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  • The Obama Budget Plan: Taxes and Rationing

    Bad News

    Suddenly, the Obama administration and Democratic congressional leaders seem to want health-care news stories to fall off of the front page.

    This week, House Energy and Commerce Chairman Henry Waxman abruptly cancelled a high-profile hearing he had called just days earlier to berate corporate CEOs who dared to tell their investors that the health-care bill would raise their costs. It seems to have dawned on Congressman Waxman and his staff that his transparent effort to intimidate anyone who tells the truth about the legislation could actually backfire on him and turn into a PR disaster.

    The Democratic contention that the bill actually lowers costs for American business is not supported by any rigorous analysis that would justify use in auditable corporate accounting methods. The Business Roundtable study that many Obamacare advocates like to cite as proof of the bill’s savings provides no such proof at all. The prediction of cost savings in the study, from the mostly minor provisions in the legislation aimed at “delivery system reform,” are highly speculative at best. Indeed, the study itself notes the potential for much higher costs and cites many cost-cutting provisions that are not in the new health law.

    What is certain is that the new health-care law reduced the value to America’s corporations of federal support for retiree drug-benefit coverage. That means it will cost these companies more to provide such coverage in the future. There’s no disputing that. Indeed, there’s no disputing that the companies had an obligation to acknowledge this cost in their financial statements. One way or another, some Americans will be forced to pay higher costs because of this provision, in the form of reduced prescription-drug benefits for retirees or reduced value for the shareholders of the firms in question.

    Perhaps Congressman Waxman realized the tables might actually get turned on him this time. A hearing in which Democratic congressmen lectured private-sector CEOs — CEOs who employ tens of thousands of people — for following the law and telling the truth would only make an out-of-touch Democratic Congress look even more disconnected from reality.

    Democrats are also contemplating (though no decisions have been made) shelving consideration of the congressional budget resolution to avoid having to debate levels of taxation, federal spending, deficits, and debt before the midterm election. The budget resolution is the annual blueprint that sets parameters for considering budget-related legislation during the rest of a congressional session.

    Their reticence is understandable. President Obama is presiding over the largest expansion of the federal government in a generation, even though the federal government is already rushing headlong toward a debt crisis. The government is expected to run a budget deficit in excess of $1 trillion in 2010, after running a deficit of $1.4 trillion in 2009. And that’s just the beginning of an endless sea of red ink. The Congressional Budget Office expects the Obama administration’s latest budget plan would push the nation’s debt to more than $20 trillion in 2020, up from $5.8 trillion in 2008. No wonder congressional Democrats want to change the subject.

    But no one should be fooled into thinking the administration and its allies in Congress will never again revisit the budget and health care. They will — largely because the president will have no choice. He is presiding over a spending and borrowing binge unlike anything ever experienced in the nation’s post-war history. And it can’t go on much longer before it will precipitate an economic crisis of one sort or another.

    So the president and his team will come back to the budget, just not before the midterm election. That’s the whole point of standing up the debt commission. To every question about runaway deficits and debt, they have a ready answer to divert the press.

    But, as Charles Krauthammer noted recently, there are signs aplenty of what the administration will push for when they do come back to the budget gap, probably just after the midterm election. It’s no accident that the debt commission will make its recommendations known only after the November elections. That way Democratic candidates can run for office by suggesting the commission will solve our budget problems without ever having to specify any tax or spending cut.

    However, when the administration does make a push for closing the budget deficit, its plan will start with the mother of all tax increases, probably a value-added tax (VAT). With the problem as big as it is today, Democrats will see no use in nickel-and-diming it. With a VAT, they would get a large new revenue stream, not collected directly from voters, and one that they could expand endlessly as they further enlarge the government.

    But an Obama-style budget fix almost certainly wouldn’t end there. To get a tax increase, he and his advisers surely realize they will need to look like they are cutting some spending too. And, contrary to some perceptions, liberals are definitely willing to cut some entitlement spending; it’s just that they insist it be done in only one way: with price controls on payments to medical providers.

    Look at the recently enacted health-care bill. It includes large cuts in Medicare’s payments to hospitals, nursing homes, and others. These cuts aren’t calibrated based on quality or efficiency. They are across-the-board cuts hitting every service provider. And the bill also stands up a new independent board that is charged with essentially enforcing a cap on overall Medicare spending beginning in 2015. But the only changes in Medicare the board can recommend to stay within the cap are more reductions in provider-payment rates. The board can’t touch the Medicare benefit, much less propose a Ryan-style move toward more choice and market competition. No, the only option is more and deeper price controls.

    So, it is entirely predictable where Democrats will turn when they need show their willingness to cut entitlement spending. They will push to broaden the reach of Medicare’s price controls to parts of the health system currently beyond their reach, including prescription drugs and the federally subsidized insurance arrangements enacted as part of the new health-care law. It will be one more step toward their ultimate goal, which is a fully government-run health system, with all that entails — including waiting lists and restricted access to care.

    ?Cross-posted at Critical Condition.

    Posted in Obamacare [slideshow_deploy]

    3 Responses to The Obama Budget Plan: Taxes and Rationing

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