Deficits, the CBO and H.R. 2
When determining the effects on the deficit of a certain legislative action, both revenues and spending have to be accounted for. Indeed, you can't determine whether there is a deficit, surplus or balanced budget without both variables.
Currently Memeorandum is headlined by an American Spectator blog post entitled BREAKING: CBO Says Repealing ObamaCare Would Reduce Net Spending by $540 Billion, which led my OTB colleague Dodd Harris to post No, Repealing Obamacare Will Not Increase the Deficit.
I must confess, however, that I am a bit confused by both what has the AmSpec, and Dodd, so excited. The e-mail from the CBO quoted by AmSpec includes the following:
CBO anticipates that enacting H.R. 2 would probably yield, for the 2012-2021 period, a reduction in revenues in the neighborhood of $770 billion and a reduction in outlays in the vicinity of $540 billion, plus or minus the effects of forthcoming technical and economic changes to CBO’s and JCT’s projections.
Does not the basic arithmetic dictate that decreasing revenues by $770 billion whilst only reducing spending by $540 result in a shortfall (i.e., a deficit) of $230 billion? As such, the e-mail in question appears to me to actually back the claim that repealing PPACA will result in an addition to the deficit. Given that, I am not sure how it proves what the headline of Dodd’s post claims that it proves or, really, what difference it makes if it cuts spending, as per the AmSpec headline if it cuts revenues even further.
Indeed, in a post at the CBO’s blog states the following:
Because CBO and JCT estimated that the March 2010 health care legislation would reduce budget deficits over the 2010-2019 period and in subsequent years, we expect that repealing that legislation would increase budget deficits. The resulting increase in deficits projected for fiscal years 2012 through 2019 is likely to be similar in size to—but not exactly the same as—the reduction in deficits that was originally estimated to result from the enacted legislation.
[…]
As a result of changes in direct spending and revenues, CBO expects that enacting H.R. 2 would probably increase federal budget deficits over the 2012-2019 period by a total of roughly $145 billion (on the basis of the original estimate), plus or minus the effects of technical and economic changes that CBO and JCT will include in the forthcoming estimate. Adding two more years (through 2021) brings the projected increase in deficits to something in the vicinity of $230 billion, plus or minus the effects of technical and economic changes.
As such, I am not sure what the brouhaha is all about, as according to the CBO, yes, repealing the PPACA will, in fact, increase the deficit which is why the House leadership had to exempt H.R. 2 ( the somewhat juvenilely named “Repealing the Job-Killing Health Care Law Act”) from the CUTGO rule (the new House rule that states any bill that would increase the deficit must have a commensurate cut in it to offset the potential deficit increase).
It seems that at least for the AmSpec post that the logic of the headline is that decreases in revenue (i.e., tax cuts and the like) don’t matter for deficits, only spending matters. While it would be nice if tax cuts didn’t count against the deficit, they nonetheless do. The entire process is one of a combination of spending and revenue and any serious discussion of the deficit (and therefore the debt) has to acknowledge this fact.
Editor’s Note (James Joyner): Steven has posted a follow-up titled “Some Details on Why Repeal of PPACA Would Increase the Deficit.” Since it’s “hidden” in the Quick Picks section, I’m reproducing it as an update here. Since there are already comments there, I’m leaving the post up.
UPDATE: Via CSM’s The Vote blog: Health care law repeal: Why would it increase the deficit?
Two main side effects of repeal would cause this gusher of red ink, said CBO.
First, getting rid of health-care reform would mean rescinding planned cuts in federal spending on health care, largely for Medicare.
Under the terms of Obama’s health bill, government payments to Medicare Advantage – plans run by private insurers that are an alternative to traditional Medicare – are supposed to be reduced by $132 billion over a decade, for instance. (Those plans now get around 14 percent more per person than traditional Medicare does.) Payments for Medicare home health care would also be slashed by around $40 billion over ten years.
Second, repealing health-care reform would also entail rolling back scheduled tax increases and fees.
For example, individuals making over $200,000, and couples making over $250,000, face higher Medicare Part A (that’s hospital insurance) taxes under Obama’s health reforms. Their Part A tax rate is supposed to go up 0.9 percent on January 1, 2013. That’s a big money raiser, estimated to bring in $210 billion between 2013 and 2019. And it would be eliminated if the health care reform law is repealed. So would planned fees levied on insurers, medical device manufacturers, and others.
Whether one is pro-PPACA or pro-repeal, the numbers are the numbers. Further, it is clear that (at least symbolically, since this is all going nowhere), the GOP values repeal over deficit reduction. That is, actually, quite fair as politics requires tradeoffs. However, it is yet another example (two more that come to mind are here and here) that there appears to be a chasm between the GOP’s rhetoric on fiscal policy and their reality.
What has them so excited is the same thing that has climate change deniers excited when it snows heavily. I’ll let you figure out what that is.
The problem here is Dodd and others are making an argument in favor of smaller government (ie lowered government spending) but framing it as an argument in favor of lowered deficits even those two don’t always go hand in hand.
(It’s not polite to question motives, but I imagine they’re pulling this sleight of hand, to use a Dodd phrase, because there is wider public support for lowering the deficit than there is for their true goal of cutting government services.)
It reminds me of one of the only funny lines on Saturday Night Live in years. Obama to McConnell: “Why do you want health care reform to fail?” McConnell: “It is not that we want health care reform to fail, it is that we want you to fail.” I wonder how many Tea Parties could even give any accurate reasons as to why they actually oppose the bill that passed. Not to say that there aren’t any problems with it — but I don’t think most people who claim an opinion of the bill honestly have any idea what they are. For my part, I think this is one of the places where the current-era GOP is utterly failing in exerting conservative leadership. We can’t leave health care reform where it is, the situation before 2010 was a mess and not just for the uninsured who Obama helped. The Republicans could have worked with Obama to pass legislation that helped the insured with tort reform, and helped employers and the economy by shifting the burdens away from employers. But instead they just wanted a bunch of snarky rhetoric that might put themselves in office but seems to do little for genuine conservative values.
