March 11, 2010 12:53PM

The Senate Bill Would Increase Health Spending

Ezra Klein quotes the Congressional Budget Office’s latest cost estimate of the Senate health care bill when he writes:

“CBO expects that the legislation would generate a reduction in the federal budgetary commitment to health care during the decade following 2019,” which is to say that this bill will cover 30 million people but the cost controls will, within a decade or so, leave us spending less on health care than if we’d done nothing. That’s a pretty good deal. But it’s not a very well‐​understood deal.

Indeed, because that’s not what the CBO said.

First, the CBO said the “federal budgetary commitment to health care” would rise by $210 billion between 2010 and 2019 under the Senate bill. Then, after 2019, it would fall from that higher level. And it could fall quite a bit before returning to its current level.

Second, the “federal budgetary commitment to health care” is a concept that includes federal spending on health care and the tax revenue that the federal government forgoes due to health‐​care‐​related tax breaks, the largest being the exclusion for employer‐​sponsored insurance premiums. If Congress creates a new $1 trillion health care entitlement and finances it with deficit spending or an income‐​tax hike, the “federal budgetary commitment to health care” rises by $1 trillion. But if Congress funds it by eliminating $1 trillion of health‐​care‐​related tax breaks, the “federal budgetary commitment to health care” would be unchanged, even though Congress just increased government spending by $1 trillion. That’s what the Senate bill’s tax on high‐​cost health plans does: by revoking part of the tax break for employer‐​sponsored insurance, it makes the projected growth in the “federal budgetary commitment to health care” appear smaller than the actual growth of government.

Third, the usual caveats about the Senate bill’s Medicare cuts, which the CBO says are questionable and Medicare’s chief actuary calls “doubtful” and “unrealistic,” apply. If those spending cuts don’t materialize, the “federal budgetary commitment to health care” will be higher than the CBO projects.

Fourth, Medicare’s chief actuary also contradicts Klein’s claim that the Senate bill would “leave us spending less on health care than if we’d done nothing.” The actuary estimated that national health expenditures would rise by $234 billion under the Senate bill.

And really, Klein’s claim is a little silly. Even President Obama admits, “You can’t structure a bill where suddenly 30 million people have coverage and it costs nothing.”

February 22, 2010 11:19AM

Monday Links

  • Harvard economist Jeffrey Miron: “Economists find weak or contradictory evidence that higher government spending spurs the economy. Substantial research, however, does find that tax cuts stimulate the economy and that fiscal adjustments — attempts to reduce deficits by raising taxes or lowering expenditure — work better when they focus on tax cuts.”
February 22, 2010 10:49AM

Meet the New Plan, Same as the Old Plan

Or it may even be worse.

This morning, President Obama released his latest health care blueprint, which he hopes will breathe life into his moribund effort to overhaul one‐​sixth of the U.S. economy. The new blueprint is almost exactly the same as the House and Senate health care bills that the public have opposed since July. It mostly just splits the difference between the two.

One new element, however, is the president’s proposal to impose a new type of government price control on health insurance premiums. I explain here how those price controls are a veiled form of government rationing that helped sink the Clinton health plan.

If anything, those price controls make the president’s new plan even more bureaucratic and government‐​heavy. The Senate bill would take an ill‐​advised stab at cost‐​control by imposing a tax on the highest‐​cost health plans. That president proposes to pare back that excise tax and instead have a panel of federal bureaucrats cap the growth in health insurance premiums for all health plans. Those new government powers could make it even harder for people to obtain the coverage and care that they need.

January 20, 2010 2:43PM

Wednesday Links

  • David Boaz on Obama’s first year: “From this libertarian, Obama’s first year looks grim. …He may well end up like Lyndon Johnson, with an ambitious domestic agenda eventually bogged down by endless war. But I don’t think his wished‐​for FDR model — a transformative agenda that is both popular and long‐​lasting — is in the cards.”
  • The message from Massachusetts: “There can be no denying that this election was a clear cut rejection of the Democratic health care bills.”
January 20, 2010 11:22AM

The Tea Party Comes Home

Today, Politico Arena asks:

The message from Massachusetts

What now for the Democratic agenda?

