The Blahous dust up

Jonathan Bernstein with a post decrying the poor job the WaPo Ombudsman did in describing the controversy around the piece put out last week by Charles Blahous that said the ACA will increase the deficit (contro to CBO’s longstanding estimates). I was with my family in a car heading South on I-95 reading about the unfolding controversy on twitter last week, and so I didn’t post on it. However, even now, it is mostly being described as a dust up over double counting (how can something help the deficit and Medicare). Jonathan Chait has a good piece debunking this claim, Kevin Drum has a nice illustration of why this is not a valid claim, and Josh Barro adds a bit more on how this interpretation undermines one of the conservative charges leveled against the President. This is an old argument, rehashed.

The primary issue with the Blahous study is his development of a new baseline against which to compare the ACA. As I tweeted last Tuesday as we sped to vacation wonderland (I wasn’t driving)

(Here are Avik’s posts including Chuck’s guest post response: here and here).

The baseline used by Chuck Blahous essentially says that when tax inflows are no longer large enough to pay for Medicare outlays, then they will be cut to equal tax inflows; this is what is set to happen by law, but then again so are the cuts to Part B payments under the SGR. The baseline he used in this study to estimate the ACA’s impact on the deficit essentially says, Voila! There are no long term financing problem with Medicare after all, we will just fix them when we have to do so, using some sort of secret plan to cut Medicare spending (he seems to have backed off this later, but if so, the ‘stop the presses’ aspect of the paper is gone). As compared to this (very large, hypothetical) cut in Medicare expenditures cooked into the baseline used by Blahous in his study, the ACA would increase the deficit. That is a bit like me saying if I was a faster runner, I could be a professional marathoner. My point is that the main action in this study is comparing the ACA to a baseline that is unrealistic, not double counting.

Now what I would really like to read would be Chuck Blahous’ thoughts on what type of health reform strategies that we should undertake, especially ones that could do away with the long term financing problems faced by the program. I mean that sincerely because he is a great analyst with lots of experience, this just wasn’t his best.

update: edited for clarity.

Bartlett on tax reform

Bruce Bartlett’s suggestion in Economix (h/t @afrakt) would be a big change, namely get rid of the income tax for most persons (those under $100,000 income) and replace it with a 12.5% VAT. His motivation for ending the income tax code for most is doing away with tax expenditures without having to take them on one by one. I have a post later today that has a similar logic of getting rid of the corporate income tax because it is exceedingly hard to levy such a tax.

Bruce notes (and many others have) that the Bowles-Simpson plan was rejected with only 38 votes a few weeks back. However, it wasn’t really the same set of policies contained in the report. The bipartisan group decided they were going to call it that I guess, but it is not so clear why. Just call it a bipartisan budget that was the best we could do (and which obviously didn’t have much support). The Bipartisan Policy Center seems to be the only place pushing back against this meme.

Maybe it is not that important, I just don’t get why people cannot be more precise.

Should we take Ryan’s health policy plans seriously?

Only if the focus of attention quickly shifts to the Commerce and Ways and Means committees in the House of Representatives. That is where the heavy lifting of any health reform proposal must be done, as it was with the Affordable Care Act. As long as the Budget committee and Rep. Ryan remain the focus, the health policy aspects of the proposal are mostly talk.

Rep. Ryan this morning unveiled the beginnings of the House Budget committee’s budget resolution for the Fiscal Year 2013 budget, and here is CBOs early take, though it is important to remember that they have not analyzed the specific policies contained in the Budget Resolution.

The calculations presented here represent CBO’s assessment of how the specified paths would alter the trajectories of federal debt, revenues, spending, and economic output relative to the trajectories under two scenarios that CBO has analyzed previously. Those calculations do not represent a cost estimate for legislation or an analysis of the effects of any given policies. In particular, CBO has not considered whether the specified paths are consistent with the policy proposals or budget figures released today by Chairman Ryan as part of his proposed budget resolution.

CBO has essentially said, if this budget performs exactly as Chairman Ryan says it will, this will be the top level result; CBO will eventually weigh in on whether they believe the numbers add up, but they have yet to do so.

On the big picture health policy front, Marilyn Serafini has a quick take, and notes that the FY 2013 budget sets a Medicare growth target of GDP growth plus 0.5%–more aggressive than his 2012 budget target of GDP plus 1.0%–but matching the goal set out by President Obama’s budget. So, they have agreed on an overall health care cost inflation target for Medicare, but not on the details of how to get there.

The details are really important.

That is where the Commerce and Ways and Means Committee’s come in. They have jurisdiction over health care (as does the Budget Committee) and they will have to discuss, mark up and pass very detailed health policy legislation to bring about any sort of premium support/competitive bidding policy (TIE FAQ key reading on topic) such as what is suggested in this budget. It is instructive to remember that the health policy provisions contained in last year’s budget resolution did not see the light of day in either Commerce or Ways and Means, or the Budget Committee for that matter. Nor has Rep. Ryan’s Patients’ Choice Act (post on the PCA with multiple links), which is a plan to reform health insurance for the under 65 set that he introduced on May 20, 2009 ever been marked up by one of these committees so that it could be scored by the CBO. And Republicans have been claiming to be interested in replacing the ACA, but have taken no actual (hard) steps to do so.

So, there is a bit of a pattern here: lots of noise and no follow through on the health policy details. So, unless you start hearing more of the names Fred Upton (Commerce) and Dave Camp (Ways and Means) and less of Paul Ryan, you will know the health policy provisions contained in this budget are not serious.

College students and deficit reduction

This post is cross posted at The Incidental Economist.

Last week the students in the class I co-teach with David Schanzer (Gridlock: can our system address America’s big challenges?) completed an in-class exercise created by the Concord Coalition that lets people devise their own plan to reduce the federal budget deficit (or not) over the next 10 years. A brief report on what they (10 groups of about 4 each; mostly undergrads, with a few grad students) decided.

  • 9 of the 10 groups embraced policies that would reduce the federal deficit over the exercise baseline (which includes taxes greatly increasing on Jan. 1, 2013 and the implementation of the ~ $1.2 Trillion in spending cuts agreed to in the debt limit deal).
  • The spread of the difference between the groups was over $5 Trillion over 10 years (a $430 Billion increase in the deficit to a $4.7 Trillion decrease, over 10 years; half of the groups identified deficit reduction of over $3 Trillion, again as compared to the baseline noted above).
  • You can download the materials we used (and you can use with a class, etc.) here.
  • The students engaged in long discussion about investing more in some areas, while cutting in others.
  • Any such exercise necessarily simplifies the choices available, and this one boils it down to 40 choices about spending and taxation. The portion of the exercise that students were most frustrated with was the section on health care and Social Security. They wanted more nuance than was available in this section. For example, it offers the choice to repeal the ACA, or not. Likewise, they wanted more subtlety to address Social Security with a mix of benefit cuts and taxes.

There are other models available for such an exercise, and I highly recommend the online budget simulation tool developed by the Committee for a Responsible Federal Budget. It provides a bit more nuance in some of these key areas than does the tool produced by Concord, but the materials from Concord were more suited to an in-class group discussion format. Tradeoffs! Both are excellent tools to get students (and anyone) thinking about the choices our nation faces.