James Pethokoukis

Politics and policy from inside Washington

Becker on on what healthcare reform should look like

Mar 30, 2010 19:28 UTC

An amazing piece of healthcare analysis by the University of Chicago’s Gary Becker. The whole analysis deserves reading, but a few key points:

1) Out-of-pocket spending accounts for only about 12% of total American spending on healthcare, whereas the share of out-of –pocket spending is over 30% in Switzerland, a country considered to have one of the better health delivery systems. Partly because of this major difference, health care takes 11% of Swiss GDP compared to the much higher American percentage. … As far as I can discover, nothing in the new bill really tries to raise the out-of-pocket share, and some changes would reduce it even further.

2) Another desirable reform is to reduce the reliance of the American health system on tax-deductible employer-based insurance since tax deductibility has encouraged low deductibles and low co-payments. … The bill does propose to phase out tax deductibility for the more expensive plans by 2018, but who knows if that will ever be implemented.

3) Health savings accounts (HSAs) have been one of the most important innovations in the health care field during the past decade. … There is little mention of HSAs in the new bill, and certainly no encouragement to their expansion.

4) The American health care delivery system needs greater transparency and easier access to medical information by consumers. The bill takes a valuable step in this direction by encouraging the development of online medical records and medical histories for all individuals, no matter how many doctors they have seen, or how often they have moved.

5) Proponents of the bill claim it will save hundreds of billions of dollars during the next ten years from cuts in Medicaid and Medicare, but it is far from obvious how such cuts will materialize. … . I do not see how the bill will lead to Medicare savings since there is no increase in out of pocket payments by Medicare enrollees, and Congress is likely to continue to override any scheduled cuts in payments to Medicare doctors and others.

6) The only truly efficient way to handle the pre-existing condition issue is to try to develop an insurance system in which young adults, who generally have few serious existing medical conditions, can take out long-term healthcare insurance.

7) Although the impact on the costs to taxpayers of the more than 40 million uninsured persons in the US is usually greatly exaggerated, I do support a requirement that everyone has health insurance that covers medical catastrophes.

Don’t fund healthcare by taxing capital

Mar 25, 2010 02:32 UTC

Washington will have difficulty producing a stranger bit of public policy than raising investment taxes to pay for healthcare reform. Remember, the consensus critique of the U.S economy is that it’s been plagued by too much consumption and debt. O.K., fine. So the answer is penalizing savings and investment? Really? Pure Bizarro economics for that and a number of other reasons:

1) It will hit the middle-class eventually. Wealthier Americans — families making over $250,000, individuals $200,000 — are the supposed targets here. Add in the new 3.8 percent Medicare tax to the year-end expiration of the 2003 Bush tax cuts, and they will see their capital gains and dividend rates will soar from 15 percent currently to 23.8 percent and 43.4 percent in 2013, respectively. But the income levels aren’t indexed for inflation. So the taxes will reach further down the income ladder each year. Assuming steady inflation, the tax in 2013 will actually affect households making over $226,000 and individuals $183,000. Another crack in the Obama tax pledge.

2) It is an expensive way to raise government revenue. Most studies show that raising the cost of capital lowers business investment and productivity. That translated into a lower standard of living. Hardly surprising, really. Taxes matter. Tax something and you tend get less of it. That’s a principle embedded, for instance, in calls to put a price on carbon, something the White House supports. Or in this, less economic growth.
3) It creates an accidental industrial policy. People should make economic decisions based on economic merit and efficiency, not because the tax code puts its thumb on the scale. For instance: Companies are financed either by issuing debt or selling shares. By raising taxes on equity, you further bias the tax code toward debt since interest can already be deducted from taxes. This imbalance was something an Obama tax commission, led by Paul Volcker, thought needed remedy. Instead, it will be worsened. The differing cap gains and dividend rates also tilt the tax code in favor of profit-poor companies (but with bright prospects and high stock price appreciation) over those throwing off cash.

4) It moves the tax code in the wrong direction. Economists favor paying for healthcare, as well as cutting the U.S. budget gap, with consumption taxes. (That would include eliminating the mortgage interest deduction to reduce housing consumption.) That could be a straight value-add tax. Or, better, a Hall Rabushka flat consumption tax. Actually, taking investment taxes to zero is a quick and dirty way to create a consumption tax since all you can do with income is save it or spend it. Of course, cutting spending should be the first order of business. Create a better tax system, reduce expenditure and then see where you are at as far as the deficit goes.

