James Pethokoukis

Politics and policy from inside Washington

Stealing from Social Security to pay for healthcare reform

Oct 20, 2009 13:53 UTC

Does BaucusCare raid Social Security to pay for healthcare reform? Sure seems like, according to Andrew Biggs of AEI:

Baucus’s plan purportedly would improve the budget balance by $81 billion from 2010 through 2019, and in 2019 itself would cut the deficit by $12 billion. … CBO breaks down the Baucus plan’s budgetary effects into those occurring “on budget” (where the substantive policy changes are) and those “off budget” (meaning through the Social Security program). The Baucus plan’s on-budget provisions would reduce the ten-year budget deficit by a tiny $1 billion and in 2019 would increase borrowing by $6 billion. …

Meanwhile, the Baucus plan’s fiscal skullduggery takes place off-budget. Social Security revenues would increase by $80 billion over ten years, with an $18 billon increase in 2019 alone. Around 3 million individuals would leave employer-sponsored health coverage — which is exempt from taxes — to purchase insurance through a subsidized “exchange.” Leaving employer-sponsored coverage would raise workers’ taxable wages and thereby boost Social Security revenues. Millions more would trade a portion of their insurance benefits for higher wages to avoid a new tax on high-cost policies. By skimming the new Social Security taxes, the Baucus plan appears to significantly cut the deficit when, in truth, it balances only by the skin of its teeth.

This is perhaps the clearest example of “raiding the trust fund” on record.  …  The plan does not simply rely on existing Social Security surpluses but creates new ones to offset higher spending on health coverage. Without new Social Security revenues the plan would not balance and, if the president is to be believed, would face a presidential veto. It’s that simple: no new Social Security taxes, no new spending.

Healthcare math doesn’t work

Oct 20, 2009 13:36 UTC

Ed Yardeni runs the numbers:

Nominal GDP rose at a compounded rate of 4.2% from 1999-2009. It isn’t likely to grow any faster over the next 10-20 years. However, extrapolating the same growth rate of per capita retirement spending (5.1%) and adding the higher projected growth of the senior population (3.0%) suggests that social welfare outlays might grow by 8%. That’s significantly higher than the likely growth of nominal GDP (say 5%). Since the tax base can’t grow faster than nominal GDP on a sustainable basis, something has to give on the per capita spending side.

I’m not sure how we are going to pay for the welfare needs of all the Baby Boom seniors. The only logical solution is to continue to extend the retirement age for beneficiaries. Bismarck invented social security and picked 65 as the retirement age figuring that few Prussians would live that long. Retirement is a rather modern concept. In the not too distant past, people worked until they couldn’t, and then passed away soon after. Now we are living into our 70s, 80s, and even 90s.

Healthcare reform effort stumbles over spending and taxes

Oct 16, 2009 13:43 UTC

The great Dan Clifton of Strategas Group nails the difficulties of paying for reform through spending cuts or tax hikes:

But these goals are now in jeopardy as the process moves forward. Doctors want legislation to permanently fix their payments holding a cost roughly of $250bn and Senators are pushing for an expansion of coverage. Both initiatives raise the fiscal cost of healthcare program to roughly $1.2 trillion (violating the total cost goal) and there are no additional options to pay for this expansion (violating the deficit neutral goal). Not only is the cost of spending going up, but the push is now to lower the impact of the revenue raisers as unions push to reduce the tax on high end insurance plans. This provision is one-quarter of the total offsets for healthcare and reducing that further exacerbates the gap between revenues and spending. Also, this is viewed as a key provision to reduce the cost of healthcare and will added further headwinds to passage.

COMMENT

Don’t knock it. If a company drops coverage and doesn’t raise salaries, the savings presumably come under the corporate income tax rate, which last I knew was 40%.

Posted by Pete Cann | Report as abusive

3 myths about ObamaCare, the Baucus bill and healthcare reform

Oct 16, 2009 13:17 UTC

I just wanted to highlight some items from a previous post on healthcare reform:

1) It costs $829 billion.

It accomplishes this financial feat, however, through budgetary trickery. The plan includes a start year of 2010, even though no money is spent that year and just $14 billion through 2013. Cost the plan out from 2011 through 2020 and it suddenly morphs into a trillion-dollar plan. Indeed, the average annual cost from 2015 through 2019 is $150 billion a year

2) It will cut entitlement spending.

The CBO projects $81 billion in savings over the first decade and then “the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion.”

Great news. But those savings will materialize only if Congress actually cuts a projected $400 billion in government healthcare spending — including Medicare reimbursements to hospitals, doctors and other providers –  over 10 years.

Skepticism here is warranted. Previous congressional promises to cut reimbursements haven’t panned out. And Senator Debbie Stabenow, a Michigan Democrat, has just introduced a bill that would actually increase Medicare fees to doctors by $247 billion over the next decade  That $247 billion should, by all rights, be added to the cost of the Baucus bill. (Interestingly, if Congress actually stuck to the cuts, the tax increases would not be necessary, according to the Tax Foundation.)

