The Wall Street Journal has two articles today that help explain how the Obama Administration and Congress can come up with a health care reform plan that I think would even satisfy the “can’t we do better” Blue Dog Democrats–who have just this afternoon pulled out of negotiations with their House colleagues, fed up with the lack of tough choices in the current version of the House proposal.
First, the WSJ’s Laura Meckler says that Obama Administration budget director Peter Orszag really does know what kinds of tough choices are necessary–it’s just not so easy convincing politicians to follow through with them:
President Barack Obama’s health-care plan is in jeopardy because of serious concerns that costs will spin out of control. As much as anyone, it’s White House budget director Peter Orszag’s job to save it.
Mr. Orszag is the administration’s point man for controlling health-care spending. So when the director of the Congressional Budget Office, which Mr. Orszag used to run, testified eight days ago that none of the health plans pending on Capitol Hill would control long-term spending, Mr. Orszag knew that meant trouble.
The wonkish economist likes to say he doesn’t have a “license to practice politics.” But with problems brewing, the technocrat sprang into the thick of the political haggling.
The next day, a Friday, he sent a letter to Capitol Hill detailing a proposal he had been more quietly pitching for weeks — creating a new agency with power to cut spending and implement changes in Medicare, the giant health program for the elderly. He also attached proposed legislative language. It was the most specific that the White House, which has tried to articulate principles and leave details to lawmakers, has been on any aspect of the legislation.
Mr. Orszag then visited rebellious conservative Democrats to try to persuade them the Medicare proposal would address their concerns over spiraling health-care spending…
Mr. Orszag believes that the idea he pitched in his letter to House Speaker Nancy Pelosi last Friday — a new agency with power to cut spending and implement changes in Medicare — is the single-most important thing Congress can do to control health-care spending.
The Medicare Payment Advisory Commission, created by Congress in 1997, has recommended more than $200 billion in cost cuts in the last year alone that lawmakers have ignored. Mr. Orszag wants to reconstitute the commission as an independent agency whose recommendations would automatically take effect — unless Congress expressly stops them…
Mr. Orszag’s ambitions extend beyond “scorable” spending cuts — reductions in federal spending that can offset the cost of expanding health-care coverage. The administration, he says, also is looking for ways to curb costs borne directly by individuals and businesses. To that end, Mr. Orszag wants to change the way medicine is delivered.
One idea is to change incentives so doctors focus more on delivering better care, not more treatments. The administration has proposed financial penalties for hospitals that frequently readmit patients, a sign they weren’t properly treated in the first place. Mr. Orszag calls such ideas game-changers.
“If all you did was the game-changing transformational stuff, you would be taking a risk that it wouldn’t pay off,” he says. “And if all you did was the blunter ’scorable’ savings, it won’t be sustainable, and you’re not getting at the inefficiencies. So it makes sense to do both.”
…and the WSJ’s “Capital Journal” columnist Gerald Seib explains that tax reform needs to be part of the “health reform” effort. Without a more careful rethinking of the federal revenue system, we won’t be able to come up with a popular and economically sustainable way to pay for health care reform:
In an interview a few weeks ago, I asked President Barack Obama what he thought the top tax rate for the wealthiest Americans should be in the long run. He paused and gave a carefully calibrated answer: “I think instinctively that the tax rates that existed for the very wealthiest Americans under Bill Clinton struck the right balance.”
That’s a politically shrewd response. The top tax rate of 39.6% that prevailed in Mr. Clinton’s time was well below the suffocating 70% top tax rates that prevailed in the 1960s and 1970s, but just a notch above the 35% top rate created by George W. Bush’s tax cuts.
The problem is that, in just the few short weeks since, events may have begun shredding Mr. Obama’s position. And that, in turn, is a signal that the whole question of who pays what in taxes in America is going to have to be reconsidered.
Today’s health-care debate is only the latest signal. Mr. Obama insists he won’t sign a health-system overhaul that adds to the deficit; it will have to pay for itself. Democrats on the House Ways and Means Committee, desperate to comply, decided two weeks ago to adopt the simplest possible solution: They voted to simply add a surtax on Americans with family incomes above $350,000.
That surtax, however, would push the top tax rate above the Clinton line for some, which led to sticker shock among some wealthier Americans who broke away from the Republican Party to back Mr. Obama in last year’s election. It also sent a shock wave through many in the small-business community, who pay taxes at the top personal rate.
Within a few days, House Speaker Nancy Pelosi began to edge away from the surtax plan, saying that she wanted it to apply only to families that make $1 million or more annually. In a news conference Wednesday night, Mr. Obama embraced the same position.
But even a narrower surtax on the wealthy comes with a significant downside: It makes it harder in the long run for Washington to escape the corner it has backed itself into.
…and an even narrower surtax on the (even) wealthier would make the required top marginal tax rate even higher. Ugly. Note that the Tax Policy Center’s estimates show that current law, where the Bush tax cuts expire as scheduled at the end of 2010, would automatically achieve that very “right balance” that President Obama talks about–those “tax rates that existed for the very wealthiest Americans under Bill Clinton”–with a top marginal rate of 40 percent. In contrast, President Obama’s proposed tax policies (where most of the Bush tax cuts are extended) coupled with the House-proposed surtax, would cause the top marginal rate to rise to nearly 45 percent.
Then what can be done to raise the necessary amounts of revenue for health reform (and fiscal sustainability more generally) while sticking to the Clinton standard for tax policy? President Obama himself seems to recognize that it’s time for a major change in tax policy, too:
The money to climb out of that [fiscal] hole is going to have to come from somewhere.
Ask administration officials how they plan to get out of that bind, and they often will say: The tax system will have to be reformed to come up with a better way to pay the bills. Mr. Obama noted in the Journal interview that an overhaul could “end up generating the revenues that we need to run the basics of our government” in a fairer way.
And that’s yet another reason why President Obama shouldn’t be so quick to offer up the Bush tax cuts as the major component of his proposed budget–certainly not if he wants to do Obama health policy, in a fiscally-responsible manner, right away.