David R. Henderson  

Obama's Bait and Switch

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In the spring of this year, President Obama argued that one reason for health care reform was to get long-term spending on government health care under control. As he recognized and as every scholar and analyst who has studied future federal spending has recognized, the budget nightmare in our future is due mainly to growth in federal spending on Medicare and Medicaid. In May, Obama stated:

We've had a lot of discussions in this town about deficits. The most significant driver, by far, of our long-term debt and our long-term deficits is ever-escalating health care costs.

Yet Obama seems willing to sign a bill that does almost nothing, and might even worsen, the long-term federal deficit and debts. Yes, he seems willing to try to cut Medicare spending (although many analysts have expressed doubt about whether these savings will be forthcoming.) But only a tiny portion of the cuts would go to keeping deficits lower. Instead, they would be used to pay for subsidies for other people's health care. According to the CBO, which has an annoying habit of using rubber dollars (the CBO treats a dollar in 2010 the same as a dollar in 2019), the net effect of the massive changes envisioned in the Baucus bill will be a 10-year decrease in accumulated deficits of $49 billion. This is because over $400 billion of reductions in spending on government programs, plus over $200 billion of additional taxes, would be offset by over $700 billion in additional government spending on health care. So the Baucus plan would do virtually nothing to deal with the long-term government spending problem. It's probably worse than nothing. Why? Because, as mentioned, the Baucus plan contains over $200 biliion in new taxes over those 10 years. The more government taxes, the less room it has to tax more. So the massive tax increases that might be pushed ten years from now, when the fiscal debt hits the fan, will not be as easy to accomplish because some of them will already have been in place.


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COMMENTS (2 to date)
Craig writes:

The CBO analysis of the Baucus bill is bogus. They even admit it in the third to last paragraph of the letter. They use Baucus' numbers for determine savings, which among other thing includes a growth rate of spending below the inflation rate and 10 year wage freeze (with a 1 year 25% pay cut) for doctors. To seriously discuss the bills "savings" is insane.

http://www.cbo.gov/ftpdocs/105xx/doc10572/09-16-Proposal_SFC_Chairman.pdf

mark writes:

This post is exactly right. But there is one more factor you didn't put your finger on. Having hyped the issue to the stratosphere, the party in power and its leader have put themselves in the position where they have to pass some kind of bill. It's politics' version of the agency problem, pure and simple. They're no different than Wall Streeters, putting their self interest ahead of the optimal usage of other people's money.

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