3) It only raises taxes on companies.

Then there are the hidden fees. The Baucus bill imposes a $200 billion excise tax on expensive insurance plans. That’s a cost insurers will certainly pass onto consumers, nearly 90 percent of whom would make under $200,000, according to the Joint Committee on Taxation.  That kind of sounds like a stealth middle-class tax increase.

And you can be sure few taxpayers understand that a catch accompanies new government subsidies to cover the cost of private insurance. Those subsidies phase out as incomes rise. The result is a huge effective tax increase. As the CBO puts it: “Marginal tax rates would go up by about 22 percentage points for all families whose income was between 100 percent and 400 percent of the poverty level.”

COMMENT

3 myths. Here’s the deal. How far are the dumbascraps ready to go. Harry Reid speaks of the nuclear option. What’s next illegal alien 30 million amnesty and union workers with lower wages since there will be 30 million newly legal citizens competing for their jobs. All this talk about the nuclear option…just let reid do it. He’s already gonna be out of office in 2010. Watch Corzine go by by. Obama’s approval is 47% in rasmussment. Facts are if the dumbascraps are willing to destroy america like that then they who can support that garbage. Hey hispanic and white women come back home to the republican party. the black mentality will only take you to the poor house.

Posted by Sarah | Report as abusive

Actually, you don’t have to raise taxes to pay for healthcare

Oct 15, 2009 17:37 UTC

Great piece of analysis from the Tax Foundation:

A new analysis by us finds that over a 20-year period, the health care bill written by Sen. Baucus and passed Tuesday by the Senate Finance Committee includes enough spending cuts in Medicare and other current government health programs to reduce the budget deficit over the long term, even without a proposed excise tax on “Cadillac” health plans.

CBO projects that cuts in Medicare and other health programs would save $404 billion between fiscal year 2010 and 2019. Assuming the savings from Medicare cuts continue growing at the same rate beyond 2019, savings could reach a total of $1.8 trillion over the next 10-year period, 2020-2029, for a total deficit reduction of up to $988 billion over 20 years. If Congress were considering a 20-year budget window instead of ten years, Chairman Baucus’s proposed excise tax on Cadillac health plans would not be necessary to pay for the plan.

Me: Of course the spending may not happen, while the tax increases most assuredly will. Such is the way of Washington.

Would Obama’s new regulator ban ObamaCare?

Oct 15, 2009 16:57 UTC

Would the Baucus healthcare reform plan pass muster with the Consumer Financial Protection Agency? That’s the new regulator the Obama White House wants to create to protect Americans from deceptive or confusing mortgages, loans and credit card agreements that contain hidden fees, costs, rates or other time bombs potentially harmful to one’s financial health.

Good thing for Democrats that the proposed consumer agency — some incarnation of which will almost certainly make it into law — won’t have health insurance  as part of its regulatory portfolio. If it did, it might ban BaucusCare.

Its cost structure, for instance, is reminiscent of a teaser-rate mortgage. The whole deal seems affordable at first — but then costs skyrocket.

The Congressional Budget Office assigned a 10-year cost estimate  of $829 billion to the preliminary version of the Baucus bill. As such, it meets the president’s goal of a bill of $900 billion or less – and avoiding a $1 trillion price tag sure to cause sticker shock among voters.

It accomplishes this financial feat, however, through budgetary trickery. The plan includes a start year of 2010, even though no money is spent that year and just $14 billion through 2013. Cost the plan out from 2011 through 2020 and it suddenly morphs into a trillion-dollar plan. Indeed, the average annual cost from 2015 through 2019 is $150 billion a year

Democrats, to be sure, have powerful rejoinder: the bill may cost a lot, but it actually saves moneycompared with  doing nothing. The CBO projects $81 billion in savings over the first decade and then “the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion.”

Great news. But those savings will materialize only if Congress actually cuts a projected $400 billion in government healthcare spending — including Medicare reimbursements to hospitals, doctors and other providers –  over 10 years.

Skepticism here is warranted. Previous congressional promises to cut reimbursements haven’t panned out. And Senator Debbie Stabenow, a Michigan Democrat, has just introduced a bill that would actually increase Medicare fees to doctors by $247 billion over the next decade  That $247 billion should, by all rights, be added to the cost of the Baucus bill. (Interestingly, if Congress actually stuck to the cuts, the tax increases would not be necessary, according to the Tax Foundation.)

Then there are the hidden fees. The Baucus bill imposes a $200 billion excise tax on expensive insurance plans. That’s a cost insurers will certainly pass onto consumers, nearly 90 percent of whom would make under $200,000, according to the Joint Committee on Taxation.  That kind of sounds like a stealth middle-class tax increase.

And you can be sure few taxpayers understand that a catch accompanies new government subsidies to cover the cost of private insurance. Those subsidies phase out as incomes rise. The result is a huge effective tax increase. As the CBO puts it: “Marginal tax rates would go up by about 22 percentage points for all families whose income was between 100 percent and 400 percent of the poverty level.”

