taxes


The Budget Battles Ahead

Over at National Review Online I have a column on how conservatives should approach the debate over entitlements and taxes in the aftermath of the fiscal-cliff resolution.

The main criticism, and an accurate one, of the fiscal-cliff agreement is that it secured a tax hike for the president that was not paired with any spending restraint whatsoever. The bill includes spending increases (an extension of unemployment compensation and another one-year undoing of the scheduled cut in Medicare physician fees), but not nearly enough cuts to offset them. Nothing has been done to address the real problem in the nation’s finances: the ballooning costs of entitlement programs.

Some conservatives have taken heart in the fact that the agreement did not raise the debt limit, setting the stage for a more successful budgetary confrontation in another 60 days or so, when federal borrowing is expected to bump up against the current statutory ceiling. The argument is that raising the debt limit is so unpopular with the public that Republicans will have substantial leverage to extract meaningful spending cuts from the president. Unfortunately, this is more wishful thinking than a sound assessment of the political landscape.

Read the rest of the article here.

posted by James C. Capretta | 11:36 am
Tags: fiscal cliff, taxes, entitlement reform
File As: Politics, U.S.

Obamacareís Heavy Toll on Middle Class Americans

My AEI colleague Tom Miller and I have an article at e21 today on how Obamacare will lead to a massive redistribution of wealth away from the middle class.

In broad terms, the amount of redistribution is easily ascertained form the aggregate expenditures and taxes contained in ObamaCare. According to the Congressional Budget Office (CBO), in 2020, ObamaCare will spend $229 billion on a Medicaid expansion and a new subsidy program for health insurance. These expenditures will primarily benefit 29 million people newly enrolled in Medicaid and the insurance subsidy program. That works out to nearly $8,000 for every newly insured American, or about $21,000 per newly insured household.

Much of the rest of the legislation is devoted to extracting these resources from everyone else in the country — about 290 million people — who won’t benefit from the new spending programs, and doing so in way that obscures what’s taking place. For these Americans who already have insurance, the law contains nothing but new financial burdens, in the form of higher taxes, higher premiums for their existing plans, and lower benefits, particularly for those on Medicare.

Read more here.

posted by James C. Capretta | 10:23 am
Tags: Obamacare, taxes
File As: Health Care

The President Canít Run on Obamacare

On Obamacare’s first anniversary, let’s give the president his due: It wouldn’t be in law today without his persistent push for its passage.

Not that his policy arguments carried the day or were persuasive. They weren’t. No, in the end, Obamacare was passed because the president had so tied his political fate to it that it became quite literally impossible for most members of his party in Congress to oppose it. And so it passed.

Other presidents have staked their presidencies on early legislative initiatives too, and then used their success in securing their enactment to aid their reelection. President Reagan certainly comes to mind in that regard, with his 1981 tax cut featuring prominently in his 1984 campaign. And Bill Clinton made his tax-hike and deficit-reduction plan of 1993 the centerpiece of his economic message in 1996.

The problem for President Obama, however, is that, unlike the Reagan tax cut, Obamacare will do almost nothing worth running on before 2012. The main selling point for the law — the supposed “universal coverage” proponents erroneously say the law will deliver — doesn’t kick in until at least 2014. That’s when the “big bang” of Obamacare comes into play: the individual and employer mandates; the new entitlement expansions; and the one-size-fits-all insurance plans.

Between now and then, there’s a lot of regulation to be issued, but there won’t be any real action on the ground where Americans get their health care (other than some tax increases and Medicare cuts the administration will never mention anyway). And so the law’s apologists are left with nothing to talk about except the supposed “early benefits” of Obamacare, like coverage of 26-year-olds on their parents’ plans and the new high-risk pools for those with pre-existing conditions.

But these provisions are minor matters in the scheme of things. They certainly did not require a 2,700-page bill to address. And so few Americans have benefited from them that they hardly register at all in the public consciousness. Only about 12,000 people have signed up for the poorly constructed risk pools, and no one expects the other insurance regulations to help more than a tiny percentage of the population. For most Americans, these “early benefits” are simply non-events. If the president were to feature them as large achievements of his presidency in 2012, it would strike most voters as the trumpeting of the trivial.

