Charles Krauthammer’s latest is a watershed moment in our fiscal discourse: it’s not the first column on health care reform (not by a long shot), and not the first column on the VAT (ditto), but it’s the first column to segue between the two as if they are inevitably and causally linked. Krauthammer’s message is that health care reform lies about its costs, so Obama’s plan must be to use the VAT to pay for the bill, bringing us to "European levels of taxation."
I’d like to talk about the VAT in a separate post. In the meantime, I wanted to quickly disabuse my two readers of Krauthammer’s accusations that the CBO–as I’ve come to learn since moving here, one of the most professional agencies in the federal government–engaged in willful misrepresentation of the health care bill’s costs. Krauthammer’s accusations are not original to him, but boil down to four arguments: 1) the use of non-health care provisions in the bill to offset health care costs, 2) the so-called “docfix”, 3) the double-counting of Medicare cuts, and 4) counting 10 years of revenues but only 6 years of outlays. Number 1 is pretty straight-forward to refute. Here is a chart of the 10 year budgetary impacts of each provision of the bill. I count four such provisions not related to health care: three involve changing the student loan system and have a combined net deficit reduction of $19 billion over 10 years. The fourth is the CLASS Act, a voluntary community assistance benefit that actually comes the closest to being a bonafide budget gimmick: it begins paying out benefits only after participants have paid in for five years. Thus, its $70 billion net deficit reduction over 10 years comes about in part because the program will be in revenue mode longer than it will be in pay-out mode between now and 2019. Still, even if you view these provisions cynically, they represent $89 billion in savings over 10 years. That leaves $54 billion in net savings due to the remainder of the health care bill. Now, I do retain sympathy for people who argue that to say “health care reform” saves $143 billion over 10 years is false, because they have a point: it’s the bill–health care reform plus student loan reform plus the CLASS Act–that saves this money. But to take another step and argue that the CBO numbers show HCR to be, by itself, a driver of the deficit is also false.
As for the rest of Krauthammer’s accusations: Jonathan Chait explained the “doc fix” best (bottom line: it was going to happen with or without HCR). Stan Collender explains the “double-counting” debate best (bottom line: it is not double-counting in any meaningful sense). And as for the “delay-in-pay” argument, well, the CBO itself disproved that one by estimating the net cost of the bill in its second decade–when there’s a full 10 years of both revenues and pay-outs–and found that net deficit reduction of the Senate bill with reconciliation fixes would be between .5% and .75% of the decade’s GDP, or between $1.4 and $2.0 trillion. I wouldn’t bet the farm on these numbers, but they pretty decisively show that the CBO’s model was not “gamed” to get HCR paid for in its first decade.
![ernie [dot] tedeschi [at] gmail [dot] com](http://imgur.com/b3LX7.gif "ernie [dot] tedeschi [at] gmail [dot] com")
Thanks, Ernie! This is the kind of analysis that helps a 19%-VAT-paying European socialist understand what is going on with our American comrades! Let's work on closing the gap between your readership nrs and Krauthammer's!
Hmmm… The 2 trillion that the CBO says would be saved between 2020 to 2030 would, according to the CBO itself, would be wiped out in a single year. By 2020, our debt will reach 90% of GDP (again according to the CBO). This would be around 300 billion per year in interest alone, if our credit risk was unchagned, which is highly doubtful to say the least. If we were at a higher risk for default, that interest payment could easily double. And these numbers assume annual GDP growth of 2.5-4.5 percent per year. I trust the CBO, but they can only project based on what they are given. They don't yet know how the new laws will be implemented, nor how the private sector will respond. I look forward to a more detailed CBO analysis in the coming months. Your are wrong to say that Krauthammer said that the CBO willfully misrepresented anything–he only mentioned the CBO's 12 trillion debt increase projection, NOT their CBO projection. He, like most conservative commentators, don't think that the CBO is gaming but that it was gamed. It can only analyze what comes in. As the former CBO director said: "fantasy in, fantasy out." I think a former CBO head would be quite qualified to comment on the tricks used by Congress to get a good CBO score. http://www.nytimes.com/2010/03/21/opinion/21holtz-eakin.htmlAs you can see, he essentially comes to the same conclusions as Krauthammer. You can quibble with Krauthammer's opening statement, but that is the wrong approach. Notice that he even allows that it may be revenue neutral- *that's not the main argument*. Even if it were revenue neutral (or save .5% of GDP 15 years from now), the low-hanging fruit of savings in health care is gone, which along with debt, is the fastest growing part of the budget. This discussion is like discussing the optimal arrangement of deck chairs on the Titanic. I admit that Bush made this worse, but that is no retort. I was against most of his spending, and could have done without his tax cuts (though I would defend those). I also was against the Iraq war, not for legal or moral reasons, but prudential and fiscal ones. What's the use of winning in Iraq if we bankrupt ourselves in the process? BUT! Obama is a democrat and had historic popularity and large majority in both houses of Congress. He had the power to make and pass legislation that made the hard choices necessary to cut spending and raise revenue. I know he was under enormous Keynesian pressure to stimulate the economy, but now, even if he wanted to, I am not sure that he could balance the budget. He has burned all his political capital on this. And we are still traveling swiftly off a financial cliff.
