Wednesday, March 23, 2011

The rising price tag for Obamacare

The price tag for Obamacare just went up. Here's the Wall Street Journal on the Congressional Budget Office's new report:
What's $2.3 trillion among friends? That's the canyon between the Congressional Budget Office's estimate of a $9.5 trillion federal budget deficit over the next decade under White House proposals, and the White House's own estimate of $7.2 trillion. The discrepancy emerged in a CBO analysis released Friday, not that it got much media attention.
Keep on believin'!


One Brow said...

That would be the total budget deficit, not the deficit in the health insurance reform act. There is no revision buy the CBO that says health insurance reform contributes to the deficit at all.

Of course, small things like facts don't really matter to you or the WSJ, I suppose.

Thomas M. Cothran said...

Only part of the Wall Street Journal's article is available, but the health care bill actually reduces the deficit. If the health care bill were repealed, it would actually raise the deficit. So if the WSJ is claiming the deficit is going up because of Obamacare, they're both factually incorrect and apparently have not read the very report they're citing.

Not only that, but the CBO's report cites the largest factor in raising the deficit not as spending, but as the extension of the tax cuts. "Of the various initiatives that the President is proposing, tax provisions would have by far the largest budgetary impact...." It was Obama's decision to cave to the Republicans' demand to raise taxes that has been the largest cause of the spike in the deficit.

In sum: according to the institution the WSJ is citing, Obamacare lowers the deficit, the extensions of tax cuts are "by far" the most responsible for raising it.

Lee said...

Thomas, you may be the only person on planet Earth who believes ObamaCare will reduce the deficit.

KyCobb said...


The CBO does as well

Singring said...


'Thomas, you may be the only person on planet Earth who believes ObamaCare will reduce the deficit.'

Article from The Hill (10th of March) referenced by Thomas:

'A Republican plan to withhold implementation funds for the Democrats’ new healthcare law would add $5.7 billion to the deficit over 10 years, the nonpartisan congressional scorekeeper said Thursday.'

But this is only half of it...the CBO has previously calculated that the health care reform in and of itself will reduce the deficit by over 100 billion in the coming years. Read for yourself, Lee:

You gotta admit that those Tea Partiers do a mighty fine job of spreading their misinformation.

Thomas M. Cothran said...

It's a testament to the effectiveness of the misinformation campaign that educated conservatives still do not understand the basics about how the health care bill works. (But of course there are educated conservatives who still believe the wild myth that reducing taxes increases tax revenues.)

I do not understand how 1 year after the health care bill passed people still don't know that the bill doesn't just spend money, it offsets the spending. While the spending provisions by themselves raise the deficits, the spending cuts and tax hikes in the same bill are calculated to more than make up for it, as the CBO has repeatedly pointed out.

And the CBO has actually lowballed the savings in the bill, because it didn't factor in the cost controls. The cost controls will have the biggest budgetary impact over time, but they look at the long term and it remains to be seen precisely what impact they will have. If they work well, they will be the most important part of the health care bill.

Lee said...

Thomas, you're going to be so surprised when ObamaCare drives the deficit up.

> But of course there are educated conservatives who still believe the wild myth that reducing taxes increases tax revenues.

If that's supposed to be a characterization of supply-side economics, it's a mischaracterization. Aren't you a Thomist? Aren't Thomists supposed to present an idea they disagree with as honestly and fairly as possible, and then dissect it?

Thomas M. Cothran said...


Whether or not my statement that many educated conservatives claim that lower taxes raises tax revenues turns on whether you think John McCain or George Bush is an educated conservative. I would certainly agree with you that the latter is a stretch, but I didn't mean educated in the sense of brilliant, just to distinguish them from Glenn Beck fans.

As to your continued claim that the deficit will go up because of Obamacare, I have to assume that you just have a gut feeling that costs will exceed offsets and cost controls rather than an actual reason. That's nice, I suppose, but it's not an argument.

Lee said...

Supply-side economists do not think that just any tax rate reductions would result in increased tax revenues. To imply that they do is simply a mischaracterization of their position.

What they believe is that some tax rate reductions would result, and indeed have resulted, in increased tax revenues. E.g., JFK's tax cuts, Reagan's tax cuts, and Clinton's cutting the capital gains tax in half.

The basic idea is simple: some tax rates are too high to be productive of revenue. When tax rates are too high, it drives money out of those highly taxed areas. If you penalize people for showing a profit, they tend to stop showing a profit if they at all can. People are funny that way.

Let's describe tax revenue as a function of the tax rate. If tax rates are zero, you will get zero revenue. If tax rates are 100%, you will also get zero revenue -- people simply won't do what you want if there is nothing in it for them. But there is some tax rate X in the revenue curve where the tax revenue will be the greatest. (Where X is on the function can be debated, but it's there.) Tax rates higher than that are less productive of revenue that they could be. This always surprises liberals.

It shouldn't. All you have to do is put yourself in the shoes of the person being taxed. Am I going to work full-time if I take nothing home? No. Am I going to invest money in stocks if I take all that risk only to have my earnings taken away? No.

So the proposition, fairly stated, is that some taxes are egregiously counterproductive of revenue, and lowering such rates, though counter-intuitive to liberals, actually improves revenue.

Whether Bush or McCain understand the concepts, or care enough about the issue to understand the concepts, is doubtful. They don't even know the concepts well enough to bother explaining them, or respect their audience enough to make the effort. That doesn't excuse liberals who know better for mischaracterizing the position.

Lee said...

