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Peter Orszag on the False Debate

July 29th, 2010 . by economistmom

Peter Orszag, President Obama’s budget director, gave a “farewell speech” of sorts yesterday at the Brookings Institution (his former professional “home”). Although an incident with a protester stole most of the media attention, Peter’s point about the “false debate” between those concerned about the deficit and those concerned about jobs–shown in the video clip above–was probably the most significant message to take away from the event. If only someone could write an opera song to go along with it.

In the Q and A that followed, the Washington Post’s Lori Montgomery and Ruth Marcus made for a dynamic duo–trying valiantly yet playfully to get Peter to answer questions about another great Obama Administration debate: what to do about the expiring Bush tax cuts. Ruth had just published this column with her opinion on the issue, which I agree wholeheartedly with.

5 Responses to “Peter Orszag on the False Debate”

  1. comment number 1 by: VAT Brat

    President Obama and the Democrats are too cowardly to do the right things fiscally. Democrats are proud of Medicare, Medicaid, Social Security, and now Obamacare. However, they don’t have the guts to pay for these programs. They certainly have the votes to raise taxes. So why isn’t the President practicising leadership instead of political opportunism?

    The Republicans didn’t institute these programs, and the Republicans (as shown by Paul Ryan) would like to make significant changes in these programs. However, it’s not the responsibility of Republicans to raise taxes to pay for the Democrats’ spending ideas.

    From 1932 - 1980 the Republicans played fiscally responsible tax collector for the Democrat welfare state. During that period, the Republicans controlled Congress and the Presidency for 2 years.

    Since then they learned to play the same kind of cynical and dishonest game that Democrats like to play.

    Democrats pretend that the rich can pay for all the goodies they promise to deliver. The Republicans pretend that they can cut taxes and never worry about cutting spending. Both strategies win elections. Both eventually lead to fiscal ruin.

  2. comment number 2 by: AMTbuff

    One problem Republicans have with selective extension of the tax cuts is the progressivity ratchet. Democrats want every tax change and every benefit change to increase progressivity. They will reflexively oppose any change that decreases progressivity on either the revenue side or the spending side, even if the combined effect of the two is progressive.

    The 2001-2003 tax cuts were designed as a package to be approximately neutral towards progressivity. If the top rates only are restored, progressivity will increase.

    More importantly for the politicians, this new level of porgressivity will become the new baseline for measuring progressivity of further changes. This will greatly reduce the chance of ever getting anywhere near the rates established in the bipartisan 1986 Tax Reform.

    Based on this, I expect Republicans to be willing to see all the tax cuts expire rather than agree to selective extension. Expiration of all the tax cuts would not significantly change the progressivity baseline.

    From what I’ve read, optimal tax theory suggests that the current progressivity of tax rates is already too high, and that regressive tax rates (declining with income) plus highly progressive benefits (e.g., demogrant) provide higher societal welfare.

  3. comment number 3 by: AMTbuff

    I have read the transcript, and I must say that Peter speaks very clearly, giving you his opinion straight up, with no glossing over the weaknesses and no intentional misstatement of the opposing point of view as you would get from, say, Paul Krugman.

    Here are what I see as the crucial parts:

    [Ryan Plan] proponents envision seniors going out and buying high-deductible health insurance plans, insurance plans in which they would pay out-of-pocket for regular medical expenses and insurance would only cover higher-cost catastrophic situations. The logic goes that such plans would encourage seniors to shop among doctors and treatments and rationally economize on their health care spending. The core problem, however, is that the bulk of health care spending is concentrated among those with serious illnesses and high health care costs.

    For example, CBO found that in 2001, high-cost Medicare beneficiaries — that is the top 25 percent of Medicare beneficiaries ranked by their costs — accounted for 85 percent of total Medicare spending. For such high-cost patients, high-deductible plans would do little to change the delivery of health care since the patients would rapidly run through their deductibles, and most of their costs are above those levels.

