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Last spring, the Congressional Budget Office estimated that the new health legislation would reduce the deficit by $143 billion over ten years. Yesterday, CBO estimated that repealing that legislation would increase the deficit by $230 billion over ten years.
What gives? Why would it cost $87 billion more to repeal the law than was saved by enacting it?
The main reason is that the 10-year budget window moved. The health debate started in 2009, so CBO used a 10-year window that ran from 2010 to 2019. It’s now 2011, so the repeal law will be judged against a 10-year window that runs from 2012 to 2021. The $230 billion figure reflects that longer window. Through 2019, the cost would be $145 billion.
The second reason is that the legislation President Obama signed last spring wasn’t the final word on health reform. In December, Congress was struggling to find a way to pay for the infamous Medicare “doc fix”, which now runs through the end of 2011. To do so, Congress decided to cut $15 billion from the subsidies created by the health legislation. Because those cuts reduced future subsidies, it is now $15 billion more expensive to repeal the overall health reform.
The third reason is that the original health legislation wasn’t just about health policy. It also included fundamental reforms to the way the government subsidizes college loans. The repeal bill wouldn’t undo those changes, which resulted in budget savings of $19 billion over 2010 to 2019.
Finally, the original health reform included about $7 billion in net budget costs during 2010 and 2011. It’s unlikely (to say the least) that the health repeal bill would be enacted in time to avoid those costs.
Bottom line: CBO estimated that the original legislation would reduce deficits by $143 billion over 2010-2019. CBO now estimates that repeal would increase deficits by $145 billion over the same period; the slight difference reflects the education provisions in the original legislation, the 2010 and 2011 costs that can’t be avoided, and the December 2010 changes to the law. The jump from $145 billion to $230 billion then reflects the addition of two years to the budget window.
P.S. The $230 billion figure is preliminary and subject to change once CBO has an opportunity to update its calculations to reflect the latest information about the economy, health care markets, etc.
P.P.S. Aficionados of the health debate will recall that many differences of interpretation surround CBO’s cost estimates for health reform. You can see some of my discussion here.
Three-quarters of Americans believe that entitlement programs such as Medicare and Social Security “will create major economic problems” over the next 25 years. But two-thirds are opposed to addressing these challenges by reducing benefits, and 56 percent are against raising taxes.
And congressional candidates, who read the polls, are scrambling to pander to the free-lunch beliefs of their respective bases. As a result, they are locking themselves into opposing both reductions in future benefits and tax increases.
Houston, we have a problem.
The poll results are from a new USA Today/Gallup survey, but they track other recent research. Even after decades of Inside-the-Beltway entitlement talk, very little has registered with real people. Denial, as they say, ain’t just a river in Egypt. And the result is an exceedingly dangerous political climate in which the nation must try to address its long-term fiscal problems.
The Gallup poll shows the usual partisan divide over both the definition of the problem and potential solutions. Eighty-six percent of Republicans surveyed believe entitlements will cause big trouble, but only 69 percent of Democrats agree. And entirely predictably, more Republicans (41 percent) want to cut benefits than do Democrats (22 percent) or independents (32 percent). By contrast, tax increases are backed by 60 percent of Democrats but only half as many Republicans and 40 percent of independents.
The only good news in this poll is that 62 percent of respondents do want to do something about the entitlement problem. The very bad news is that an overwhelming 88 percent oppose the solution backed by nearly all policy wonks, which is to mix tax hikes with benefit reductions.
This means there will be no solution to the nation’s long-run fiscal problems unless politicians are brave enough to buck these public perceptions. Yet, at least in high election season, pols are being anything but.
Republicans, as they have for years, are increasingly locking themselves into opposition to any tax hikes in any circumstances. Americans for Tax Reform claims that 205 House candidates and 36 Senate candidates, and 174 sitting House members and 34 sitting senators (there is obviously some overlap here) have signed its anti-tax pledge—no tax rate hikes under any circumstances, and no reduction in deductions or credits without offsetting cuts in rates.
Now Democrats have a pledge of their own. A liberal group called the Progressive Change Campaign Committee claims that 237 Democrats, including 11 Senate candidates, 81 House candidates, 12 sitting senators, and 133 incumbent House members have signed its vow to “oppose any cuts to Social Security.”
We’ll see how many of these candidates win, but it is entirely possible that close to a majority of House members have already vowed to neither raise taxes nor reduce promised Social Security benefits—three months before a new Congress is even sworn in.
Okay, we won’t touch Social Security and won’t raise taxes. What about Medicare? You guessed it. There’s another pledge. Republicans, in an effort to attract seniors, are trying to position themselves as protectors of Medicare against those dastardly Democrats who want to constrain the future growth of that program. So the House Republicans Pledge to America blasts the “massive Medicare cuts” in the new health law and vows to repeal them, along with the rest of the measure. All while balancing the budget, of course.
Over the next couple of months, we are going to see at least two bipartisan commissions attempt to thread the needle on deficit reduction. Between polls and pledges, they’ve got quite a chore ahead of them.