Here's where I disagree with you: the main argument Krauthammer makes isthat HCR is deceptively expensive, and that the secret trump card Obamawants to play to pay for it is a VAT. There are two huge problems with this argument: 1) even if you agree with Krauthammer's assessment of HCR, thefact remains that if HCR hadn't passed, we'd still need to cut programs and raise revenues to close our fiscal gap, so a VAT would be a real possibility even in the counter-factual world; 2) the CBO scored the bill as a netdeficit reducer between now and 2030; in fact, it's the biggest net deficit reducer passed in the last 10 years, so it decreases the need for a VAT, orany other deficit reduction strategy for that matter.The only way to square this circle would be to attack the Democrats asdeceptive and the CBO as soft-headed and naive, which is exactly what Krauthammer does. But I don't see how his arguments amount to anything morethan cheap skepticism. Essentially, any alleged gaming in the CBO model'sfirst ten years should have turned up in its second ten years, and itdidn't. Of course, the model may be wrong, but earnest forecasting error isa completely different, and a very much valid, concern from accounting gimmickry, and besides, forecasting error can go *both* ways, so it makes aweak premise for a polemic.Doug Holtz-Eakin repeats some of the same claims Krauthammer makes and addsa few others. The business tax refund that he says occurs in 2015 is already folded into the first ten year numbers, and the payout of benefits in thesecond decade of the bill is represented in the $1.4 trillion – $2.0trillion net deficit reduction figure. As a student of philosophy, however,I'd expect you to be most up in arms about his Medicare argument, the way he simply fiats that the cuts won't happen. This is budget relativism, or more precisely, nihilism: he expects that Congressional actions be paid for (ifHCR had been as fiscally irresponsible as, say, Medicare Part D, DHE wouldbe the first decrying it), but when they do, he doesn't accept that they'll follow through with their actions. In other words, he won't be satisfieduntil Congress does nothing at all. Now I know DHE is a conservative andwould probably be just fine with this, but he should come out and advocatehis do-nothing strategy directly instead of constructing some paradoxical framework for legislative activity. More to the point, because of the PAYGO rules that the Democrats reenacted, even if Congress got cold feet aboutletting the Medicare cuts go through, they'd have to come up with an offset.As for the low-hanging fruit argument, that's neither here nor there.Obviously, if you disagree with the bill, you think the funding mechanism isa waste of money. If you agree with it, then it's money well-spent. What if Obama hadn't cut Medicare but had raised income taxes instead to help payfor HCR? Krauthammer could and would be making the same argument, that therewas an opportunity for modest tax increases that was "wasted" by HCR. It's perfectly consistent, however, to be a fiscal hawk but also believe that the debt ought to be controlled in a way that leaves enough room for everyone to have access to affordable health care.Finally, as far as Obama v. Bush goes, fiscal responsibility is an absolute,not a relative, benchmark, and Obama hasn't met it yet. I think it's fantasy however to have expected Obama to propose a plausible balanced budgetwithout bipartisan cover. The docfix, indexing of the AMT, and the extensionof the 2001/03 tax cuts would have happened regardless of Obama's proposed budget or, indeed, whether Obama even occupied the White House, and by 2020 these three inevitable policy extensions will account for about a quarter ofour national debt; without them, fixing the short-term debt crisis wouldhave been trivial by comparison. I give Obama credit for only extending theBush tax cuts to families making under $250,000 but I wish instead he had proposed a limited two-year extension to get us out of the recession. Thereal test of his seriousness will be how he approaches the recommendationsof his debt commission.But the point remains that the last president to pass any piece oflegislation that reduced the deficit as much as HCR does was Bill Clinton,with his 1993 budget reconciliation act that helped propel the Democrats to electoral defeat in 1994. So while the scale of the problem means Obama and Congress have a lot more work ahead of them, the evidence points to HCR relieving rather than exacerbating the fiscal crisis.Oh, and just a quick technical point: CBO assumes that interest rates will double between now and 2020, so their debt projections already account for considerable market fluctuation and risk premium.