politics.

Monday Links

Posted by George Scoville

Who’s Right on Medicare Reform, Ryan and Rivlin or Obama and Gingrich?

Posted by Daniel J. Mitchell

This new video, narrated by yours truly, discusses a proposal to solve Medicare’s bankrupt finances by replacing an unsustainable entitlement with a “premium-support” system for private insurance, also known as vouchers.

This topic is very hot right now, in part because Medicare reform is included in the budget approved by House Republicans, but also because Newt Gingrich inexplicably has decided to echo White House talking points by attacking Congressman Ryan’s voucher plan.

Drawing considerably from the work of Michael Cannon, the video has two sections. The first part reviews Congressman Ryan’s proposal and notes that it is based on a plan put together with Alice Rivlin, who served as Director of the Office of Management and Budget under Bill Clinton. Among serious budget people (as opposed to the hacks on Capitol Hill), this is an important sign of bipartisan support.

The video also notes that the “voucher” proposal is actually very similar to the plan that is used by Members of Congress and their staff. This is a selling point that proponents should emphasize since most Americans realize that lawmakers would never subject themselves to something that didn’t work.

The second part discusses the economics of the health care sector, and explains the critical need to address the third-party payer crisis. More specifically, 88 percent of every health care dollar in America is paid for by someone other than the consumer. People do pay huge amounts for health care, to be sure, but not at the point of delivery. Instead, they pay high tax burdens and have huge shares of their compensation diverted to pay for insurance policies.

I’ve explained before that this inefficient system causes spiraling costs and bureaucratic inefficiency because it erodes any incentive to be a smart shopper when buying health care services (much as it’s difficult to maintain a good diet by pre-paying for a year of dining at all-you-can-eat restaurants).  In other words, government intervention has largely eroded market forces in health care. And this was true even before Obamacare was enacted.

Medicare reform, by itself, won’t solve the third-party payer problem, but it could be part of the solution – especially if seniors used their vouchers to purchase real insurance (i.e., for large, unexpected expenses) rather than the inefficient pre-paid health plans that are so prevalent today.

Ron Paul on the General Welfare Clause

Posted by Roger Pilon

Now that Rep. Ron Paul is again a presidential candidate, his constitutional views will come under increasing scrutiny, as happened yesterday when he was interviewed by Chris Wallace on Fox News Sunday. Not surprisingly, critics immediately leapt on Paul’s “crankish view” that Social Security, Medicare, and other such programs are unconstitutional. Even Wallace seemed taken aback, citing the document’s General Welfare Clause:

The Congress shall have the Power to lay and collect Taxes … to pay the Debts and provide for the common Defence and general Welfare of the United States.

“Doesn’t Social Security come under promoting the general welfare of the United States?” Wallace asked, incredulously.

One does not have to agree with everything Paul has said or stood for over the years to grant that he has a point, and a very important one. It’s a mark of how widespread our constitutional misunderstanding is that so many Americans take it for granted, at least until the Tea Party came along, that most of what the federal government does today is constitutional.

In a nutshell, the Constitution was written and ratified to both authorize and limit the government created through it. It was designed to do the latter not through the Bill of Rights — that was an afterthought, added two years later — but through the doctrine of enumerated powers. Article I, section 8, grants the Congress only 18 powers. Nothing for education, or retirement security, or health care: Those responsibilities were left to the states or to the people, as the Tenth Amendment makes clear.

So what about the General Welfare Clause, the first of Congress’s 18 powers? To be sure, the clause was inartfully drafted, like several other provisions in the Constitution. But it was understood by nearly all as granting Congress the power simply to tax (in limited ways: see the full text). The terms “common Defence” and “general Welfare” were meant merely as general headings under which the 17 other specific powers or ends were subsumed.