    The plan mechanically cuts Medicare by increasing its vouchers more slowly than health care costs. The result is that most of the budget savings would come simply from shifting more and more cost and risk onto seniors without substantially altering the overall course of health care costs. And that raises a key question of whether the plan, even if it were desirable, would even be politically sustainable.

    In summary, the Ryan plan does not provide enough money to cover you if you need expensive care. It will gradually phase out third-party payment. Whereas Obamacare will provide full coverage:

    Admittedly, no approach is perfect, but I strongly believe that the approach adopted in the Health Act is better than any plausible alternative that has thus far been put forward. To be sure, even with enactment of the Affordable Care Act, we remain on an unsustainable fiscal course.

    Oops, no it doesn’t! Obamacare only PROMISES to cover expensive care. It doesn’t have to money to make good on this promise over the long run either! Wonks know that tax increases can only delay this problem; they cannot solve it.

    Given that patients who need expensive care cannot be fully covered (according to current norms of coverage) in the long run, what should we do? Should we impose one size fits all rationing as the British currently do? That rationing will become progressively (I love that word) tighter until patients flee the system and pay out of their own pockets. Or should we accept the inevitable and admit from the start that expensive care will not be covered and you are on your own? Is the former more compassionate than the latter?

    Reasonable people can differ on the answer to this question according to their political leanings. It’s analogous to wars in which right-wingers want to continue fighting even with a low probability of success, while left-wingers prefer to cut the losses and quit. For health care, it’s the left wingers who want to fight to the last dollar to retain third party payment against the odds and the right wingers who want to quit. There is no answer satisfactory to all.

    Elimination of third party payment would mean market-based solutions to lower care costs. For example, some elderly people might decide to move to sub-Saharan Africa for low-cost, low-tech end of life care. Others might choose to forego care and give their remaining assets to their families. Those who have lived below their means for decades will have the option to pay for expensive care or not. But one thing will not happen: The taxpayers’ money will not be spent like water. That money will be saved for more valuable uses on people who need much less care or on something else that does more good for people.

    what I would ask of those skeptics or those critics is: What is your alternative? If the alternative is simply the high-deductible approach, if that were subjected to the same scrutiny, I think it would come up — fall far short of what needs to be done.

    Yes, what I just outlined is far from ideal, even abhorrent. However Obamacare IS NOT REAL because it is not sustainable. It too “falls far short of what needs to be done” and will have abhorrent results in the long run. T

    HERE IS NO GOOD OPTION HERE, only a choice between incomplete and wasteful care (Obamacare) and incomplete and efficient care (elimination of third party payment). I prefer the latter because it does not squander the taxpayers’ money. Feel free to disagree with me. Peter certainly does.

  4. comment number 4 by: VAT Brat

    Orszag has been practicing macroeonomics for too long. He essentially asserts that there is a vertical demand curve for medical care. Anyone who learned the law of demand in Econ 1 could never say that instituting co-pays would not decrease the quantity demanded of medical services. Orszag gets an F for his Econ 1 final. Working at CBO for so long leads to microeconomic brain rot.

    Also, any bozo who understands insurance markets would guess that 25% (or fewer) of persons in a pool would spend 85% (or more) of the benefits in the insurance pool. Duh! That’s the whole point of paying insurance! Everyone pays a small certain amount to cover a large uncertain but actuarially predictable incident.

    It’s amazing how much control people have over their morbidity rates by controlling nutrition and exercise. US Healtcare costs are so high because we have so many obese lounge chair lizards with unhealthy diets. You’ll be amazed how quickly people will adapt when they have to pay.

    If this is the level of intellect that gave us Obamacare, then we’ll really in for a world of hurt!

  5. comment number 5 by: AMTbuff

    Bartlett says today:

    “It would have been far better to use the expiration of the Bush tax cuts to reform the tax system and put everything on a permanent basis or get rid of it. But these are not normal times, either economically or politically. Consequently, kicking the can down the road is really the only option available under the circumstances.”

    That’s very well stated. The entire article is at http://www.thefiscaltimes.com/Issues/Taxes/2010/07/30/Extending-Tax-Cuts-Better-Than-Nothing-But-Not-Much.aspx