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Hope and Despair

January 15th, 2010 . by economistmom

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Some hopeful news on the health reform negotiations regarding the revenue offset, reported by Ezra Klein:

On a 4:30 p.m. conference call, representatives of the labor movement triumphantly announced the details of their excise tax deal, and I’ll list them in a moment. Before I do, however, here’s the bottom line: The excise tax is virtually unchanged.

The major elements of the excise tax are, first, the threshold at which plans begin getting taxed, and second, how quickly that threshold grows. In the Senate bill, the tax begins on family plans costing $23,000 a year, and that sum grows at the rate of inflation in the Consumer Price Index plus one percentage point (so if inflation that year was 3.3 percent, the threshold would grow by 4.3 percent).

In the excise tax deal announced today, the threshold becomes $24,000, and the growth rate is exactly the same. The basics of the tax are virtually unchanged. The other elements of the deal are that vision and dental coverage aren’t included in the taxable cost of the plan; there are adjustments for the age and gender of the pool (so if your insurance is expensive because everyone in your group is 52, there’s an adjustment for that); and it doesn’t hit union plans until 2018, which gives them time to renegotiate their contracts — – presumably rebalancing their compensation away from expensive insurance plans and towards higher wages, which is exactly what the tax is supposed to.

But also some despair on the deficit reduction front, as CQ reported the AARP’s objections to the little shreds of fiscal discipline we deficit hawks were clinging to:

The powerful AARP lobby on Thursday called on senators to defeat a proposal to create a debt-fighting commission, as well as any plan to put the “pay-as-you-go” budget rules into law.

Both approaches to stemming the tide of red ink will be considered as floor amendments when the Senate begins debate Jan. 20 on legislation to raise the debt ceiling…

The same CQ story explains why “by transitivity” we’re unlikely to get Congress to even agree on a commission, if that commission in turn is expected to recommend proposals that actually reduce the deficit (emphasis added):

[Senators] Conrad and Gregg say such an approach is the only way to get Congress to pass politically dangerous cuts to programs such as Social Security, or equally unpopular tax increases.

AARP is just the latest organization to denounce the idea. Liberal groups have become increasingly vocal in their opposition to the commission, echoing AARP’s warning it would cut Social Security and Medicare benefits. And some conservatives are now opposing the idea on grounds that it would result in tax increases.

The commission amendment will need 60 votes to be adopted, which appears highly unlikely at this point.

When are we going to start letting kids vote and have as much say about their economic future as these people who will be long gone by the time the consequences are realized?  All the arguing and so-called “compromising” among the older folks regarding the course of fiscal policy (”No, get your hands off my Medicare”…”Then you get your hands off my tax cuts”) just ends up “cutting the baby in half”–over and over again.

20 Responses to “Hope and Despair”

  1. comment number 1 by: AMTbuff

    Democrats are touching a raw nerve by excluding all government employees (including state and local) from the excise tax until 2018. Voters are already upset at ultra-generous pensions, higher salaries, and immunity from firing that government employees enjoy, all at taxpayer expense.

    I believe this latest deal is a major tactical error, unless the idea is to provoke outrage so that proponents can make a show of accommodation by backing off to the current Senate bill.

  2. comment number 2 by: SteveinCH

    I agree with AMT. I think Ezra is just off when he calls the excise tax virtually unchanged. I have no idea what the percentages are but as I understand it, the tax does not apply to government employees, nor to “existing contracts”. The net effect of this will be to exclude all union workers for a period of time and all government workers until 2018.

    The day will come when the this is put with the statistics that show that government workers are actually getting paid more now than private sector workers are. The day that idea makes it through our collective consciousness, it will be interesting to see.

    My own take is that this is a relatively large win for the unions and pro-HCR voices like Ezra are trying to play that down in how they present the facts. Remember ofc, that a future Congress can (and if in Democratic hands almost assuredly will) extend this “exemption.”