In fact, the question came up almost immediately, during the ratification debates, and in early Congresses as well, so we have a rich record of just what the General Welfare Clause meant. Here, for example, in Federalist #41, is James Madison, the principal author of the Constitution:

Some, who have not denied the necessity of the power of taxation, have grounded a very fierce attack against the Constitution, on the language in which it is defined. It has been urged and echoed, that the power “to lay and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States,” amounts to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare. No stronger proof could be given of the distress under which these writers labor for objections, than their stooping to such a misconstruction…. Had no other enumeration or definition of the powers of the Congress been found in the Constitution, than the general expressions just cited, the authors of the objection might have had some color for it…. But what color can the objection have, when a specification of the objects alluded to by these general terms immediately follows, and is not even separated by a longer pause than a semicolon?

Indeed, as was often asked: What was the point of enumerating the 17 other powers if Congress could do anything it wanted under this single power? The Framers could have stopped right there. They didn’t because they meant for Congress to have only certain limited powers, each one enumerated in Article I, section 8. And taxing for the general welfare limited Congress even further by precluding it from providing for special parties or interests.

Nor does it change anything to note, as Wallace did yesterday, that the Supreme Court upheld the Social Security Act in 1937 — as if that settled the question. As a practical matter it settled things, of course, just as Plessy v. Ferguson settled the “separate-but-equal” issue in 1896, only to be reversed in Brown v. Board of Education in 1954, and Bowers v. Hardwick settled the issue of homosexual sodomy in 1986, only to be reversed in Lawrence v. Texas in 2003. It’s well understood that the 1937 Court, cowed by Franklin Roosevelt’s infamous Court-packing threat, simply reversed 150 years of understanding and precedent concerning the doctrine of enumerated powers. And that removed the Constitution’s main restraint on federal power — not by constitutional amendment but by judicial fiat.

But it’s not been “extreme liberals” alone, Wallace went on to say, who’ve read the Constitution as the 1937 Court did, noting that conservative Justice Antonin Scalia recently told a congressional gathering: “It’s up to Congress how you want to appropriate, basically.” To be sure, from fear over “judicial activism,” many conservative judges have bought into the New Deal’s constitutional revolution. Perhaps the most that can be said on their side is that the Court cannot alone, this late in the day, reverse these mistakes.

In fact, this unconstitutionality cannot be undone overnight even by the Congress. Here again there are practical concerns, as Paul has recognized. Vast numbers of people have come to rely on these welfare schemes, however unsustainable they are in the long run, as has become increasingly clear. If constitutional fidelity can serve to spur fiscal discipline, however, we may yet slowly work our way out of our present and long-term fiscal dilemma. But that felicitous result will not happen until we admit both our infidelity and our indiscipline — the two are intimately connected.

By reading the General Welfare Clause in isolation, therefore, Wallace and others turn the Constitution on its head. Rather than a document aimed at limiting government, it becomes a document authorizing unlimited government. And let’s be clear: The basic issue here is nothing more — nor less — than legitimacy. Do we live under the Constitution, or don’t we? If Ron Paul’s views on this fundamental question are “cranky,” so too were those of Madison, Jefferson, Washington, and the rest of the Founders we revere.

HHS Plays Chicken Little — Again

Posted by Michael F. Cannon

USA Today reports on a new Obama administration study:

On average, uninsured families can pay only about 12% of their hospital bills in full. Families with incomes above 400% of the poverty level, or about $88,000 a year for a family of four, pay about 37% of their hospital bills in full, according to the Department of Health and Human Services study.

Oy, where to begin?

This is pre-existing conditions all over again.  In the hope of saving ObamaCare from the gallows, the Obama administration is blowing a real but relatively small problem way out of proportion.

The best data indicate that the problem of the uninsured not being able to pay their medical bills is real but relatively small.  “Uncompensated care” for the uninsured accounts for just 2.8 percent of health care spending. To put that in perspective, 30 percent of Medicare spending is pure waste, according to the Dartmouth Atlas. Moreover, studies show that the uninsured who do pay their bills pay so much more than private insurance does that they more than make up for the uninsured who don’t pay their bills.  That is, total uncompensated care may be negative.

This HHS report adds nothing to our understanding of this problem. Everyone already knows that nearly everybody would have a hard time paying an expensive hospital bill if they didn’t have health insurance.

