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The good ideas are all still there in some size or shape, but it’s fascinating how some of the most promising features in the health reform bill have been diluted and/or postponed so much that they barely show up in the official ten-year window of the official CBO cost estimate.

Take the excise tax on high-end employer-provided health insurance plans, which is already a bit of a second-best solution compared with directly reducing or eliminating the exclusion of employer-provided health insurance under the personal (individual) income tax (because were it accomplished via a tax on households, it would be easier to adjust for households’ ability to pay).  In order to get the labor unions on board, the tax now doesn’t take effect until 2018.  Partly to make up for that newly lost time with the excise tax, and partly to cover the additional cost of now-higher subsidies offered through the new insurance exchanges, the excise tax was modified with less generous indexing starting in 2020–indexing the threshold to general inflation rather than inflation plus one percentage point.  That change in indexing helps the trajectory of revenue offsets in the second ten years, but of course, 2020 is beyond the first ten years and so outside the official ten-year budget window–so the change shows up in the official cost estimate as shrinking the positive contribution of the excise tax (the best part of the bill, in my opinion) to the overall package.

The revenue estimate shows that the excise tax now only raises $32.0 billion in the ten-year budget window, because it barely gets started within the ten-year window.  In contrast, $210 billion–more than half of the total $409 billion in revenue raised–comes from the increased Medicare tax on high-income households, which would start in 2013.

However fair one thinks it is to increase taxes on the rich, this Medicare tax is not a tax on health spending (it’s another income-based tax), and so it’s not a tax that can keep up with rising health costs as a reliable offset for expanded health coverage.

Ironically, the (fiscally-wise) excise tax now scores as providing less than half the amount of deficit reduction within the ten-year budget window as the (somewhat-budget-gimmicky) Community Living Assistance Services Support (CLASS) program, which is shown as raising $70.2 billion, even though we know that over the longer-run CLASS is a new entitlement which is expected to be a net drain on the federal budget.

The Independent Payment Advisory Board (”IPAB” or what’s commonly known as “the commission”) is still in the bill, too, but remember those recommendations wouldn’t be made until the second half of the decade, and hospitals are exempt until 2020.

So in the overall assessment the health reform/reconciliation bill isn’t full of gimmickry (it’s only tinged with it), does still contain some good health policy in it, was scored fairly and as accurately as possible by CBO.  And it does officially show a net $138 billion in deficit reduction in the ten-year budget window.  If all goes as planned (as written in this bill), in ten years there will be a decently-large excise tax on employer-provided health insurance in place, and the IPAB (commission) will be recommending wise ways to reduce Medicare and overall health costs.  In ten years we will have learned something from the demonstration projects about how to save money, and we’ll implement those ideas more broadly throughout our entire health care system.  And thus we will start “bending the health cost curve.”

That is, unless we don’t. Unless we get to 2018 when the excise tax is supposed to kick in and say “wait, we don’t want to pay that tax.”  And unless we get to 2020 and say, “no, hospitals aren’t going to accept those recommended payment reductions.”…

So it might be a good plan if you look at where the bill says we should be in 2020, if we actually follow through when we get there.

And by the way, even if we follow through, we still won’t have solved the problem of unsustainable health costs and federal entitlement benefits and not enough ways to pay for them.  That’s my boss Bob Bixby’s point in the NBC Nightly News piece above.  Even $138 billion of deficit reduction over the first ten years or even $1 trillion over the second ten years doesn’t amount to much against a policy-extended baseline that shows $15 trillion in deficits just over the first ten years.

Earlier today (Thursday) the President called this “the most significant effort to reduce deficits since the Balanced Budget Act in the 1990s.”  But let’s face it: this was not a “deficit reduction effort”–as if deficit reduction were its primary goal.  It was an effort to expand health insurance coverage that happens to reduce the deficit.  If we follow through on those good things we’re supposed to do much later, after President Obama is no longer President and after many members of Congress will be gone as well, that is.

