Throughout Thursday, news accounts, including our own, focused on $894 billion, the total cost given out by aides to the House speaker, Nancy Pelosi, before the official cost analysis was released by the Congressional Budget Office.
But a closer look at the budget office report suggests that the number everyone should have reported was $1.055 trillion, which is the gross cost of the insurance coverage provisions in the bill before taking account of certain new revenues, including penalties by individuals and employers who fail to meet new insurance requirements in the bill.
Because Obama set a $900 billion target--probably sensibly, since the politics of a $1 trillion health care bill are tricky--the House wanted to get their proposal under that line. The problem is, they also want to subsidize lots and lots of people, which is expensive.
I expect that the reaction of many people, maybe even most, is "Who cares whether we use gross or net cost, as long as it's deficit neutral?" I'm sympathetic, but there really are very good reasons to care:
1. This bill will not actually deficit neutral; it's just scored deficit neutral. This is not the fault of the CBO, which is doing its job. But the bills are loaded down with a bunch of "automatic spending cuts" and similar gimmicks which are very unlikely to happen. We did the same thing with Medicare in the Balanced Budget Act of 1997, and by 2003--i.e., the first year that the cuts really started to cut--Congress had mostly undone them.
Doug Elmendorf, the source of that "deficit neutral" score, has made it pretty clear that he does not think the cuts will take place; he's just scoring them because that's what the CBO process requires him to do. After all, the reason that we need these automatic spending cut mechanisms is that Congress can't make a credible committment to cut costs now. And the reason they can't be relied upon to cut costs in the future is that doing so is politically costly.
The larger the gross cost, the larger the hole it will rip in the budget if these gimmicks fail.
2. We have a gigantic existing budget deficit, which will require hundreds of billions of dollars worth of spending cuts or tax increases. I call your attention to the chart I posted the other week, showing what the budget deficit would look like with and without the Baucus Bill:
In other words, even if everything in this "deficit neutral" bill happens the way that the CBO expects it too, we still end up with a $600 billion deficit. We need to pay for that, somehow.But of course, keeping the bill "deficit neutral" also requires some combination of tax increases and spending cuts. These are very politically difficult, and as is generally true, the current bills use the ones that are politically easiest to cover their costs: things like tax increases on the rich, cuts to unpopular provider reimbursements, and rejiggering Medicare Advantage. Yes, these things are not easy--some of them are so hard that they may not happen. But whatever comes after them must, almost definitionally, politically even more difficult to pass. In the case of tax increases on the rich, there is simply an economic limit--the Laffer Curve does not apply at current levels of US taxation, but that doesn't mean it doesn't apply at any level of taxation, and we're already headed to marginal income tax rates of more than 50% in some jurisdictions.
So the larger the gross cost, the more of the political "low hanging fruit" it eats up. That means that closing our existing budget deficit becomes more politically costly, and therefore less likely to happen--or, rather, more likely to happen too late, when the crisis is almost upon us.
3. Even if you are not particularly worried about shrinking the existing budget deficit, gross costs are, well, costs. Tax increases reduce the consumption people are able to do, of either goods or leisure. Benefit cuts mean fewer benefits. This has to be considered against the benefits.
Why is not possible to simply say that Pelosi was lying?
We can't be sure she knows its false. Not the brightest bulb, that one.
This is the part of the health insurance reform debate that frustrates me. A big selling point of reform was that it would 'hold costs down' and 'bend the cost curve downward'. But that's only true if Congress was serious about cutting costs in its existing health programs. No one believes this will happen, and even many pro-reform people are jettisoning this plank of their platform, meaning they weren't serious about it in the first place.
"A more accurate assessment would have been $1.05 trillion."
No sweetie. A more accurate assessment would have been $10 trillion.
Show me a federal program that didn't end up costing ten times what its proponents claimed it would ... and then we'll talk.
Pelosi-Reid-Obama have no credibility. Nothing they say is anything close to the truth of a matter. Just look at their ludicrous assertions with respect to the stimulus jobs. Even the Associated Press easily demonstrated that they were lying through their teeth on those job claims.
We've unfortunately elected a liar. Nobody knew that when they elected him because he had no experience in politics really.
But we know it now.
Oh, come on - plenty of government programs only cost double what they were supposed to.
Show me a federal program that didn't end up costing ten times what its proponents claimed it would...
Medicare Part D, oddly enough. Certainly contrary to my expectations.
Well, it still has time to balloon since it has only been in effect for 3 years.
the Laffer Curve does not apply at current levels of US taxation
I must have missed the part of the argument where this proposition was substantiated by fact, data, or study.
I think that you should not be so cavalier with statements that have a true/false value, as opposed to statements of value or opinion.
My question also. If the Congress raised taxes, would they increase revenue?
I suppose we shall find out soon with the expiry of the Bush tax cuts.