In fact, this report detracts from our understanding of the problem. It essentially says that if all uninsured people were to experience a hospitalization, only some of them would be able to pay the entire bill for some hospitalizations—not necessarily their own hospitalization—with their liquid assets.  That’s as non-illuminating as saying that very few “D” students could afford to pay four years of college tuition (say, $100,000) with the money in their bank account:

  1. Just like few “D” students are headed to college, very few of the uninsured are going to be hospitalized.  Not only are most of the uninsured young and healthy, but most of them buy insurance as they get older.
  2. The “D” students who do go to college probably won’t be attending the most expensive colleges.  Likewise, the uninsured who are hospitalized are likely to have relatively less-expensive episodes of care.
  3. Of the “D” students who attend college, some would be able to pay for some of their tuition from their bank accounts.  But rather than tell us how much of these hypothetical medical bills the uninsured could pay, HHS reports the number that would be unable to pay these hypothetical medical bills “in full,” and that total billings for those hypothetical hospitalizations—not the unpaid amount—account for 95 percent of medical care provided to the uninsured.
  4. Some of those “D” students could obtain student loans and pay off their tuition over time.  Likewise, some of the uninsured will be able to borrow money or sell their houses or cars to pay their medical bills.  But HHS doesn’t account for the ability of the uninsured to borrow, nor does it count their ability to tap non-financial assets like cars and houses.

In short, HHS bent over backward to make this problem appear bigger than it is.  Moreover, they couched their misleading findings in ways that lent themselves to even greater exaggeration.  For example, the above quote from USA Today,

uninsured families can pay only about 12% of their hospital bills in full.

paints a far darker picture than what HHS actually found:

On average, uninsured families can only afford to pay in full for about 12% of the admissions to hospital (hospitalizations) they might experience.  [Emphasis added.]

It’s almost as if HHS was hoping reporters would misreport their findings in a way that made the problem sound worse.

How Not to Criticize Medicare Vouchers

Posted by Michael F. Cannon

Over at The Incidental Economist, Austin Frakt challenges a couple of claims I made on NPR about Medicare reform.  (Here’s how NPR reported my comments in print.)

My claims are pretty simple.

  1. If Medicare subsidizes enrollees by giving them a fixed amount of money, much like Social Security does, they would be more cost-conscious than they are under the current open-ended subsidy, because enrollees who avoid wasteful spending would themselves get to keep the savings.  Put more plainly, people spend their own money more carefully than they spend other people’s money.
  2. Health insurers and health care providers would compete to serve these cost-conscious Medicare enrollees on the basis of both cost and quality.  Prices would fall while quality improves.

I’m not really sure to what extent all this would occur under the Medicare reforms the House passed a couple of weeks ago, because we don’t yet know to what extent each enrollee’s subsidy would resemble a fixed amount of money.

Here’s what Frakt does with my claims:

[A]s I heard these words I wondered if we had any evidence on hand about the relationship between lower premium subsidies and health care cost inflation. Indeed we do! Premiums in the commercial market are subsidized by the government at a lower rate than those in Medicare. [Emphasis added.]

He then throws up the chart, shown below the jump, showing that for common benefits, the rate of growth in per-enrollee spending is “pretty similar” in Medicare and private insurance.  He concludes: “With data like this, I think we need to reexamine some of our theories about what lower premium subsidies can do.”

Read the rest of this post »

Tuesday Links

Posted by George Scoville

  • “Given America’s large-scale, long-term nation-building mission in Afghanistan, another chapter remains unfinished.”
  • “It doesn’t make a lot of sense to refer to a government whose intelligence service assists military efforts by al Qaeda and the Taliban against U.S. troops in Afghanistan as an ‘ally.’”
  • “Terrorists are not superhuman.”
  • “Physicians must either make up for this shortfall by shifting costs to those patients with insurance — meaning those of us with insurance pay more — or treat patients at a loss.”
  • Is America in a libertarian moment?