With so little to work with, and intense opposition among those pushing for repeal, the president is unlikely to feature Obamacare at all in his 2012 campaign, and certainly not in the way Reagan touted his 1981 tax cut in 1984. President Obama will no doubt defend the new health law from every attack, even as he tries to deflate the repeal push with minor concessions. But, having exhausted his first term securing passage of Obamacare, the president will have to find some other rationale to justify requesting a second term.

posted by James C. Capretta | 2:21 pm
Tags: 2012 election, President Obama, Obamcare, risk pools, taxes
File As: Health Care

The Tax Deal

It’s quite a turn of events. The Democratic party has more or less defined itself over the last decade by opposing the supposed irresponsibility of the Bush-era income-tax rates. Now, President Obama has turned his back on the liberal wing of his party and endorsed those very same rates for the duration of his current term in office.

And not only that, he has endorsed a liberalization of the estate tax compared with the levels that were in effect during the Bush years, and agreed to abandon the signature tax break from the stimulus law in favor of a more sensible payroll-tax holiday. This latter change has the potential to become a very favorable development, as the payroll tax directly hinders job creation and Democrats have recently been more concerned with pushing those rates higher to sustain the expansive welfare state they have created.

More broadly, the president’s agreement to this deal is an implicit admission that voters aren’t buying what the Democrats have been selling on the budget for the past year. The primary argument Democrats pushed throughout 2010 was that the country simply could not afford to “spend” anything more on tax cuts for the wealthy. The president went so far as to say he could find much better uses for the hundreds of billions of dollars that would be “spent” by extending the top Bush tax rate at 35 percent.

But this kind of language only betrayed an attitude toward the private sector that most voters find entirely distasteful. Democrats talk as if private earnings are somehow the property of the federal government and $100 billion not collected in taxes is the same as $100 billion spent on a new government program. Most voters don’t see it that way at all. To them, allowing today’s tax rates to rise next year is a tax hike, not a spending cut. And fiscal conservatism does not consist in piling more taxes on the productive sector of the economy in order to finance an ever growing federal government. What voters want is for the elected officials to concentrate on fitting spending within what’s available from today’s tax rates, not on back-door ways to hike taxes to cover increases in spending.

The emerging deal is not all good news, of course. It is not wise to provide extended unemployment insurance for the duration of 2011. That’s likely to contribute to persistently high unemployment and discourage the adjustments necessary to get more people back to work. And temporary tax cuts are much less effective than permanent ones at spurring productive investments and job creation.

Still, it’s an important victory to keep the Bush-era tax regime in place for another two years. The Democrats had dominant control of the 111th Congress, including a supermajority in the Senate, as well as a president committed to pushing federal tax collection higher to finance a supersized government. And still they couldn’t get it done. Remarkable.

[Cross-posted to The Corner]

posted by James C. Capretta | 8:07 pm
Tags: taxes

Rahm Emanuel vs. Obamacare

Obamacare is predicated on the assumption that the federal government has the knowledge, capacity, and will to drive greater efficiency in American health care. Inadvertently, White House Chief of Staff Rahm Emanuel has become an articulate spokesman for why that assumption is dead wrong.

For months, the president and his team argued that stepped-up investments in health information technology, comparative effectiveness research, and prevention and wellness programs could “bend the cost-curve,” thus making an expansion of coverage affordable for taxpayers. But the Congressional Budget Office, along with a chorus of independent skeptics, said those steps would never be up to the task of reliable cost control without more fundamental changes in the financial incentives facing consumers and providers of services.

Unfazed, the administration argued that it had other ways to control costs waiting in the wings. The conversation turned to “delivery system reform,” with the administration and its allies in Congress suggesting that new ways of paying health-care providers in Medicare could spur a wholesale shift in how doctors and hospitals cared for patients. As White House Budget Director Peter Orszag put it, “Medicare and Medicaid are big enough to change the way medicine is practiced.” The implication was that the new team was working on ways to painlessly root out wasteful spending by compensating providers for their services differently than they are paid today.