    Long story short, this is a vote buying exercise of the highest magnitude. This supposedly universal bill may be the least universal piece of legislation passed in my lifetime.

  3. comment number 3 by: SteveinCH

    Quoting Rich Lowry in the New York Post,

    “But pressure from the unions has now forced the White House to agree to raise the $23,000-per-household threshold of the tax slightly and - more importantly - exempt insurance plans that are the product of collective-bargaining agreements until 2018. This Labor Loophole stands in the finest tradition of the Louisiana Purchase and the Cornhusker Kickback. With no possible public-policy justification, it puts the awesome power to tax and spend at the service of nakedly political ends.”

  4. comment number 4 by: Brooks

    Re: the post, it is indeed frustrating and sad to see the ongoing unwillingness to compromise among folks at the ideological extremes who are delusional in thinking that their respective ideal solutions to our long-term fiscal imbalance are politically plausible.

    What would be comical if it weren’t so harmful is that the opponents of a SAFE-style budget commission from each extreme don’t just reject compromise, but they each assert (or at least strongly imply) that the commission would be nothing other than a mechanism through which the other side could avoid compromising! The Club for Growth / Redstate.com folks and others of their ilk portray a commission as leading entirely (or almost entirely) to tax increases rather than any (or any significant) cuts in projected spending, while the Dean Baker dittoheads portray a commission as leading entirely (or almost entirely) to huge cuts in Social Security and Medicare (with a particular fixation on the insistence that the secret plan is to “destroy” Social Security). So they aren’t just diametrically opposed in terms of what outcome they would like, they are also diametrically opposed in terms of what outcome would occur, even though the latter is an analytical matter that shouldn’t be influenced by preferences.

    Oh well, I guess people with a strong capability for ideologically-convenient self-delusion (reinforced by surrounding their minds with like-minded people like radio personalities and fellow hyperpartisans on echo chamber blogs) are inclined to apply that capability wherever opportunities arise.

  5. comment number 5 by: SteveinCH

    Brooks,

    I think that may be why there is a more fundamental discussion that needs to go on before a SAFE commission can succeed. We simply need to decide/confirm what it is that the Federal government is and is not supposed to do.

    For example, is it the role of the Federal government to improve education? to provide benefits to the poor? to provide benefits to others? to incent certain behaviors as opposed to declaring some criminal and the others not?

    I worry that anything like the SAFE commission has low probability of success in the absence of such an agreement. Yes such an agreement would be extraordinarily difficult to achieve but, in it’s absence, I don’t know how you set budget priorities and using the budget to argue about priorities is simply the wrong way to do the exercise.

  6. comment number 6 by: Brooks

    Steve,

    Unless one takes the position that a given function or program of government would do more harm than good even if it cost taxpayers nothing (meaning there isn’t even a trade-off between financial cost and net benefits), the question of “what government should do” is really “What would, leaving taxpayer cost aside, provide net benefits AND be worth the financial cost to taxpayers after taxpayers have already paid for everything providing greater cost-benefit “value”.

    In other words, there may be lots of things we think are not inappropriate or net harmful for government to do, and which we think would be nice to have, but given the trade-off between those benefits and lower taxes, and given the trade-off between spending on that program/function vs. some other, budgeting is all about trade-offs (”Is the best use of the money to take it from taxpayers instead of letting them keep it, and spend it on this program rather than something else?), not absolutes like “Do we want government doing this?” So I respectfully completely disagree that the sequential approach you suggest would be rational other than to identify any programs/functions that we wouldn’t want government doing even if it cost taxpayers nothing.

  7. comment number 7 by: SteveinCH

    Brooks,

    Thanks for the response. I hear your point on the fact that everything can be seen as a type of ROI argument. I must say though that I don’t agree. Since many of the benefits described are “social” in nature, the ROI of spending is largely in the eye of the beholder.