I was happy to see the front page of the Style section in today’s Washington Post, featuring a story on Senator Al Franken.  I first met Al Franken at an annual dinner of the American Enterprise Institute in the mid-to-late 1990s.  I was walking down the staircase from the reception to the dinner, and suddenly I noticed he was walking right next to me.  I touched his arm (or maybe I slapped it), and said “I know you!  You’re, you’re… Al Franken!”  And he said “why, yes, I am–and who are you?”  And then I told him I was just a lowly tax policy analyst at CBO who had written something that went into an AEI book the prior year, but what was he doing there, and all he told me was that the only reason he was there was because Norm Ornstein of AEI was (and still is?) his good friend. I have to admit, I can’t remember exactly what year that dinner was–but it turned out that at that time Al was working on or just finished his “Rush Limbaugh Is a Big, Fat Idiot” book which included some spot-on discussions about the distribution of the tax burden, which happened to be the issue I was working on for CBO at the same time.  (It was the focus of my Ph.D. dissertation as well; here’s the book I eventually wrote with my dissertation supervisor.)  I didn’t know about Al’s command of fiscal policy until after the encounter, when I read his book and then over the years another and another, and I was impressed.  Not just about how funny he was in these books, but how substantive and insightful and correct he could be in his policy analysis, and his rare talent in disguising the otherwise dry policy analytics as something engaging enough for normal people (not just policy geeks) to read and learn about.  That ability to “translate” like that was inspiring to me.

In fact, I was so taken by Al Franken’s books that I had my budding social-activist child, my second daughter, Emily, read his books starting at age 12–as a early middle-schooler.  (Emily is the kid who would later be the one accompanying me to the anti-war march in DC and who would eventually become an officer at her high school’s Amnesty International group.)  So the second time I met Al was in late 2005, when I took Emily to a book signing (in McLean, VA) for his new “The Truth (with jokes)” book.  That’s the two of them in the photo above.  We had arrived at the very start, heard Al talk to the group of people mostly way older than me, let alone Emily (who was certainly his youngest fan there), but then I had to take Emily to her basketball game.  By the time the game was over and we rushed back to the bookstore fearing we were too late to catch him, it turned out that there were only a few people left in line waiting for their books to be signed, and Emily and I were going to be the last ones to have our book signed and talk with him–so we got some high-quality, individual time with him!  I loved how warmly Al greeted and talked with us.  (This, even though Emily was sweaty from the bball game!)  I explained how I had met him years before, and having heard him talk about possible interest in running for the Senate in 2008 (fans at the book signing had asked him about that), I told him I worked on the Hill on fiscal policy issues and gave him my business card, telling him “if you ever need an economist…”  (He never called or emailed me, but I don’t hold that against him and like to think he just couldn’t find me when he needed me, as I’ve moved on since then.)

I’ve been trying to keep up with now-Senator Franken; my ears always perk up when I hear him on the TV that’s normally just background noise for me at home and in my office.  I always like what I hear, because Senator Franken shows that mixture of conviction, honesty, intelligence and good humor in how he explains things.  So in today’s Washington Post, I was happy to see Post writer Jason Horowitz suggest that not only is Al Franken funny and getting more comfortable about showing that funny side even as Senator Franken, but he’s using his unique talents to show more political courage than your average politician as well.  For example:

In early February, Franken rose during a private panel discussion with the Democratic caucus and Axelrod and theatrically declared, “I’ve been in a slow burn” about the administration’s handling of health care, according to several attendees who asked to remain anonymous to discuss the details of a private meeting. He then launched into an extended critique and demanded to know from Axelrod when the president would take a leading role in pushing the issue. According to multiple sources familiar with the proceedings, Axelrod countered that the president had constantly championed health-care reform.

Franken, according to several sources, urged Axelrod to answer his question and aggressively suggested that the administration push the House to pass the Senate’s health-care reform bill. Axelrod replied that if Franken had the names of 218 supportive members of Congress in his pocket, he’d gladly pass them along to House Speaker Nancy Pelosi (D-Calif.). Axelrod added that he doubted Franken did.

Franken then, according to multiple sources, directed his ire toward President Obama.

“When will he apologize for his stupid idea to put these discussions on C-SPAN,” Franken said, according to two sources.

So, Senator Franken:  if by chance you feel like speaking up more on fiscal responsibility (which I know you understand and care about), and if you could use some help from an economist on the substance of the issue, I happen to know an economist who could use your help in making the fiscal responsibility messages more compelling to real people–or even just to those people who are your colleagues now.  I’m at the Concord Coalition now.  Give me a call! 

