Tag: cbo

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).

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.

C/P Libertarianism, A to Z

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.

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.

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.

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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.