Digging Out of a Big Debt Hole

Just where do your tax dollars go in Washington? According to Congressional Budget Office figures for fiscal year 2010:

  • Health: 24%
  • Defense and Social Security: 20% each
  • Safety net programs: 14%
  • Interest on debt: 6%
  • Everything else: 16%

The troubling figure is the smallest percentage listed above. Within 10 years, interest payments will rise to 9% (barring a reveral of course) with $1 trillion being doled out and none of it going to debt principal. Based on current tax rates, nearly half of all income tax revenue would be needed just to pay the interest on the national debt.

That’s an Unhappy New Year thought. Washington lawmakers and bureaucrats are you listening: Act now to give all a fighting chance in the future.

Revisiting the Deficit: 15% Left Over for You?

It’s hard to believe that Ross Perot’s heyday was 18 years ago. For those younger folks, Perot was the independent presidential candidate who used infomercials and charts to effectively communicate that the federal government was spending too much money.

Getting people to understand budget deficits, however, is usually quite a bit trickier. The Tax Foundation may have found a way with its new analysis. Some details below and a full link here, but the bottom line on erasing the current deficit: Instead of couples paying income tax rates that range from 10% to 35%, try these on for size — 24.3% to 84.9%. Translation: future generations are going to be paying the price for years and years to come.

At no point in the next ten years, according to the Obama Budget, will the deficit ever shrink to as little as 3 percent of GDP. According to the CBO (Congressional Budget Office), it will never even get as low as 4 percent. And the dire deficit predictions of reliable nonprofit groups like the Pew Trust and Peterson Foundation are even more alarming: the deficit won’t even shrink to 5.5 percent of GDP in their analysis.

‘Mind boggling’ is the term Martin Sullivan of Tax Analysts uses to describe the tax and spending changes that would have to occur just to get the deficit down to 3 percent of GDP.

"Our gridlocked, dysfunctional Congress simply cannot bring itself to absorb these types of painful shocks," says Sullivan. "Given these unprecedented pressures I believe that within the next decade there is more than a 50-50 chance there will be an upheaval either of the political system or the economy."

The trouble with political discourse about the deficit is that voters are often numb to the subject, and as a result, politicians are able to avoid the unpopular votes for cutting spending or raising taxes. Whether deficits are expressed in hundreds of billions of dollars or percentages of GDP, their importance is hard for leaders to convey or for the public to grasp.

But as big as deficits were back then (the early 1990s), they were never so huge that they couldn’t be remedied by holding down the rate of spending growth and adding a couple points to an income tax rate. Now, as the table below shows, that is out of the question. Even in 2012 or 2015 when the effects of the housing bubble and the fiscal stimulus have dissipated, the rate hikes required to balance the budget are unthinkable. 

Health Care Bill Draws Ire for Questionable Numbers

Jeffery H. Anderson of the Pacific Research Institute has a column published in today’s New York Post, labelling the latest health care reform bill as a harbinger of fiscal disaster. He also calls it a fraud (so, you know, not a fan). He contends:

The Senate Finance Committee yesterday voted on a fraud: Sen. Max Baucus’ "responsible" health-reform bill is actually a recipe for fiscal disaster — and the Congressional Budget Office report that supposedly bolstered the bill actually exposes it.

As others have noted, Baucus used all manner of budgetary gimmicks to oblige the CBO to give him the headlines he needed — a supposed pricetag of "just" $829 billion over 10 years, with enough other spending cuts and tax hikes to avoid adding to the federal deficit. But the CBO exposed the truth by taking the rare step of calculating what the bill would cost in its second 10 years.

In its second decade alone, the CBO projects, the bill’s costs would triple — to $2.8 trillion. The taxes and fines it levies would also triple — to $1.8 trillion. And its cuts to Medicare and related federal health programs would quadruple — to $1.9 trillion.

In its first two decades combined, the bill would cost $3.6 trillion and would raise taxes by $2.3 trillion.

Baucus’ most elementary trick was to have the bill’s "first 10 years" include several years when it hadn’t really kicked in. It was scored for 2010 to 2019, yet it wouldn’t be in full swing until 2015 — when its costs would exceed those of its first five years combined.

In fact, the bill wouldn’t cost anything in 2010. In its real first decade (2011-20), it would cost more than $1 trillion.

Furthermore, the CBO projects that, by the end of 2030, the Baucus bill would have cut spending on Medicare and other existing health programs by more than $2.6 trillion.  Continue reading

Putting a Price Tag on Health Care Proposal

The Senate Finance Committee is expected to pass its version of health care reform legislation today. But a new report — titled Potential Impact of Health Reform on the Cost of Private Health Insurance Coverage — warns about the likely impacts on individuals, families and businesses.

The PricewaterhouseCoopers study looks at four key provisions:

  • Insurance market reforms coupled with a weak coverage requirement
  • A new tax on high-cost health care plans
  • Cost-shiftng as a result of cuts to Medicare
  • New taxes on health care sectors

Health care costs are going to go up absent any reforms. With this combination of provisions, the increases are projected to be significantly higher. How high? According to the study, the cost of private health insurance coverage will increase:

  • 26 percent between 2009 and 2013 under the current system and by 40 percent
    during this same period if these four provisions are implemented
  • 50 percent between 2009 and 2016 under the current system and by 73 percent
    during this same period if these four provisions are implemented
  • 79 percent between 2009 and 2019 under the current system and by 111 percent

The authors wrote: "Market reform enacted in the absence of universal coverage will increase costs dramatically for many who are currently insured by creating a powerful incentive for people to wait until they are sick to purchase coverage."

Additional analysis and numbers are expected from the Congressional Budget Office after committee approval and before floor debate. This report certainly gives all involved something to consider.

Congress Returns, Obama Ups Stakes on Health Care

In a primetime address to a joint session of Congress, President Obama upped the stakes on health care reform – indeed, he may have staked the success or failure of his presidency on this issue and the debate has enormous consequences for the 2010 mid-term elections. Obama’s speech was combative; he both invited input from minority Republicans and challenged their opposition to present proposals. He also chose to attack the veracity of claims and arguments against his policies, asserting that "we will call you out" on false claims. In the wake of the president’s speech – which was interrupted by catcalls and one congressman calling the president a "liar" – the partisan environment on Capitol Hill could not be more toxic. The fundamentals of the bill and the policy debate have not really changed, however. Numerous provisions include mandates on employers to provide coverage or pay penalties, mandates on insurance companies to provide coverage and mandates on individuals to purchase coverage or pay penalties. A government-run "public option" remains a key sticking point, with Republicans adamantly opposed and Democrats deeply divided over the issue. 

The Congressional Budget Office analyses of the various drafts of legislation have been less than comforting, citing increased (rather than decreased) costs for the federal government (i.e., taxpayers) over the next decade with an acceleration of costs in future decades. This will exacerbate the federal deficit and is at odds with the president’s stated goal to "not add one dime" to the deficit.

The Indiana Chamber is engaged in the debate and conferring with its membership as the situation develops. The Chamber will also be taking a delegation of the state’s business leaders to Washington for its annual D.C. Fly-in event on September 23-24, at which time direct communication on this issue will be made to Indiana’s congressional delegation. The Chamber maintains that incremental, yet fundamental, changes in the areas of medical liability reform, health information technology and more consumer-driven health options are necessary first steps to controlling the costs of health care and extending private health care insurance to more Americans.