5) It puts politics over sound policy. For an administration that tries to follow economic consensus, this is an odd deviation. Politics explains it. Consumption taxes are broad taxes. The only taxes Washington finds palatable are those on upper incomes, such as found on Wall Street. But taxing the capital they provide to pay for healthcare will only sicken the American economy.


There’s currently a Medicare prescription drug loophole between roughly $2700 and $6200 worth of medicine. The reform bill each supplies a $250 rebate to Medicare beneficiaries that fall into this loophole and offers for the gap’s closing.healthcare fund

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Health reform is faith-based deficit reduction

Mar 23, 2010 12:38 UTC

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.


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.

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15 healthcare winners and losers, in a phrase

Mar 22, 2010 16:43 UTC

1. Obama the Democrat. Achievement of 50-year Dem goal means no 2012 nomination challenge. W

2. Obama the Centrist. Not with an all-Dem bill that has upside-down approval ratings.L

3. Big Pharma. No Canadian drugs, plus they get more generic biotech protection. W

4. Big Insurance. Loads of new regulations plus wimpy mandate that means new customers might not show. L

5. Treasury holders. Tax hikes and spending cuts for coverage expansion rather than Medicare solvency. L

6. 2010 GOP. Loss ensures motivated base for midterms. W

7.Supreme Court. May have to decide constitutionality of politically explosive individual mandate. L

8. Rep. Paul Ryan. Confrontation with Obama cranks up profile. W

9. Majority Leader Steny Hoyer.Speaker Nancy Pelosi not going anywhere, even if a big November loss. L

10. Mitt Romney. Anger over Obamacare could seep into RomneyCare. L

11. Mitt Romney. Expertise in healthcare could boost him in 2012. W

12. Investors. Overall, cap gains taxrates are rising 60 percent. L

13. Government workers. Uncle Sam is going to lots need more to administer this. W

14. Federalism. Top-down health mandate that some states may not be able to afford. L

15. China. More pressure to enhance its own safety net to boost consumption. W (for US, at least)


Romney is toast and rightfully so. Passage of Massacare shows abysmally bad judgment. Let’s go for better candidates.

Posted by Pat Duggan | Report as abusive

How ObamaCare is killing free trade

Mar 10, 2010 17:37 UTC

Brazil’s threat of tariff retaliation over U.S. cotton subsidies is only the latest eruption of rising protectionism around the world. President Barack Obama isn’t doing much to quell protectionist sentiment in the U.S., either. His passivity could prove costly.

Not that Obama has a problem with trade. In his State of the Union speech to Congress last January, he stated an ambitious goal of doubling U.S exports by 2015. It is trade policy that he seems uncomfortable with. That bold declaration in the speech was a direct result of lobbying from Obama’s economic advisers. But the wonks aren’t driving U.S trade policy in the Obama administration. The political team is. Its priority is passing healthcare reform. To pass healthcare reform, Obama needs his core union support. And a push for new trade agreements would alienate Big Labor.

So Obama has not nudged Congress to pass long-stalled treaties with Colombia, Korea and Panama. Instead, the emphasis has been on get-tough actions such as slapping preliminary duties on tires from China and bricks from Mexico. Nor has he tried to energize the Doha trade talks, pushing Brazil to first litigate via the World Trade Organization and now retaliate. And in the U.S., high unemployment has encouraged protectionist forces in Congress. A bipartisan House group just introduced a new bill to abandon the North American Free Trade Agreement, while one in the Senate is pushing for action against China because of its weak currency policy.

And the situation could worsen. To appease Congress and continue its recent populist tilt, the Obama administration will likely toughen language about China in the Treasury Department’s April report on currency policy. The next step would be to declare China a currency manipulator in the October report, right before the November mid-term elections.

If Obama really wants to rebuild America’s international stature and boost the global economy, trade is a perfect place to start. At the moment, world trade is projected to expand by just 4.3 percent in 2010 and by 6.2 percent in 2011, according to the World Bank. Not good enough, given a big drop in 2009. Once healthcare is either passed or defeated, Obama needs to get that trio of trade agreements passed. And he needs to defuse tensions with China. In short, Obama needs to lead.



I believe the name of your plan is “Reign in Hell”, right?


We’ve had our bit o’Hell!

Let’s let all those kleptocrats in the turd world and the U.N. General Assembly have theirs.

Let’s let most of the EUropansies defend themselves for a change.