I have to agree with the Washington Post’s Harold Meyerson, the Washington Post’s editorial board, and I’m sure many, many Americans, that this damned “deeming” thing to allow the House to come up with a passed-then-modified version of the Senate health reform bill, is not just very silly.  Worse, it’s exactly the wrong way to go about gaining the trust of the American public, and seems yet another example of the lack of courage among the Democrats.  As Harold puts it:

What’s ridiculous about the Democratic deeming is that the Republicans are going to run against them with the provisions of the Senate bill whether the Democrats vote for it or not. What the Democrats need to do is man-up and woman-up and just pass the Senate bill, idiocies and all, and then amend it forthwith through reconciliation. I share the House Democrats’ contempt for the Senate (the existing Senate, anyway), but as I noted in a column a few weeks back, if the Democrats sacrifice health reform on the altar of bicameral mistrust, future historians will look back at them and pronounce, “These guys were jerks.”

Just pass the bill, amend it, and go home for the holidays.

It’s the same situation in all states, actually.  Virtually all state governments have some sort of “balanced budget requirement.”  (See Table 11 on pages 40-41 in this report of the National Association of State Budget Officers (NASBO).)  The constraints take on a variety of degrees of stringency, but empirical evidence suggests they do bind (i.e., matter).  Even in Vermont, the only state that doesn’t have any sort of balanced budget requirement, the NASBO report indicates that “in practice, a deficit has not been carried over.”

So in Virginia (where I live and work), we’re now offered a little insight into what balancing the budget entirely on the spending side looks like, with this report in today’s Washington Post (emphasis added):

RICHMOND — The Virginia General Assembly adjourned its annual legislative session Sunday evening after adopting a two-year, $82 billion budget that cuts millions from education, health care and public safety — curtailing state spending more aggressively than any in generations while fulfilling the new Republican governor’s promise not to raise taxes.

The trade-off for holding firm against a tax increase to plug a $4 billion hole was a spending plan that cuts deeply into virtually every area of state responsibility.

“We tried to keep our word,” said House Majority Leader H. Morgan Griffith (R-Salem). “We knew times were tough, but the state has to live within its means, just as families have to live within theirs.”

Funding for schools will drop $646 million over the next two years; the state will also cut more than $1 billion from health programs. Class sizes will rise. A prison will close, judges who die or retire won’t be replaced and funding for local sheriff’s offices will drop 6 percent.

Only 250 more mentally disabled adults will receive money to get community-based services, in a state where the waiting list for such services numbers 6,000 and is growing. Employees will take a furlough day this year, the state will borrow $620 million in cash from its retirement plan for employees and future employees will be asked to retire later and contribute more to their pensions.

Medical care providers will see Medicaid payments from the state trimmed, and fewer poor children will be enrolled in state health care, although those health cuts could be tempered by anticipated federal funds. Funding for the arts and public broadcasting will be cut by 15 percent over two years.

Thank goodness the federal government is able to run a deficit in bad economic times like these, otherwise there would be no social safety net at all.  But I don’t mean to say thank goodness deficits occur at all times.  In my mind deficits at the national level are justified and even wise under two types of circumstances: (i) as treatment for a temporary emergency–be it a war, a natural disaster, or an economic recession; or (ii) in order to fund economically-fruitful investments that pay off over the course of several years in a broader net social benefit, not just private benefit, sense–investments that otherwise couldn’t be funded if annual deficits were not allowed.

Much of federal deficit-financed spending (and tax cuts) of course does not fall under these two categories, which means we shouldn’t be so grateful for the federal government’s seemingly unlimited capacity to borrow at all times (good or bad) and for all sorts of things (wise investments or wasteful spending).  And that’s why the President’s fiscal commission is a good idea.  But the Virginia example may provide a little window into what the federal government would look like if Congressman Paul Ryan, newly named to the fiscal commission and the author of a plan to balance the budget entirely on the spending side, got his way.  What Virginia will be cutting looks like a lot more than just “waste, fraud, and abuse.”  But I guess I’m supposed to be happy about my taxes staying low, and people like me who (at the moment) have good jobs and income and health aren’t supposed to think that “there but for the grace of God go I” when we see our fellow citizens losing their safety net just as they’re falling.

I’m not so sure the motto “Virginia Is For Lovers” is very fitting… unless it refers to loving low taxes.