    Let me take one very small example. Should the government pay money to seniors regardless of their income or wealth (as it does today)? If you take this on an ROI basis, you will get a large number of perspecitves on the ROI of talking money from Peter to give to Paul.

    On the other hand, it seems reasonable to me to ask different questions such as, should we give money to people who have income/wealth above the median of people in the country? Maybe you view this as the same type of an ROI question, but, to me at least, they are qualitatively different.

    I believe we need to reevaluate the (in some case implicit) social contracts we have in this country. I believe a discussion about those contracts is at the core of any discussion about tradeoffs on spending and taxes and would prefer to have a direct as opposed to an indirect conversation.

    To take your line of thinking one step further. There are some things that government should/must do (most/all of which are in the Constitution), there are some things it arguably can do (nice to have) and there are probably some things it should not do.

    If we agreed on categories 1 and 3, it would provide a lot of guidance on how to answer the questions in caegory 2.

  8. comment number 8 by: SteveinCH

    Brooks,

    Just one more point. I think taking a totally ROI view of the Federal government actually runs the risk of ignoring the liimited nature of the Federal government spelled out in the Constitution. Just because a program has a positive ROI does not mean the government should/can do it.

    Takings is one example of this. Undoubtedly, there are many examples of where government could create positive ROI by transfering property from one citizen to another but it’s ability to do this is sharply (less sharply now than in the past I will admit) constrained by the Constitution (be it Federal or State).

  9. comment number 9 by: Jim Glass

    I love Ezra’s definition of “virtually unchanged”

    Just ignore all changes and there you are!

    (One of my kids right now today is having root canal work that would cost about $2,000 without insurance. What’s the value of dental coverage, Ezra? “Virtually nothing!”)

    It’s the very start of 2010 — does anyone really believe the unions couldn’t possibly renegotiate their benefits in light of this law before … 2018?

    And come 2018, what’s going to be easier for them then — negotiate a reduction of their health benefits that their members will hate every bit as much as if they had negotiated it in any of their prior contracts during 2010-2018 … or simply renew the exemption of the tax for them that, after all, has already been law for a good eight years?

    “Virtually unchanged” Are the unions telling their member: sorry guys, but the best we could get for you is only this, which is virtually no change at all. Don’t be too angry at us, please.

    BTW, what’s the public policy reason for excluding only union members from this change until 2018? Why not everybody?

    I mean, if it’s virtually no change at all, why not include everybody, as “virtually unchanged” surely can’t cost much. Include me too! I need my dental benefits tax-free as much as any union member does.
    ~~

    … AARP is just the latest organization to denounce the idea. Liberal groups have become increasingly vocal in their opposition to the commission, echoing AARP’s warning it would cut Social Security and Medicare benefits.

    Remember, it is being solemnly promised that 40% of the cost of the health care reform will come from cuts to Medicare.

    We all still believe that, right?

  10. comment number 10 by: Brooks

    Steve,

    Re: the ROI of spending is largely in the eye of the beholder.

    Surely. That’s why we have a democratic process for deciding such things. I do realize the libertarian argument that one shouldn’t have some of his property (his money) confiscated to give to others for a given reason regardless of the majority preference, but since even that is subjective and a matter of personal preference, that too is, in effect, considered and reflected in the democratic process, albeit only to the extent that the majority constrains itself in
    recognition of those libertarian principles.

    Re: To take your line of thinking one step further. There are some things that government should/must do (most/all of which are in the Constitution), there are some things it arguably can do (nice to have) and there are probably some things it should not do.

    I think my prior comment covers that, but to address the above framework: For anything in your Category 1 (e.g., defense of the nation), we are still left with the question of how much to spend on it (“Should the Defense budget be $100 million? $100 billion? $500 billion?”), as opposed to either spending a given amount of money on something else or leaving it in the hands of taxpayers, so for all practical and budget decision-making purposes, it’s essentially the same as any of “nice to have” program/function, even if we are obligated to have government perform that function to some degree. I see your Category 3 as the programs I described as those that would do more harm than good (as government functions) even if they cost taxpayers nothing. So in practical, decision-making terms I don’t see how your framework deviates from the one I presented. As I said above, it may be useful to try to reach agreement to the extent possible on what programs/functions fall into that last category prior to moving on to the matters of how much to spend and how much on what.