Most of the rest of the world hates the U.S. even when we are risking U.S. lives and spending billions in U.S. money to help them after tidal waves, earth quakes, typhoons, invasions, local economic crisis, famines, etc.

Screw them all. No more blood or treasure to help anyone aside from allies we can really count on. Let’s put our own house in order first and just elliminate any likely threats in the quickest, cheapest, most effective manner possible

Viva Fortress America!

Posted by Armageddon Rex | Report as abusive

5 obstacles for ObamaCare

Mar 10, 2010 13:59 UTC

How is the healthcare reform endgame shaping up? The always insightful Dan Clifton of Strategas Research boils it down (as outlined by me):

1) The timeline continues to get pushed back which essentially means healthcare will not get done before recess and members will get an earful during the break (support for healthcare is upside down and opposition is twice as intense relative to support). Because the bill is unpopular, members are not pressing to vote on this bill.

2) According to one press report the House wants to skip passing the Senate bill entirely and use a “self executing rule” when the reconciliation bill passes then the Senate bill would also automatically pass. Just the fact that this is being contemplated shows how difficult it is for the House to round up the votes for passage, even before the abortion issue is taken into consideration.

3) And Sen. Conrad threw cold water on this self executing rule insisting that the Senate bill needs to be signed into law before the reconciliation fix could be enacted.

4) Another major hurdle developing is the question about whether the House bill can go right to the Senate floor – the legislation would have to go through committee. And while this delays the process (when time is of the essence) the more important point is that this could kill the bill if the legislation needs to go through the Senate Finance Committee with Blanche Lincoln being the deciding vote. Note she came out against reconciliation again yesterday despite her primary challenge.

5) And then there is the abortion issue. Since reconciliation rules will not permit a ban on abortion funding as needed to get the remaining votes for healthcare, the best strategy for passage was to pressure Senate Republicans not to oppose the provision in the Senate bill. The Catholic Bishops were successful in a similar move in the House last November but the Senate Republicans made it clear yesterday they will oppose the language, even if they agree with the policy. The only path forward in the House is to keep all the supporters of this bill in the yes column, get nearly all the Stupak supporters to defect despite their opposition to the Senate abortion language, and then convert a handful of no votes to yes, despite the fact that 37 of the 38 Dems that voted no are from Republican districts. And all this with a short timeline.


In other words, passage is rather unlikely. Perhaps Mr. Obama will then get the message about lost causes.

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ObamaCare’s budget chicanery

Mar 9, 2010 15:43 UTC

David Brooks in the NYT outlines many of the way Democrats are trying to game the CBO budget analysis of ObamaCare:

1) There is the doc fix dodge. The legislation pretends that Congress is about to cut Medicare reimbursements by 21 percent. Everyone knows that will never happen, so over the next decade actual spending will be $300 billion higher than paper projections.

2) There is the long-term care dodge. The bill creates a $72 billion trust fund to pay for a new long-term care program. The sponsors count that money as cost-saving, even though it will eventually be paid back out when the program comes on line.

3) There is the subsidy dodge. Workers making $60,000 and in the health exchanges would receive $4,500 more in subsidies in 2016 than workers making $60,000 and not in the exchanges. There is no way future Congresses will allow that disparity to persist. Soon, everybody will get the subsidy.

4) There is the excise tax dodge. The primary cost-control mechanism and long-term revenue source for the program is the tax on high-cost plans. But Democrats aren’t willing to levy this tax for eight years. The fiscal sustainability of the whole bill rests on the naïve hope that a future Congress will have the guts to accept a trillion-dollar tax when the current Congress wouldn’t accept an increase of a few billion.

5) There is the 10-6 dodge. One of the reasons the bill appears deficit-neutral in the first decade is that it begins collecting revenue right away but doesn’t have to pay for most benefits until 2014. That’s 10 years of revenues to pay for 6 years of benefits, something unlikely to happen again unless the country agrees to go without health care for four years every decade.

6) There is the Social Security dodge. The bill uses $52 billion in higher Social Security taxes to pay for health care expansion. But if Social Security taxes pay for health care, what pays for Social Security?

Me: I have blogged about many of these dodges over the past months. They make WH claims about “bending the curve” a joke. This bill will surely cost far more than the CBO anticipates.


just like every other Washington program.