But no such proposals were ever forthcoming (except for relatively minor adjustments related to payments for hospitals with high readmission rates, and some baby steps toward more “bundling” of payments for a full episode of care). What the White House did eventually propose was a commission that would have the authority to change the way Medicare pays for services without further approval by Congress. So instead of offering a serious plan to “bend the cost-curve,” the administration offered a commission that would come up with a serious plan to “bend the cost-curve.” Quite predictably, many in Congress have not been so keen on this idea, as it would hand off to an unelected commission the power to rewrite Medicare’s provider-payment regulations. The administration’s commission idea is not in the House-passed bill.

Not to worry! The administration has another favorite cost-cutting tool. The idea is to tax so-called “Cadillac” health insurance plans, thus forcing both the insurers and the plan enrollees to find ways to economize to avoid the tax. But there’s a little problem with this idea too. President Obama was against it before he was for it. Recall that Republican presidential candidate John McCain proposed to convert today’s preferential tax treatment of employer-paid insurance premiums into a refundable credit. In October 2008, the Obama-Biden campaign excoriated this idea in scores of ads because it would tax health benefits “for the first time ever.” Now, the president wants to do just that — but, again not surprisingly, the populist revolt he stoked against it in 2008 was still smoldering when he endorsed it in 2009. It turns out that taxing high-cost insurance plans will actually hit many middle-class households, especially those with union members enrolled in collectively-bargained plans. House Democrats wouldn’t go near the idea, and reports indicate that the version of the high-cost insurance tax in the Senate Finance Committee bill is getting watered down by the day. If some version of it survives at all, it is highly unlikely to pinch enough to generate meaningful cost control.

Reviewing this legislative landscape, it’s suddenly dawning on all concerned that the bills moving in Congress won’t come close to “bending the curve” after all. That’s the thrust of a piece today in the New York Times, as well as one from last week in the Washington Post. Of course, even as House members and Senators shy away from tough decisions, they are not nearly as reticent about extending new health entitlement commitments. Thus, it is now abundantly clear that if anything is produced by this legislative process, it will be a bill that piles more unaffordable entitlement commitments on top of the unreformed ones already on the books.

And so what’s the White House response to this alarming state of fiscal affairs? As recounted in the Times piece, Emanuel blames the limits of politics. “Let’s be honest,” Emanuel apparently stated in a recent interview. “The goal isn’t to see whether I can pass this through the executive board of the Brookings Institution. I’m passing it through the United State Congress with people who represent constituents.”

That’s exactly right of course. But it’s also an indictment of the entire Obamacare enterprise. The health-care bills under consideration would hand over to the federal government nearly all power for organizing American health care. And yet there is not a shred of evidence that Congress or the administration can handle these tasks well. Indeed, there is abundant evidence that, in a crunch to control costs, politicians will do what they always do, which is impose across-the-board payment-rate cuts. That’s certainly how the House-passed bill reduces Medicare spending. There’s no delivery system reform. It’s not “pay for performance.” There’s no calibrating of reimbursement levels based on the quality of care provided. It’s cuts for all providers, no matter how well or badly they treat patients.

Ultimately, the question in health reform is this: what process has the best chance to bring about continual improvement in the efficiency and quality of patient care? The only way to provide better care at less cost is with higher productivity in the health sector. What can make that happen, year in and year out?

Rahm Emanuel has given us the answer. The federal government, subject as it is to the constraints of politics, can’t do it. The only way to slow the pace of rising costs without sacrificing quality is by building a functioning marketplace, with cost-conscious consumers driving the allocation of resources. The government must play an important oversight role in such a marketplace. But if we rely on politicians, or even commissions that answer to them, for cost control, what we will get is lower quality, not more efficiency.

posted by James C. Capretta | 4:27 pm
Tags: Obamacare, Peter Orszag, Rahm Emanuel, control, competition, taxes
File As: Health Care