The Senate “jobs bill” passed on Wednesday contains nearly $60 billion in (obviously-jobs-related) extended unemployment benefits.  (Here is the CBO cost estimate.)  But it also includes $34 billion in extended tax cuts, none of which are brand new (they’re “expiring” provisions, after all) nor uniquely designed to get us out of this particular recession.  These are expiring tax provisions that regularly expire and regularly get extended.  (Here is the JCT revenue estimate where you can see line by line details on the revenue provisions.)

So the extension of the expiring tax provisions is something that would occur, repeatedly, even without the vehicle of a “jobs bill.”  There really is hardly ever a tax cut that is truly “temporary” in practice, no matter how it is written into law. What the label of “jobs bill” allows is the exemption of these (effectively permanent–in good times and in bad) tax cuts from PAYGO rules, which would otherwise require that the cost of the tax cuts be offset.  The CBO estimate shows (on page 2) that out of the package’s around $100 billion in cost over ten years, $95 billion is considered PAYGO-exempt because of the “emergency” designation.

It makes me wonder why politicians don’t try to label any policy they’re trying to pass lately, especially any policy they don’t want to have to pay for, as a “jobs bill.”  The title of this tax extenders bill that happens to include the extension of unemployment benefits is the “American Workers, State, and Business Relief Act of 2010.”  As the Administration and Congress struggle to reach agreement on the health reform bill, particularly over the policies designed to keep it (at least slightly) deficit-reducing, I wonder if it won’t be long before we hear the argument that health reform–and the expansion of health entitlements and the deficit–is needed to create jobs even more than it’s needed to control costs.  When will the health reform bill get relabeled as a “jobs bill”?

Boy– that was awful being disconnected for so long (even longer than during Snowmageddon!).  I’ll be back posting something of substance tomorrow (Tuesday) I hope.  Can’t believe I missed CBO’s (preliminary) analysis of the President’s budget.  I’ll write about it tomorrow, but you won’t be surprised about what I’ll emphasize.  CBO Director Doug Elmendorf already pointed it out in his blog post from last Friday (emphasis added):

Under the President’s budget, the cumulative deficit over the 2011–2020 period would equal $9.8 trillion (5.2 percent of GDP), $3.8 trillion more than the cumulative deficit projected in the baseline. Of that difference, roughly $3.0 trillion stems directly from proposed changes in policy and another $0.8 trillion results from additional interest on the public debt. By far the largest budgetary impact would stem from the President’s proposals to index the alternative minimum tax (AMT) for inflation and to extend various tax provisions contained in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). Over the next 10 years, those policies would reduce revenues and boost outlays for refundable tax credits by a total of $3.0 trillion. Other policies would have smaller but still significant effects on the budget and would largely offset one another.

I have a lot going on in my real (mom) life over the next few days, so I won’t be posting for awhile. I won’t even be able to moderate comments for at least the next couple days. No family emergency–just busy. (And no, this is not at all related to Charlie Rangel’s leave of absence from his Ways and Means chairmanship…)

Keep up the comments without me. (I know a few of you will.)

Oh — here’s a good post by Bruce Bartlett critiquing the idea a couple of House Republicans have for reining in spending.  That is quite a contrast to Paul Ryan’s approach, which although (I believe) unrealistic, is still brutally honest.  Steny Hoyer gave the proposal and its author some credit the other day when he said:

It’s also clear to me that if the commission takes a one-handed approach, it will fail, both politically and substantively. Congressman Ryan’s thoughtful budget proposal shows what an approach looks like when it relies entirely on cutting spending. He should be commended for putting together a serious and detailed plan to tackle the deficit. It doesn’t raise a single tax. But as a consequence, it significantly changes Medicare.

That strikes me, as I think it would strike most Americans, as very much the wrong solution. But Congressman Ryan deserves respect for his honesty—for being one of the few members of his party, or of either party, to tell the public exactly what he’d cut. That’s far better than pretending that the solution to higher deficits is simply lower taxes and wishful thinking. In fact, as much as his party’s leadership tries to distance itself from his plan, Paul Ryan’s program, or something very much like it, is the logical outcome of the Republican rhetoric of cutting taxes and deficits at the same time.