Derek
"2. We have a gigantic existing budget deficit, which will require hundreds of billions of dollars worth of spending cuts or tax increases."
I suspect this is why people don't actually care. So under the most recent estimates, the deficit is going to turn out to be seven kajillion dollars, instead of the six gazillion that was promised. I think that sometime around when they passed the first stimulus bill, the numbers started being so big that they stopped being real even to some of the people who were paying attention.
"We have a gigantic existing budget deficit, which will require hundreds of billions of dollars worth of spending cuts ..."
Double Jeopardy Question for Megan:
This budget year, the US Federal budget was less than the previous year - owing to budget cuts.
Question?
When was 1946?
I know it's not the only valid answer, but it's probably close to being the most recent.
Megan: You seem to me to be conflating the "gimmicks" (the so-called automatic spending cuts, which I agree, as it happens, are pretty gimmicky) with the tax revenue (the penalties) called for in the legislation. The NY Times excerpt you provide says the higher, gross cost comes from not taking into consideration this new revenue.
But if the legislation does, in the end, mandate these penalties (tax increases), then we are indeed "only" talking about the $900 billion number, no? I don't understand why we're not supposed to take the new tax (penalty) revenue into consideration. It's real money, isn't it?
Now, it may well be that the automatic spending cuts don't materialize, and so therefore the legislation ends up not being deficit neutral. But that's a matter of lack of cuts -- and ultimately flows from legislation with a net price tag of $900 billion to the Treasury. We'd have to see failure to make the cuts AND failure to enforce the penalties for the larger, $1.05 trillion figure to be operative, right?
What happens if too many people buy subsidized insurance, a la Mass? Price tag goes up; revenue goes down . . .
The point is not that it's all gimmicks; the point is that the gross cost numbers matter, because if the gimmicks fail, the gross cost means there's a higher potential budget deficit.
I see your point.
Spending a billion and taxing it back imposes deadweight loss upon the economy, not spending the billion in the first place does not. Even if it's deficit neutral, it does impose negative effects upon the economy.
So: new Federal revenue sources wanted, only less economically damaging imposts need apply.
- Value Added Tax
- Finally raising gas tax - probably on an escalator of a percent or two each year except when oil prices go well above trend.
- Carbon permits or tax.
The least damaging order is probably Carbon top, gas tax next, VAT third; but all three are clearly less damaging and distorting that the present personal and corporate tax on incomes. When the deficit is down, we scrap the old, worse taxes.
Why not?
Finally raising gas tax - probably on an escalator of a percent or two each year except when oil prices go well above trend.
I wish we had a political culture capable of implementing such a sensible idea, but I strongly suspect we do not. I think we could get away with raising the gas tax, but not on an escalator basis -- it would have to be a one shot deal. There would understandably be massive opposition to any substantial increase in the gas tax. The American people wouldn't accept -- and politicians wouldn't dare enact -- a pre-scheduled series of tax increases on gasoline spread out over a number of years. After the first one or two scheduled increases were implemented, pitchfork carrying citizens would be converging on Washington, DC demanding no further increases. There would be opposition, of course, to a one-shot gas tax increase, too. But eventually the wound would heal, and people would adjust. But hitting their wallets, say, every other year for a decade would be analogous to pissing off a tiger, and then continually poking him with a stick on a regular basis after the initial pissing off. Simply not going to happen in a country with legislative elections every other year.
If the Republican Party not only opposed any new spending programs, but also opposed any new tax cuts, I would vote for them.
If the Republican Party not only said that we must cut existing spending programs, but also said that we must raise taxes, at least a tad, I would vote for them.
If the Republican Party cared more about fiscal sanity and the budget deficit than they cared about massive tax cuts that overwhelmingly favored the well off, I would vote for them.
If the Republican Party didn't say on the one hand that they oppose new social spending because of the huge deficit problems such spending causes, but on the other hand proposed massive tax cuts without explaining how we would pay for it or offering any deficit-reduction proposals that any reasonable human being would believe Republicans would actually fight for and could pass, I would vote for them.
As long as my real choice is between Dems who would spend money to provide health care to as many human beings as possible, and Republicans who would spend money giving as large tax cuts to as many well off people as possible (note, I didn't say wealthy, but well off; yes, many recipients of GOP tax cuts are not wealthy, but they overwhelmingly are most definitely well off, and don't quite need help), I will vote for the Dems.
The second either political party, or a new third party that has a legit chance of succeeding, says that (a) it will propose no new social spending and no new tax cuts, but will fight for reducing deficits and (b) if necessary, it will cut social spending and raise taxes if necessary to fix deficits, I will be first in line to vote for that party. But as long as the only choice is between Dems spending dollars on health insurance, and GOP spending dollars on tax cuts favoring the well off, I will vote for the Dems.