    Re: Just one more point. I think taking a totally ROI view of the Federal government actually runs the risk of ignoring the liimited nature of the Federal government spelled out in the Constitution. Just because a program has a positive ROI does not mean the government should/can do it.

    When I speak of cost-benefit, or if you prefer ROI, I’m speaking broadly, including the “cost” of confiscating individual’s property against their will insofar as taxation does so. The Constitution provides for the democratic process to decide if a program has such a positive ROI by this broad definition of ROI, within whatever constraints there are so as not to infringe on individual liberties per the Constitution (as determined ultimately by the Supreme Court when necessary). Obviously one is free to disagree with where the Supreme Court draws those lines at any given time, but the Constitution makes the Court the ultimate arbiter of what the Constitution says and implies.

  11. comment number 11 by: Brooks

    Steve,

    On a totally separate matter, I see that you are commenting over on Capital Gains and Games. A funny thing has happened since a few weeks ago when I vigorously challenged Stan’s and Bruce’s arguments against a budget commission like the SAFE commission concept: my comments submitted as “Brooks” aren’t getting posted, with just a couple of exceptions a week or two ago. Interestingly, when I tried on a few occasions to comment on other topics as “Yet Another Budget Wonk” (the default there), my comments were promptly posted…until I submitted a (brief) comment as “Yet Another Budget Wonk” that mentioned the merits of such a commission (in reply to a relevant comment by another commenter). THAT comment was not posted.

    I’ve been trying to find out from their technical guy Troy if there’s some technical problem, and he said he’d ask Stan and Bruce if they were intentionally discarding my comments and get me the answer, but that hasn’t happened. I’ve had some correspondence with contributor Andrew Samwick (who I think is great) over the last couple of weeks as well, and he was to check with Stan and Bruce, but no answer from him either. I preferred not to ask Stan and Bruce directly because that might carry greater risk of offending them if neither has been discarding my comments containing opposing views, but last Tuesday I finally emailed Stan directly contact form, asking very diplomatically. No answer has come from him. Nothing but an auto-reply on Tuesday.

    I think you’ve been commenting there for only a short time, but have you had this experience on CG&G — comments containing opposing views not getting posted?

    Anyone else who has had this experience on CG&G or can shed any light on it, please let me know.

    I know some bloggers engage in the extremely lame practice of blocking/deleting comments with opposing views, but at least at first I assumed none of the CG&G contributors would do such a thing. I’ll continue trying to get an answer. Seems to me someone should at least take two seconds to let me know whether or not he is doing so.

  12. comment number 12 by: SteveinCH

    Brooks,

    Yes I have had the same experience on occasion, one particularly critical post I had did not get posted despite my reposting it. Not sure what’s up with that but there you have it.

    Regarding the discussion above, I think there are things in bucket 3 that are not simply negative return options. There are clearly restrictions (increasingly few) on what government can do and just to correct your point a little bit, SCOTUS actually made itself the arbiter of what is Constitutional. There’s actually nothing in the document that gives them this power.

    I’ve posted elsewhere (but off topic here) how far the SCOTUS understanding of the document varies from the words in it but that’s a topic for another day (and a book I keep meaning to write).

  13. comment number 13 by: Brooks

    Steve,

    Thanks for letting me know re: CG&G. I’m still going to try to get at least a simple “yes” or “no” from them on whether or not someone has been discarding my comments rather than posting them. If so, although I’d like to hear the ostensible rationale, it would be a mere pretext for excluding arguments that diminish or refute the arguments presented by the contributor(s).