OK — we’re a little worried at the Concord Coalition that the harder the politicians work at finding agreement on health care reform, the more likely we’ll end up with a reform that doesn’t actually “bend the health cost curve.” From a “Tabulation” blog post by Concord Executive Director Bob Bixby:

If we learned anything from last week’s health care summit, it is that the final end game negotiations will not take place between Democrats and Republicans but among various factions of Democrats…

One casualty of the situation may be cost containment. Democrats are mostly united around coverage expansion. That’s the easy part. Their biggest difference is on the more difficult question of aggressive cost containment. The two most promising cost-containment strategies still on the table are the tax on high-cost health care plans and the Independent Payment Advisory Board (IPAB). Both were adopted by the Senate but not by the House, where they remain deeply unpopular.

If the price for securing 218 votes in the House is eliminating or neutering these provisions, the result will be a bill that expands coverage with very little prospect of controlling costs…

President Obama has already given ground on the high-cost tax. In his latest summary of proposals to bridge the gap between House and Senate Democrats, he proposes that implementation of the tax be delayed until 2018. However, while some phase-in period may be appropriate, the same forces fighting the tax now will not simply melt away over the next eight years. The projected cost savings from this provision are thus looking increasingly speculative.

The assumed cost savings from IPAB may also be in danger. The President proposed this idea last summer as an ongoing method of reviewing Medicare expenditures and proposing ways to keep costs under control. While it has been watered down, the President remains committed to the concept. However, many influential House members view it as an intrusion on their ability to set Medicare payment rates and have opposed it from the outset.

Wait — remind me:  why was it we were pursuing health care reform?

House Majority Leader Steny Hoyer gave a speech on fiscal responsibility at the Brookings Institution today. He reaffirmed his strong faith in PAYGO (pay-as-you-go) budget rules as “so valuable” to the cause–although he acknowledged the large exemptions for current policy and at the same time brushed that qualification aside a little too easily (for my tastes).

But my favorite part was when he talked about how the politically easy choices are the economically devastating ones:

The most important lesson we can draw from the years of recklessness is this: when it comes to budgeting, what is politically easy is often fiscally deadly. It is easier to pay for tax cuts with borrowed money than with lower spending; easier to hide the true costs of war than to lay those costs before the people; easier to promise special cost-of-living adjustments than explain why an increase is not justified under the formula in law; easier to promise 95% of Americans that we won’t consider raising their taxes than to ask all Americans to contribute for the common good. Those kinds of easy choices are so often selfish choices—because they leave the chore of cleaning up to someone else. Easy choices may be popular—but the popularity is bought on credit.

Washington’s behavior will only change when the incentives change: when voters demand more responsibility, and when the political price for easy choices rises sharply. As I said, I’m hopeful that just that is happening. But the public has a responsibility, too: to educate itself about the sources of the deficit and the range of realistic solutions—not to demand that government continue to escalate entitlement payments and lower the deficit at the same time.

We can’t meet this challenge unless the public is ready to confront tough choices, and unless leaders in both parties are ready to be honest about tough choices. When deficit solutions meet resistance, which they will, and when they are painful, which they will be, it’s our job to explain why they are also correct—and essential.

“Steadfast Steny” can talk like this without being a hypocrite, as he’s taken a lot of courageous positions and votes, even in his role as Majority Leader where he’s supposed to be worried about the politics.

UPDATE Tuesday morning: The NYTimes’ Jackie Calmes points out that Steny bravely “challenged the sacred cows in his own party” by suggesting some fairly specific options to damp down spending on Social Security and Medicare. My observation is that for most in Steny’s “own party”–including the President himself–the (Bush) tax cuts for that very-broadly-defined middle class of households with incomes under $250,000 have (bizarrely) become another “sacred cow” of theirs (the Democratic Party). And that’s the problem. How can the Democrats work in a bipartisan manner with Republicans if what they would otherwise negotiate on–in terms of “I’ll give up this (entitlement spending) if you give up that (tax cuts)”–is not really bargaining for anything they really want?

Well, in this interview with CNN’s Don Lemon, the Congressmen say it’s mostly for personal reasons–wanting to spend time with their children and grandchildren–but it also seems obvious that the frustration over the partisanship and the inability to work together to get things done is what makes the difference at the margin, especially for these centrist-leaning members.  And here’s another part of the interview that asks them, “Is the government broken?”