New Obama health plan moves hard in wrong direction

Feb 22, 2010 18:06 UTC

Well, let’s see: It costs $75 billion more than the Senate plan. It delays the one sure-fire cost-control measure, the tax on high-end plans. And it gives the federal government new authority to block insurers from increasing premiums. That last one is particularly wrong-headed. The policy thrust of ObamaCare was supposed to be to reduce costs by changing how healthcare was delivered, not through rationing. But price caps are nothing more than rationing. As Cato’s Mike Cannon puts it:

As I have written elsewhere, artificially limiting premium growth allows the government to curtail spending while leaving the dirty work of withholding medical care to private insurers: “Premium caps, which Massachusetts governor Deval Patrick is currently threatening to impose, force private insurers to manage care more tightly — i.e., to deny coverage for more services.” No doubt the Obama administration would lay the blame for coverage denials on private insurers and claim that such denials demonstrate the need for a so-called “public option.
Who knows if this thing can actually pass, but using reconciliation to do it will only amp up the partisan and polarized nature of Congress.


This health bill will force the average small business to fire 3-4 workers on account of the hefty fines. I work for http://storyburn.com, and I can see why folks are pulling their hair out over the temp job being the new full time job, China stealing our mojo, Wall Street bonuses at record highs, and people taking a 10% paycut and asked to work unpaid overtime. We have the most read home foreclosure story as well as several job hunting stories

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Taxing investments to pay for healthcare reform is a bad idea

Jan 14, 2010 17:50 UTC

Labor unions are balking at President Barack Obama’s move to pay for healthcare reform by taxing their gold-plated health benefits. So Democrats are considering also taxing investment income. Not only would that approach make reform more costly and potentially worsen the U.S. fiscal deficit, it could politically doom the whole plan.

As things stand, the year-end expiration of the 2003 Bush tax cuts means top rates on capital gains and dividends automatically rise unless Obama and congressional Democrats intervene. Now, in addition to that, if organized labor prevails in killing a plan to slap a 40 percent excise tax on its members’ pricey health plans, investors can expect to tack on an additional one or two percentage points. That would push the peak cap gains rate to 22 percent and dividends to 42 percent.

To appease these powerful special interest groups some congressional Democrats suggest for the first time extending a portion of the current 3 percent Medicare payroll tax on labor income to investment income for individuals making $200,000, a group that pays some 80 percent of investment taxes. With this source of revenue – perhaps $10 billion a year or more — the tax on union health plans could be scaled way back.

Setting aside the negative impact this could have on the formation of risk capital and savings more broadly, a health plan tax is a key mechanism for controlling rising costs. Expensive and untaxed health plans encourage overconsumption of healthcare. Arguably all deductions for health benefits should be removed to eliminate this distorting subsidy.

Taken as a whole, new investment taxes run the risk of weakening Senate support for reform – the loss of even a single vote would be lethal — since the upper chamber has shown little interest in new taxes on capital. Coming at a time when Americans’ net worth has fallen $11 trillion, it shouldn’t be hard to find one principled Senator willing to quash this misguided attempt to succor labor at the expense of investors.

Is a healthcare deal close? Maybe not

Jan 13, 2010 19:12 UTC

This compilation of opinion from the great Igor Volsky at the Wonk Room

- Ways and Means Chairman Charlie Rangel (D-NY): “Normally you’re just dealing with the Senate and they talk about 60 votes and you listen to them and cave in, but this is entirely different,” he said. “I’m telling you that never has 218 been so important to me in the House.”

- Rep. Anthony Weiner (D-NY): “We keep hearing them squeal like pigs in the Senate that they had a tough time getting to 60,” Weiner said. “Well, it wasn’t particularly a picnic for us to get to 218. Generally speaking, the Senate kabuki dance has lost its magic on those of us in the House.”

- Rep. Pete Defazio (D-OR): “They only got two votes to spare in the House. I think this will be a tougher negotiation than they think.”

- Rep. Emmanuel Cleaver (D-MO): “In spite of the fact that the news media is proclaiming this bill approved, I’m not in a position, based on everybody I’ve spoken with to agree with them. …I think what comes out may be disapproved and then in 30 days, when they bring something else forth — because we’ve never been this close before — but it may take a ‘no’ vote in order to get people back on board.”

- Rep. Rosa DeLauro (D-CT): “This is no walk in the park. This is bare-knuckled policy and politics to get this done.”

A “senior House Democrat” told Roll Call that “no progress has been made this week on any of the key sticking points in the House and Senate bills, despite steady meetings with union leaders and the White House.” “There’s no agreement. No deal on anything. Nothing,” the lawmaker said.



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