My response:

Listening to Scott Brown’s long, barely scripted acceptance speech last night, you had the refreshing sense that you were listening to an ordinary American, not to some political cut‐​out. Here’s a guy who campaigned in a pick‐​up truck with over 200,000 miles on the odometer, who listened to the voters and understood that they wanted not simply to block tax hikes but to lower taxes (and the last thing they wanted was for their taxes to pay terrorists’ lawyers bills!), who understood that even worse than the health care bill now before Congress were the back‐​room deals that brought it about, who’s served proudly for 30 years in the National Guard — in short, here’s guy you’d be comfortable having a beer with because, as he said, “I know who I am and I know who I serve.”

Which brings to mind the famous Rose Garden beer the president and vice president shared with Prof. Gates and Sgt. Crowley — speaking of (dis)comfort. And that brings to mind Cambridge, which stayed true blue, 84 – 15, Walter Russell Mead informs us this morning in his delightfully tongue‐​in‐​cheek Arena post. (“First, some good news for Democrats: the base is secure.”) As goes Harvard, so goes Berkeley.

But to today’s Arena question. The Democratic left is predictably outraged that “the people” they so love in the abstract have so disappointed them in the concrete. Exhibit A is last night’s Arena post by The Nation’s Katrina vanden Heuvel. Railing against “the Tea Party’s inchoate right‐​wing populism” (if it’s infested Massachusetts, shudder to think of it in Idaho!), Katrina tells Obama to “get tough, get bold, kiss ‘post‐​partisanship’ goodbye,” and “put yourself squarely back on the side of working people” by “passing the strongest possible healthcare bill as quickly as is feasible.” And there’s the cliff, Katrina.

Lanny Davis has more sober advice for Obama in this morning’s Wall Street Journal. To those who are pointing fingers at Martha Coakley, Lanny says, “This was a defeat not of the messenger but of the message” — the unrelenting leftism that has come from this White House and this Congress. And he points, by way of instruction, to Bill Clinton’s response to the disastrous elections of 1994, though he doesn’t mention Clinton’s ringing, albeit inaccurate, description of his course‐​change — “The era of big government is over.” Is it in Obama’s DNA to make such a course correction? Does he have a reset button?

On health care, Obama and his party are in an almost impossible situation. If they press ahead, as Nancy Pelosi and others are urging, the cliff awaits them in November. But if they abandon their project, what will they run on in November? It’s a mess of their own making, of course, so completely did they misread the election of 2008. What better evidence of the endurance of principles of sound, limited government that some two centuries later, The Tea Party has come home to Boston.

January 13, 2010 1:21PM

Reforming the Insane Tax Code

We’ve got an IRS Commissioner who doesn’t even do his own taxes, and is not embarrassed about it. We’ve got complex deductions that nobody understands, including the government, as the Maryland nurse with the MBA found out. We’ve got a Treasury Secretary and other high appointees who apparently cheated on their taxes. And we’ve got the Democrats hell‐​bent on greatly increasing the power and responsibilities of the overwhelmed IRS with their health care bill.

Now, more than ever, it’s time to scrap the current income tax and put in a flat tax. Or at least we could take a big jump in that direction with a “Simplified Tax,” as discussed in a new National Academies report. Get rid of all almost all deductions, exemptions, and credits and drop individual rates to 10 and 25 percent. While we’re at it, let’s drop the federal corporate rate to 25 percent or less.

For more on the two‐​rate tax idea, see my Options for Tax Reform and Rep. Paul Ryan’s American Roadmap.

January 13, 2010 11:55AM

How ObamaCare Would Keep the Poor Poor

Suppose you’re a family of four at or near the federal poverty level. Under current law, if you earn an additional dollar, you get to keep around 60 – 70 cents.

Under the House and Senate health care bills, however, you would get to keep maybe 38 cents. Or 26 cents. Or maybe just 18 cents.

The following graph (from my recent study, “Obama’s Prescription for Low‐​Wage Workers: High Implicit Taxes, Higher Premiums”) shows that under the House and Senate bills, the combination of (1) a mandate tax and (2) subsidies that disappear as income rises would impose implicit tax rates on poor families that reach as high as 82 percent over broad ranges of income.

Media Name: cannon-marginal-tax-rates-01132009-smaller.gif

This graph actually smooths out some rather bumpy implicit tax rates that spike as high as 174 percent.

In the 1980s and 1990s, the public saw that too‐​generous government subsidies can actually trap people in a cycle of poverty and dependence. President Obama and his congressional allies seem not to have learned that lesson.