How much longer can the Americans who consider themselves decent people continue to call themselves members of the nihilistic freak show that is today’s Republican Party?
As I said in the comments to my post, the front-loaded tax hikes included in HCR aren’t paying for the benefits of HCR, So, while they were enacted as part of the bill, they’re just paying for other spending right now. As such, it’s conceptually questionable to say that repealing HCR raises the deficit.
The CBO found that repealing HCR results in $540 billion in reduced spending (in the 10-year window reviewed; the trillions to come afterward aren’t accounted for). Repealing the $770 billion in tax increases buried in the bill, a lot of which have already kicked in, is (at least partly) a separate matter.
All of this is, of course, before we consider the manifestly unlikely proposition that the “doc fix” won’t be renewed, removing a large chunk of the purported savings on Medicare, or the already obvious problem that Obamacare incentivizes employers to drop coverage, meaning more people than the CBO has accounted for will require subsidies — both of which increase the overall cost of Obamacare in the near-, medium-, and long-term.
“or the already obvious problem that Obamacare incentivizes employers to drop coverage”
And yet it’s being reported that small businesses in droves are now purchasing health insurance for their employees as a result of the act. See, More Small Businesses Offering Health Care To Employees Thanks To Obamacare and More small businesses are offering health benefits to workers. Forbes:
“The CBO found that repealing HCR results in $540 billion in reduced spending (in the 10-year window reviewed; the trillions to come afterward aren’t accounted for). Repealing the $770 billion in tax increases buried in the bill, a lot of which have already kicked in, is (at least partly) a separate matter.”
If you repeal the ACA, you also repeal those tax increases, hence the deficit rises. Perhaps you are confused because the party you support passes large health care spending bills, Medicare Part D, without any revenue provisions?
Steve
Not so much of a job killer either.
Steve
Dodd – I don’t really understand your contention that raising taxes in anticipation of future government spending somehow doesn’t count as paying for that spending. It’s basically the trillion-dollar policy equivalent of saving up your allowance before buying a shiny new bike. Plus, Paul Ryan, Eric Cantor and other opponents of the bill (and the repeal legislation they’ve written) certainly haven’t claimed the tax increases aren’t a part of ObamaCare, that’s for sure.
@Dodd,
If H.R. 2 decreases revenue more than it decreases spending, that would add to the deficit. It really doesn’t matter why for the purposes of assessing whether it conforms with Cutgo or whether repeal conforms to the GOP’s touted goals of cutting spending.
If one wants to repeal PPACA for other reasons, fine, but it is pretty clear that repeal increases the deficit, contra to your post title from earlier.
Steven, given the numbers being depicted here, I agree with you. But as the WSJ points out:
“But our core appeal isn’t to this technical detail or that underlying assumption. It’s to common sense. Amid the repeal debate, Democrats and the media are behaving as if they have no knowledge of Congress’s habits or the history of government health-care programs over the last half-century. Entitlements are always sold as modest and “paid for,” then years later everyone suddenly discovers that they are “unaffordable” without digging deeper into the pockets of the middle class. How do you think Medicare and Medicaid got to their current pass?”
This is why repeal should happen
This is why repeal should happen.
If anything repeal would just hasten this process. Hell, repeal IS this process; it eliminates painful Medicare cuts and tax increases that reduce the deficit. Why do ObamaCare opponents insist on going for an unspecified magic health care reform in the bush rather than ensuring we stick with the policy already in hand?
@Pete:
In terms of the fiscal debate, what we currently have some specific numbers versus vague possibilities. So on that count I think we have to make the fiscal decision based on the available data.
There are real arguments for repeal, but that repeal is better for the deficit is not one of them at the moment.
Steven, there is so much disinformation in politics today, one can either take the available information at face value or take a reasonable contrarian stance based on experience and then make a decision. Again, as the WSJ opines: http://online.wsj.com/article/SB10001424052748704415104576065723458609678.html?mod=rss_opinion_main,
and I understand where they likely stand on this argument, I find more credibility in their argument and analysis than that coming from Washington.
Dave, I don’t propose just repeal and do nothing. I propose repeal and then serious writing of better health care/insurance reform.
Dave, I don’t propose just repeal and do nothing. I propose repeal and then serious writing of better health care/insurance reform.
Then let’s stick with the deficit reducing reforms we have now until someone writes something better congress will be more likely to stick with. Until that happens, repealing ObamaCare is fiscally irresponsible.
If you believe the numbers, which I don’t, then yes I agree we try to reduce the deficit. And if interest rates rise even 2% points, which will increase our debt service, then yes let’s stick with this red herring of deficit reduction you myopically worship.
Pete — I’m glad we’re agreed on the need to not repeal ObamaCare.
@Pete:
I truly understand the impulse to skepticism, as I hardly treat any of these numbers as gospel. Still, the fact of the matter is that there is more analytical weight behind estimates based on actual facts and estimates based on intution
Beyond that, the main reason the deficit reduction issue is worthy of comment is that the GOP and the Tea Party have made fiscal responsibility the sine qua non of the current political era and yet as push has come to shove in less than a wek in power their actual seriousness on this issue is already being called into question.
Really, in this case, the real issue I am arguing about is that some proponents of repeal appear to be making the indispensable position that CBO is saying that repeal cuts the deficit.
> as the WSJ opines:
WSJ is a fine source of reporting on business and the economy. As for their editorial stance, they are simply Fox lite. If you don’t know that, you should.