    Re: bucket 3 and negative return, we may be missing each other on definitions. Again, I’m including as a “cost” the drawback of taking property (money) from people who don’t wish to give it for that purpose.

    Interesting point re: SCOTUS. I’ll have to read up a bit on that (thanks). In any case, I assume you agree that it is a settled matter (or at the very least how it is today and very unlikely to change in the foreseeable future). Obviously I need to read different perspectives, but in general it seems to me that (1) constitutional rights are largely intended to protect the rights of minorities from the preferences of the majority, and (2) therefore we wouldn’t want elected bodies or elected executives to the the ultimate arbiters. Since it’s tangential to the thread, if you’d like to discuss, drop me an email at Brooksbud [at] aol.com. (don’t feel obligated; just if you’d like)

  14. comment number 14 by: Brooks

    In addition to the unfairness of giving preferential treatment to union members, the very argument — even if applied universally — seems invalid to me. That argument is that some people who receive expensive health insurance are far from affluent and/or have high-priced insurance because they have to pay higher premiums for a given level of coverage than do most others because of particular factors such as being an older group or doing dangerous work.

    Why should such factors matter at all? Think of total compensation, regardless of how it is divided between cash and tax-free benefits. Joe and Bob both make $50k per year. Suppose Joe and Bob have the same exact health insurance plan, but because Joe is in an older group or does more dangerous work, he his employer has to pay more for that coverage. But again, both are receiving total compensation of $50k. The only difference is that the taxpayers are providing a larger subsidy to Joe to help him get the same coverage as Bob despite the higher price Joe’s employer has to pay. If we limited the dollar amount of Joe’s benefit that would be tax-free compensation to the amount of Bob’s benefit (or subject every dollar of such benefits to taxation) all we’d be doing is equalizing (or eliminating) the amount of the subsidy Joe and Bob would get. If Bob’s employer pays $10k for Bob’s insurance and Joe’s employer pays $15k for Joe’s insurance, and if we now say Joe can only get the same $10 tax-free compensation that Bob gets, that just means that, if Bob wants to get the same coverage Bob gets, he’ll get taxed on the additional $3k, just as Bob get’s taxed on the same $3k he receives as cash (the difference between $37k and $40k that Bob gets as cash rather than as insurance the way Joe does).

    So what’s the problem? Where is the unfairness or injustice? If someone wants to argue for taxpayers giving more of a subsidy to people who cost more to cover with a given level of insurance, they should make that argument, but I haven’t seen that argument made. Instead there is just (at least from what I’ve seen) this implication of some sort of unfairness/injustice that would supposedly occur in the scenario above, as if it there is some presumption — though unstated and unconsidered and undebated — that fairness and justice demand that someone who costs more to cover should get a larger subsidy from taxpayers, leaving him with more after-tax total compensation (after-tax cash plus dollar value of benefits), simply because he costs more to insure.

    If I’m missing something here or if I’ve missed supporters of a strong version of the “Cadillac-tax” making the argument I’ve made above, someone please let me know (and I’d appreciate link(s)).

  15. comment number 15 by: Brooks

    correction: Where I refer to $3k I meant to say $5k

    (I was originally thinking of saying Joe’s employer paid $13k, then changed it to $15k)

  16. comment number 16 by: SteveinCH

    I completely agree Brooks which is why there should be no deductability for one form of compensation over another.

    Let’s be clear though, the whole “compromise” with the unions has absolutely nothing to do with a rational argument about the right way to bend the curve or pay for the bill. It’s a simple math problem.

    Union leader says, “We want our members to pay as little as possible for this leader.”

    Obama says, “I won’t eliminate the Cadillac tax but I will do anything else I can to help accomodate you.”

    Union leader says, “Well let’s start by exempting union members for the next 5 years and raising the exemption by a few thousand dollars (remember the vision and dental exemptions). In the event that I can’t persuade some future Congress to consider the exemption, let’s also raise the threshhold for older workers” (my hypothesis being that union members are older than nonunion members on average — a consequence of tenure).