Monday Links

Posted by George Scoville

  • “Sadly, in Egypt’s case, a freely elected civilian government may prove powerless in the face of the deeply entrenched and well-organized military.”
  • “Washington politicians from both parties, and bureaucrats, have for decades successfully decreased our freedom and liberties as they have regulated more and more of our lives, including our retirement.”
  • “The Ryan proposal correctly focuses on achieving debt reduction through spending cuts, but this very gradual debt reduction schedule is a weakness that could lead to its downfall.”
  • “Nearly two years ago Sen. McCain, along with Senators Graham and Lieberman, was supping with Qaddafi in Tripoli, discussing the possibility of Washington providing military aid.”
  • Cato media fellow Radley Balko joined FOX Business Network’s Stossel recently to discuss your right to make video recordings of police, and why exercising that right frequently is vital to liberty:

Tuesday Links

Posted by George Scoville

  • A bombing campaign by either Israel or the United States would rally the Iranian people to support an otherwise unpopular and incompetent regime.
  • What else will it take to rally the so-called fiscal hawks to the cause of reducing spending, balancing the budget, and averting national bankruptcy?
  • Senator Franken’s Pay for War Resolution is a superficially a step in the right direction; but when it comes to war, the Senate could probably easily rally a 60-vote supermajority to override any offset requirements.
  • It should be easy to rally around Paul Ryan’s Medicare choice plan, since seniors will lose benefits in the long run anyway.
  • Tax reform proposals are rallying back on both sides of the aisle–will any of them stick?

Why Should Social Insurance Reform Not Affect Those Over Age 54?

Posted by Jagadeesh Gokhale

House Budget Committee Chairman Paul Ryan’s budget plan is ostensibly for FY 2012, but it contains reforms with far-reaching implications for the nation’s fiscal condition.

Most of the action in his plan is on the spending side and mainly on health care entitlements: Medicare and Medicaid.  Many pundits on the left are claiming it is a political document rather than a serious budget proposal, especially because it lacks details on many of its proposed policy changes. 

One thing that stands out, as pointed out by David Leonhardt in the NYT, is that Ryan’s plan exempts people older than age 55 from bearing any share of the adjustment costs.  They should, instead, be called upon to share some of the burden, Leonhardt argues — a point that I agree with.  If seniors are receiving tens of thousands of dollars more than what they paid in for Medicare, then they should not be allowed to hide behind the tired old argument of being too old to bear any adjustment cost.  Indeed, seniors hold most of the nation’s assets and a progressive-minded reform would ask them to fork over a small share to relieve the financial burden that must otherwise be imposed on young workers and future generations.

The numbers presented by Leonhardt are computed by analysts at the Urban Institute.  However, those numbers aren’t quite as one-sided as Leonhardt and Urban scholars suggest, because they only compare Medicare payroll taxes by age group to Medicare benefits.  A large part of Medicare benefits (Medicare’s outpatient care, physicians’ fees, and federal premium support for prescription drugs) are financed out of general tax revenues, not just Medicare taxes. General tax revenues, of course, include revenues from income taxes, indirect taxes, and other non-social-insurance taxes and fees.  Seniors pay some of those taxes as well — especially by way of capital income and capital gains taxes — but the Urban calculations fail to account for this.  That means that the net benefit to seniors from Medicare is smaller than Leonhardt claims in his column.  I don’t know whether it would bring the per-person Medicare taxes and benefits as close to each other as they are for Social Security, however. (See Leonhardt’s column for more on this point.)

Leonhardt also notes that Chairman Ryan’s proposal leaves out revenue increases as a potential solution to the growing debt problem.  Leonhardt argues that wealthy individuals (mostly large and small entrepreneurs) received high returns on assets during the last few years (pre-recession) and could afford to pay more in taxes.

But it would be poor policy to raise these entrepreneurs’ income taxes — that would distort incentives to work, invest, innovate, and hire in their businesses.  Instead, policymakers should consider reducing high-earners’ Medicare and Social Security benefits (premium supports under the Ryan plan) in a progressive manner, including allowing them to opt out of Medicare and Social Security completely if they wish to.

During recent business trips to a few Midwestern towns, I met several investors and professionals in real estate, financial planning, and manufacturing concerns, most of whom expressed their willingness to forego social insurance benefits during retirement.  So there seems to be some public support for such a reform of social insurance programs.