Thats actually pretty close to where I am Janice. I may steal that argument. Add in the billions that interventionists in both partys feel needs to be squandered for the privilege of being the worlds police officer, with dubious benefit for taxpayers. I remember in 2008, late 2007, a political commentator made the point that ALL of the guys running for the Repub nomination were using W-nomic policies. These are not even Reagonomic policies, shrink government, cut taxes. These were W-nomic policies. Less taxes, MORE GOVERNMENT. If both parties are now for more government, I'll at least vote for the one that has grumpy fiscal conservatives in positions of power.
This is a good post except the graph. It is not much helpful in understanding since both Baucus Bill and Current Law show more or less same figures or my dumb mind is missing something there.
Arguments like these will unfortunately not be on Ezra blog and Pelosi caucus. Of course, for Pelosi to understand the cost part is expecting too much. These Democrats are essentially going with the Philosophy - if Republicans spent the money irresponsibly; we would do the same regardless of how that screws average Americans eventually.
What did the Republicans/conservatives do to control health care costs between 2000 and 2006 when they were in charge? Nothing.
What were the current Republican/conservative proposals to control health care costs? There aren't any.
What are Megan's ideas and proposals on how to control health care costs? She doesn't have any.
What's her position on the several thoughtful liberal proposals to contain health care costs ( comparative analysis, mandating best practices, having Medicare bargain down drug prices, robust public option)? She opposes them.
I'm sorry, I just can't see Megan ( or any other conservative/libertarians) as being serious about controlling health care costs. They just want to block health care reform, period, and whining about cost control is one more stage in their propaganda campaign.
Frankly, I'll believe that conservatives/ libertarians are serious about controlling costs anywhere when they propose cost controls in a government program that they LIKE- like defense spending.
Where is the long series of articles by Megan about how constant overruns in defense spending programs are creating a gigantic hole in the budget? Wait- she hasn't written them yet.
"What were the current Republican/conservative proposals to control health care costs? There aren't any."
Maybe if you read something other than the NYT you would know the GOP has many ideas on this, from creating a national market to increase choice and competition and tort reform to name just two. I think exchanges are also a GOP idea.
The Democrats of course don't actually "control" any costs, they just hide them, subsidize them, and create crazy distortions that will come back as huge tax bills and overruns.
Look, I could be persuaded to subsidize people's health insurance up to a certain income level, but let's just be transparent about it. Hand out vouchers. Create a national "bare bones" catastrophic policy that insurance companies can offer on a nationwide basis.
Oh, and don't forget we already have Medicaid, Medicare, and SCHIP - its not as if the poor don't get healthcare, so stop saying the right doesn't care. We care enough to want a viable long term solution.
Oh, and taxing benefits, that was McCains idea which Obama criticized when running for office.
Now its part of his plan, and you have forgotten who he stole it from.
Maybe if you read something other than the NYT you would know the GOP has many ideas on this, from creating a national market to increase choice and competition and tort reform to name just two. I think exchanges are also a GOP idea.
Well, you think wrong. The idea of exchanges is a Democratic-liberal idea-conceived to bring about a national market without the drawbacks of simply dropping barriers to interstate competition, thus creating a regulatory race to the bottom-a Republican idea. Ezra is probably the biggest proponent of insurance exchanges I know. As for tort reform (properly called reduction of the plaintiff's right to a jury trial), studies have shown it has little effect on cost control.
The Democrats of course don't actually "control" any costs, they just hide them, subsidize them, and create crazy distortions that will come back as huge tax bills and overruns
And the Republicans just cut taxes on the rich, regardless of its effects on the budget, the future or the economy. When was the last time the budget was balanced? Oh yeah, it was during a Democrat administration which cut welfare spending sharply. When have the Republicans cut defense-their favorite government program? The last time it snowed in hell.
Look, I could be persuaded to subsidize people's health insurance up to a certain income level, but let's just be transparent about it. Hand out vouchers. Create a national "bare bones" catastrophic policy that insurance companies can offer on a nationwide basis.
Oddly enough, all of these ideas-or similar ones- are in the House bill. Maybe you should look at them, instead of reading Republican talking points about "gumint" takeover of health care .
http://voices.washingtonpost.com/ezra-klein/2009/07/the_house_releases_its_health-.html
Oh, and don't forget we already have Medicaid, Medicare, and SCHIP - its not as if the poor don't get health care, so stop saying the right doesn't care. We care enough to want a viable long term solution.
And who fiercely opposed every single one of those programs? The right. I was paying attention, even if you weren't. The right has a viable long term solution? Well, by all means, let's hear it. What I've heard so far sounds to me like "Don't get sick-and if you do get sick or injured because of provider misconduct , don't sue".
Oh, and taxing benefits, that was McCains idea which Obama criticized when running for office.
Er, its part of the Baucus bill. Obama isn't pushing it. Try to keep up.