    Obama says, “OK. Hey Peter and Nancy, can you figure out a way to package this up that sounds reasonable?”

    And Peter Orzag and Nancy DeParle compromise their principles one more time in pursuit of the larger goal(stinks to be them)

  17. comment number 17 by: Brooks

    Steve,

    Oh, I definitely agree that it was first and foremost (and I’d even say completely) a partisan political move rather than something they thought was good policy and based on a rational argument. I’m just saying that I think it isn’t being pointed out (or at least not nearly enough, from what I’ve seen) that, unless I’m missing something, the argument is nonesensical unless one is arguing that someone who is more expensive to cover should get a bigger taxpayer subsidy for his insurance, and I don’t see that argument being made by opponents of the cap on the tax-free amount of compensation via health insurance benefits.

  18. comment number 18 by: Brooks

    Here’s something I rarely, if ever, say:

    Good column by Pat Buchanan today http://www.realclearpolitics.com/articles/2010/01/16/is_a_us_default_inevitable_99903.html

  19. comment number 19 by: Brooks

    Steve,

    As follow-up re: indications of censorship / blocking by contributor(s) over at Capital Gains and Games, check this out:

    Yesterday morning I submitted (as “Brooks”) the following comment. Like almost all my comments submitted as “Brooks” over the last few weeks (since vigorously challenging the arguments of Stan and Bruce on the desirability of a budget commission), my comment was not posted. (I even re-submitted it as “Yet Another Budget Wonk” in the afternoon, and that was not posted either). Note the first and third paragraphs, which I’ll italicize:

    I saw Charlie Cook’s piece and a column by Peggy Noonan making a similar point http://online.wsj.com/article/SB10001424052748704130904574644701673362182.html?mod=WSJ_article_RecentColumns .

    The argument that Obama (and Congressional Democrats) will suffer from being perceived as devoting too little attention to the economy seems plausible to me, but it also seems plausible that the argument is invalid, considering (1) it’s not like Obama and the Democrats haven’t been substantially addressing the economy (indeed, in the eyes of some, too much so in terms of action [the stimulus]) and (2) with high unemployment and low job security, people attach more value to greater health insurance security.

    As for the argument both make that Obama and the Democrats could have settled for the “modest” health insurance “reform” of prohibiting insurers from considering pre-existing conditions, I think anyone making that argument may not be thinking it through. If that change went into effect, it would probably have to be accompanied by an individual mandate to have coverage, lest most/everyone affected simply forego paying premiums until they expect their healthcare costs to exceed the premiums, blowing up the insurers business model. If we have the individual mandate, that almost certainly would have to mean substantial spending on subsidies, and at this point it’s not the narrow, modest health insurance “reform” they had in mind.

    About ten hours later Bruce posts this comment on the same thread:

    Denial of coverage because of a pre-existing condition is a very serious problem that conservatives tend to either ignore or misunderstand. For example, Peggy Noonan recently wrote that Congress should just legislate that and not do the rest. What she is apparently either too stupid or ignorant to understand is that without the mandate NO ONE WOULD EVER BUY HEALTH INSURANCE UNTIL THEY WERE SICK. This is obviously economically untenable, therefore mandated coverage requires that everyone has to buy health insurance or the system will collapse. But if you force people to buy health insurance you have to have subsidies for those that can’t afford it. And subsidies have to be paid for with taxes. That logically leads to a system almost exactly like what Obama has proposed. If you accept the premise you have to accept the conclusion.

    Now, the point I made is obviously not original so I can’t say that Bruce ripped off my comment, but I don’t know what to think about CG&G at this point, given what I’ve experienced per my comment upthread.

  20. comment number 20 by: SteveinCH

    To add to the despair quotient

    http://www.politico.com/news/stories/0110/31691.html