James Pethokoukis

Politics and policy from inside Washington

Health reform is faith-based deficit reduction

March 23, 2010

Healthcare reformers in Washington are asking America’s creditors to take a leap of faith. The plan is supposed to cut future budget shortfalls. But it depends on politicians following through on cuts and taxes, a deficit commission imposing additional discipline, and untested reforms working as expected. Owners of U.S. government debt shouldn’t bank on it.

The numbers add up on paper, at least according to the nonpartisan Congressional Budget Office. Its estimate for the 10-year cost of reform is $940 billion, with cost cuts elsewhere and new taxes turning that into a $138 billion net reduction in the projected federal deficit over a decade. Go out another 10 years, and the plan racks up another trillion or so in projected savings.

One problem is that despite being nonpartisan, the CBO’s methods are still dictated by Congress. That means Capitol Hill can get away with financial chicanery such as front-loading some tax increases and delaying spending plans — something that can help the numbers work because, in a fixed 10-year period, the tax income is counted for more years than the spending.

And then there are the promised but politically unpalatable fiscal fixes that fall to a future president and Congress. Proposed cuts in federal payments to hospitals, for instance, are delayed a decade. If today’s lawmakers are punting such measures, it’s hard to have any confidence their successors will show any more mettle.

The reformers hope more can be saved if the healthcare plan’s cost-control pilot projects bear fruit and are then widely implemented. But the CBO doesn’t give these projects much credit. And even the White House admits that rising healthcare costs could still threaten America’s finances. That’s one reason why President Barack Obama is keen on a bipartisan, deficit-cutting panel. But its potential efficacy is widely derided by veteran budgeteers.

At least with healthcare an effort is being made to do no fiscal harm. That was not the case with major spending initiatives of the past decade for which balancing cost cuts or tax increases weren’t attempted. But with the U.S. ratio of debt to GDP still on track to double in a decade, it will take a leap of faith for America’s creditors to retain their enthusiasm for Treasury bonds.

Comments

Saying there is an effort “to do no fiscal harm” is only accurate in terms of the deficit. There are other aspects to the fiscal picture, such as the effect on the overall economy. There is no doubt the plan pays for itself by taking the wealthy. While proponents argue the economic damage will be compensated by gains in poor and lower-middle class income brackets, even if that is true the intent is aid one group of people at the expense of another. This may (if one is optimistic) produce no “fiscal harm” to the federal balance sheet. But the effect on individuals will not be so even-handed.

Posted by hoipolloi | Report as abusive
 

“At least with healthcare an effort is being made to do no fiscal harm. That was not the case with major spending initiatives of the past decade for which balancing cost cuts or tax increases weren’t attempted”

Boy, do I disagree. The whole thing has been “button, button, who has the button”. It starts with the 10 years of taxes and the 6 years of benefits. It follows with ignoring the “Doc Fix” that we know will be passed. No legislator wants to be tagged with forcing doctors out of Medicare and Medicaid and leaving those patients high and dry.

That is followed by not allowing the CBO to do dynamic scoring. In other words, the scoring assume if their is a tax on earnings over $250K, people will take no steps to reduce their taxes (like not exceeding $249K).

There is nothing in the financing of this bill that is believable.

Posted by Rick Caird | Report as abusive
 

We can also add, that a large part of the legislation will increase health insurance premiums considerably. So, not only is a lot of the cost driven to the states via Medicaid, so is another large part of the costs being driven to the people buying health insurance. My guess is that two thirds of the actual costs of this legislation is landing outside of the Federal government.

Posted by Rick Caird | Report as abusive
 

Here comes the Value Added Tax!

Posted by Parabellum | Report as abusive
 

This bill is a ripoff of lies, only possible because so many voters and the MSM are “in the tank” for Socialist Democrats and Obama.

However, this is the beginning of the end for Socialists, Progressives, Marxist Democrats in Congress and in the White House.

November 2010 and 2012 will return large majorities to Republicans and the Socialist Democrats are finished for the forseeable future. This bill will be reversed one way or another. I believe it will be overturned completely by the Supreme Court before 2012.

Posted by jgreene | Report as abusive
 

This bill is designed as an irrevocable “ratchet” up of Government spending and control.

The Left has calculated that even if it gets kicked out of office, this travesty of a bill will remain in effect, and when they inevitably return, they will ratchet it up further (Public Option, complete takeover, etc.).

Fir the sake of the future of the country, one only hopes they’ve miscalculated and the bill gets thrown out for its myriad areas of unconstitutionality. Or if the Supremes are cowed by the same cabal that so rudely (and incorrectly) treated them at the Shame of the Union address, then this Frankenstein piece of Machiavellian Central Planning may indeed remain in effect and the Decline and Fall of the American Empire will have truly commenced.

Posted by The Epicure | Report as abusive
 

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