Contemplating Health Care Reform

Sunday, March 21, 2010

So it really doesn't save any money

Douglas Holtz-Eakin (ex-CBO director), writing in the NYT, takes the entire bill and Congress to task for employing gimmicks and unrealistic expectations (see previous post for suggested warning disclaimer for CBO scoring):
In reality, if you strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The health care reform legislation would raise, not lower, federal deficits, by $562 billion.

Another vivid example of how the legislation manipulates revenues is the provision to have corporations deposit $8 billion in higher estimated tax payments in 2014, thereby meeting fiscal targets for the first five years. But since the corporations’ actual taxes would be unchanged, the money would need to be refunded the next year. The net effect is simply to shift dollars from 2015 to 2014.

In addition to this accounting sleight of hand, the legislation would blithely rob Peter to pay Paul. For example, it would use $53 billion in anticipated higher Social Security taxes to offset health care spending. Social Security revenues are expected to rise as employers shift from paying for health insurance to paying higher wages. But if workers have higher wages, they will also qualify for increased Social Security benefits when they retire. So the extra money raised from payroll taxes is already spoken for. (Indeed, it is unlikely to be enough to keep Social Security solvent.) It cannot be used for lowering the deficit.

The Real Arithmetic of Health Care Reform

Alan Reynolds goes as far as calling parts of the bill outright fraud:

To be unduly optimistic (more so than the CBO), assume that the new entitlement schemes increased by only 7 percent a year. At that rate spending would double every ten years — to $432 billion a year in 2029, $864 billion a year in 2039, and more than $1.72 trillion in 2049.

Can anyone imagine that the new taxes and fines could possibly grow by 7 percent a year? On the contrary, most of the claimed revenues are either a timing fraud (treating $70 billion for long-term-care premiums as newly found treasure) or self-defeating. The hypothetical tax on Cadillac plans (suspiciously postponed until 2018), for example, is designed to discourage employers from offering such plans and employees from wanting them — that is, it’s designed to yield less and less over time.

Moreover, the accumulating penalties on reporting joint incomes above $250,000 — a 39.6 percent tax, a 3.8 percent income surtax, a 0.9 percent Medicare surtax, and rapid phasing-out of deductions and exemptions — would greatly discourage any activity that would push income above $250,000. Most obviously, no sensible family whose income is normally below that pain threshold would be so foolish as to sell enough assets to let capital gains push them over the line.

It’s Not a Health Bill

The net effect of this reform will be higher taxes and greatly reduced economic activity.

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