Editor’s note: This article was initially published in The Daily Gazette, Swarthmore’s online, daily newspaper founded in Fall 1996. As of Fall 2018, the DG has merged with The Phoenix. See the about page to read more about the DG.
After decades of Democrats’ efforts to achieve universal health care, President Obama will sign into law a historic health care reform bill.
Obama remarked on Monday, “We didn’t give in to mistrust or to cynicism, or to fear, instead we proved that we are still a people capable of doing big things, and tackling our biggest challenges.”
Unfortunately, however, it is only with cynicism that we can reasonably analyze the bill’s purported savings and efficacy.
In a letter to House Speaker Nancy Pelosi made available to the public on Monday, CBO Director Doug Elmendorf explained that if the language of the reconciliation proposal (HR 4872) and HR 3590, The Patient Protection and Affordable Care Act were enacted, the U.S. would observe a net reduction in federal deficits of $143 billion over the next 10 years.
Wahoo! This is great news!
Sadly, the number that’s making House Majority Whip James Clayburn (D., S.C.) “giddy” is only a reflection of budgetary wizardry, Democrats’ hidden tax hikes, and disingenuous commitments to tax and spending changes Democrats won’t actually enact.
Recall that the CBO follows “unified budget” accounting, meaning that the CBO analyzes all spending and tax projections associated with a bill, whether or not they’re directly related to the policy issue at hand. For instance, within this health care bill is an amendment that changes the way federal education grants are serviced, which the CBO estimates will generate revenues. Even though the revenues are unrelated to “bending the cost curve,” they’re included in CBO final estimates. So instead of genuinely reducing health care costs — which even liberal Princeton health economist Uwe Reinhardt agrees Democrats did not do — Democrats focused only on passing at best a deficit neutral bill, by whatever means necessary. But no one can seriously argue it will be deficit neutral, which isn’t even so surprising given that Democrats’ reform increases government health entitlements without legislating genuine cost savings.
The Fox News punditry drove even me crazy with its talk of budgetary gimmicks, but the accounting tricks they vaguely described are real. Consider the following gimmick. After ObamaCare is implemented, the CBO expects employers to shift from compensating employees ‘in kind’ with health insurance packages to paying employees higher monetary wages, leading the CBO to believe the government will see a $53 billion bump in payroll tax revenues. Since this increase in revenues indirectly follows from the bill’s passage, the CBO’s accounting rules let it count these revenues as deficit-reducing revenues. But when workers make higher wages, they qualify for greater Social Security benefits when they retire, which are financed in part by payroll taxes.
But the increased revenue can only be spent once — do the increased payroll tax revenues decrease our deficit by paying off other liabilities, or do they pay for increased Social Security benefits for which workers are entitled? Or do Democrats not care because the Social Security “trust fund” is headed toward insolvency anyway?
Indeed, Republicans aren’t the only ones who have an aversion to tax increases. Under current law, firms and workers each pay a 1.45% Medicare tax on all income paid and earned, respectively. However, Democrats plan to increase revenues also by transforming the Medicare tax from a payroll tax into an income tax, by levying a similarly sized tax on unearned investment income for individuals and couples who make $200K and $250K or more a year, respectively. Even Howard Gleckman, a senior research associate at the left-leaning Urban Institute, calls this a “back-door” tactic. So without explicitly raising income taxes, Democrats will generate $183.6 billion in revenue over ten years, according to Joint Committee on Taxation estimates.
In addition to double-counting revenue and levying unorthodox taxes, Democrats disingenuously propose tax hikes and spending reductions that will never materialize. Under current law, Medicare payment rates for physicians would be reduced by about 21 percent in 2010 and decline more in subsequent years. Further, HR 3590 proposes other payment cuts for providers of Medicare services. But as the CBO notes, “the sustainable growth rate mechanism governing Medicare’s payments to physicians has frequently been modified to avoid reductions in those payments, and legislation to do so again is currently under consideration by the Congress.” So although Congress probably won’t let the cuts occur, Democrats count them anyway.
Finally, Democrats disingenuously propose to levy an excise tax –– the “Cadillac” tax –– on high-premium plans beginning in … 2018, or at the back end of the oft-cited ten year period. Given that health economists of all political stripes agree that the health insurance shouldn’t be a tax-free fringe benefit, it’s important to note that this tax is fundamental to reducing inefficiently high levels of health insurance consumption. And while it’s possible that American popular opinion may never accommodate this component of sensible health policy, Democrats’ inability to stand up to opposition from guys like Andy Stern at the SEIU will severely limit the efficacy of their supposedly historic accomplishment.
Worried about these realities, Representative Paul Ryan (R., W.I.) asked the CBO to analyze the bills supposing the Medicare cuts and excise tax on high-premium insurance never materialize. Elmendorf explains that in these conditions the bill would not be deficit-neutral and “would amount to a net increase in federal deficits of $260 billion over [2010-2019],” and “increase budget deficits during the decade beyond 2019.”
Then, if we take into account all the budgetary gimmicks, former CBO director and current president of the American Action Forum, Douglas Holtz-Eakin estimates the bill will actually increase deficits by $562 billion over the next ten years.
When President Obama signs the health bill today, it will, indeed, be historic. But instead of passing good policy that both parties can be giddy about, Democrats pushed through a piece of legislation that is more unpopular than ever and will only further bloat our already unbalanced budget.