Regarding ObamaCare, to no one's surprise, except perhaps yours, the CBO keeps adjusting the estimate upwards. They promised around $900 billion. Then the final estimate was $950 billion (as Pete Suderman said, "Close enough for government work"). Then in May 2010, CBO added $115 billion to the estimate.

That was a year ago. The CBO's newest estimates prompted the following:

My own opinion is that an accurate estimate of the total cost is not yet possible. The CBO makes certain assumptions when it makes an estimate, and to their credit is pretty up front about what those assumptions are. One doesn't have to impute foul motives to the CBO to be skeptical of their estimates, which simply amounts (in my case) to being skeptical of the assumptions.

So I don't object to your characterizing my position as a "gut feeling." Gut feelings are based on experience. You can't have a trillion-dollar pot of money without a lot of people angling for a cut of it. And when the cuts are determined by political rather than market processes, it will tend to expand.

Hear me now, believe me later.

Thomas M. Cothran said...


Once again, you're playing fast and loose with the numbers. The CBO was actually estimating slightly different things in each estimate. From WaPo's fact check:

"Last week was the third time that CBO has provided an estimate for the cost of the health care bill. Each time, the number has been a little different because of various technical factors, and also because different budget windows are being used, such as 2010-2019, 2012-2019 or 2012-2021. The longer the budget window, the bigger the costs and the revenues, in part because the population is getting larger and the gross domestic product is expected to increase.

"The Energy and Commerce Committee came up with its increase by mixing apples and oranges. It compared the gross cost of insurance coverage provisions calculated for 2010-2019 (that’s the $938 billion number) with new figures for a different budget window, 2012-2021 (that’s the $1.445 trillion figure.) That’s kind of like saying the cost of pizza went up by comparing last year’s price for a 12-inch pie with this year’s price for a 16-inch pie....

"The Wall Street Journal came up with its increase by comparing a different set of numbers: the net cost (which strikes us as more reasonable than the gross cost used by the House committee) for the same time period, 2012-2021, as estimated in February 2011 and March 2011. But the Journal failed to note that the CBO cost estimate in February was actually lower than its initial estimate last year, so the overall effect from last year to this year is minimal."

If we're going to talk about the factual cost of the health care bill, let's at least be aware of what the numbers mean.

Lee said...

Yeah, I read that criticism. The basic point is that nobody knows how big that pizza is going to be, and nobody knows today what it will cost in 2025. If you want to argue that the Congressman's criticism is invalid either through bad calculations or bad faith, go ahead. It doesn't change the basic incentives of government: to take more and more money, to take more and more decisions out of individuals' hands, to take more and more power.

Indeed, many of the costs of ObamaCare will never show up on the books because they are mandated expenses on other folks. If the federal government takes $10 grand from me and spends it on something, that shows up on the books. If it makes me spend $10 grand on something, it doesn't. That's a way to grab power without even putting the money on the books. But that too will have an effect on the economy, and if it depresses tax revenues, that's something the CBO would not have speculated on.

And the basic premise remains: all of the incentives will change. We don't know yet how the economy will respond. It's too complex. I write computer code everyday. The programs I write are vastly less complicated than the economy, yet when I make the most minute changes, I am required to test the hell out of them because, as familiar as I am with these programs, I can't always predict what's going to happen. It makes me less likely to want to change things, but it's my job, so I do my best to do so carefully.

With ObamaCare, we have a bill that a year ago, we didn't even know what was in it. Pelosi chirped, well, we have to pass it just to find out what goodies are in there. We know more today, and as they keep digging, the situation will continue to change, and the estimates will change too.

My money is on the estimates changing upward.

Thomas M. Cothran said...

No, the basic point is that the CBO was measuring slightly different things, producing different outcomes. It's not accurate to say the CBO has been adjusting the price upwards when they're not accounting for the same period.

As to imposing costs on others through the individual mandate, that part is true. Most people who have the money buy insurance, some make the irrational decision not to and roll the dice. When they get sick and cannot pay, they either don't get treatment or the costs of their treatment get passed on to those who were responsible enough to get insurance in the form of higher costs.

Really the most significant part of the bill has not been discussed yet. If the reforms end up changing the incentives in the medical industry, e.g., by paying on the basis of effective care rather than expensive care, it will help get costs under control. How effective that will be will largely depend on the regulatory agencies.

Lee said...

Faith is a beautiful thing, isn't it? Sorry, I invest mine in the Lord, and precious little of it in my fellow man, and particularly in my government.

My hope is that the Supreme Court will find it unconstitutional. Failing that, that Congress and the next President will nullify it. Failing that, that the Congress and the states will nullify it with constitutional amendment.

> Most people who have the money buy insurance, some make the irrational decision not to and roll the dice.

You are assuming that the rational decision is always to purchase the insurance. It is not. But of course it is perfectly rational for the government to want to force such people's participation, as they will be the money generators who keep the system working, assuming it works at all.

It's rational. The question is whether it's constitutional.

Thomas M. Cothran said...

Well, if I knew that it would take Jesus descending to earth and crunching the numbers for you, I wouldn't have argued. That's a remarkably high standard for economic forecasting. (I trust that it extends to the predictions of supply-side economists as well.)

The rest of us will have to immerse ourselves in the actual functions of the bill and rely, as scrupulously as we can, on the extensive economic analyses that have been released so far.

Lee said...

In any event, I think it's safe to say that the CBO is not Jesus. Nor is the Congress. I wouldn't be afraid of ceding that much power to Jesus.

But when you others appeal to the authority of the CBO to maintain the pleasant myth that ObamaCare will save money, it is perfectly acceptable to provide a counterpoint to your enthusiasm.