Understated costs, hidden fees, deceptive advertising – why, there ought to be a law!

Actually, the flawed Baucus bill just needs to be prevented from becoming law.

Study: Democratic healthcare reform could increase costs

Oct 12, 2009 13:56 UTC

America’s Health Insurance Plans, an insurance industry trade group, paid for this PricewaterhouseCoopers study that found Democratic healthcare reform would sharply raise the price of private healthcare insurance. The typical premium could rise by $4,000 by 2019. Here is the executive summary:

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A windfall profits tax? Why won’t the 1970s stay dead?

Oct 9, 2009 13:45 UTC

Apparently there is no idea bad enough that it can’t be resurrected by desperate politicians, as veteran Capitol Hill watcher Pete Davis notes at the must-read Capital Gains and Games blog:

This morning at a closed House Democratic caucus, a proposal to impose a windfall profits tax on health insurers to help pay for health reform gained support.  No details were presented, but the politics were right as numerous members emerged to endorse the idea.  Some members said as much as $100 b. could be raised over ten years.  It’s doubtful the Senate could pass it, but this is definitely a shot across the bow of health insurers.

The last windfall profits tax on oil, actually an excise tax, was enacted on April 2, 1980 as price controls were phased out.  It was repealed on August 23, 1988.  It was projected to raise $393 b. based upon oil price assumptions that proved so incorrect that it only actually raised $80 b.  On a net basis, after taking into account income tax deductions and lower receipts from the sale of oil from federal properties, the windfall profits tax only raised $38 b.  To say the windfall profits tax failed to achieve its objectives is an understatement.  This Congressional Research Service report provides the evidence.

Why the cost of healthcare reform will rise

Oct 8, 2009 16:51 UTC

A great analysis of the Baucus healthcare bill by Jim Capretta. Read the whole thing, but this is a key graph:

Congressional Democrats are already racing ahead with amendments to demonstrate their commitment to insurance “affordability” for the middle class.  It would be only a matter of time before Congress responded to the inevitable political pressure and expanded the entitlement, perhaps in steps, to larger and larger numbers of Americans.

CBO: Baucus healthcare bill saves $81 billion over ten years

Oct 7, 2009 20:39 UTC

From the Congressional Budget Office:

According to CBO and JCT’s assessment, enacting the Chairman’s mark, as amended, would result in a net reduction in federal budget deficits of $81 billion over the 2010–2019 period. The estimate includes a projected net cost of $518 billion over 10 years for the proposed expansions in insurance coverage. That net cost itself reflects a gross total of $829 billion in credits and subsidies provided through the exchanges, increased net outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for small employers; those costs are partly offset by $201 billion in revenues from the excise tax on high-premium insurance plans and $110 billion in net savings from other sources. The net cost of the coverage expansions would be more than offset by the combination of other spending changes that CBO estimates would save $404 billion over the 10 years and other provisions that JCT and CBO estimate would increase federal revenues by $196 billion over the same period. In subsequent years, the collective effect of those provisions would probably be continued reductions in federal budget deficits. Those estimates are all subject to substantial uncertainty.

By 2019, CBO and JCT estimate, the number of nonelderly people who are uninsured would be reduced by about 29 million, leaving about 25 million nonelderly residents uninsured (about one-third of whom would be unauthorized immigrants). Under the proposal, the share of legal nonelderly residents with insurance coverage would rise from about 83 percent currently to about 94 percent. Roughly 23 million people would purchase their own coverage through the new insurance exchanges, and there would be roughly 14 million more enrollees in Medicaid and CHIP than is projected under current law. Relative to currently projected levels, the number of people either purchasing individual coverage outside the exchanges or obtaining coverage through employers would decline by several million.Although CBO does not generally provide cost estimates beyond the 10 year budget projection period (2010 through 2019 currently), Senate rules require some information about the budgetary impact of legislation in subsequent decades, and many Members have requested CBO analyses of the long-term budgetary impact of broad changes in the nation’s health care and health insurance systems. However, a detailed year-by-year projection, like those that CBO prepares for the 10-year budget window, would not be meaningful because the uncertainties involved are simply too great.

All told, the proposal would reduce the federal deficit by $12 billion in 2019, CBO and JCT estimate. After that, the added revenues and cost savings are projected to grow more rapidly than the cost of the coverage expansion. Consequently, CBO expects that the proposal, if enacted, would reduce federal budget deficits over the ensuing decade relative to those projected under current law—with a total effect during that decade that is in a broad range between one-quarter percent and one-half percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates.

COMMENT

And there you have it. Money over human beings. Healing your injuries was nothing more than a means to a payment end. Money is a lifeless construct. It takes different forms but in the end it does nothing for you.

Money needs to be put in its place. And that means using it for its intended purpose which is to facilitate the exchange resources and nothing more. Profit motive and interest distort the purpose of money and elevate it above human beings in importance.

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