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Dr. Obama's ScareCare Plan: Part 2
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Part 1 of this Obama ScareCare series dealt primarily with the operational issues involved in President Barack Obama’s plans for more government intrusion into the nation’s healthcare industry. In that article, the Obama administration’s claims of how a public option would increase competition, decrease costs, improve quality or prevent rationing were discussed, refuted and basically discarded, as they should be. .jpg)
The next issue regarding the ScareCare plan is how President Obama intends to pay for it, especially since he is claiming that it must be deficit-neutral. That seems like a very tall order considering the Congressional Budget Office has put out initial estimates showing that two major plans on the table will cost between $1 trillion and $1.6 trillion over the next decade.
Regarding the $1 trillion plan (put forth by Senator Edward Kennedy), the CBO notes that it has not even included other costs yet into its final figures – such as the administrative costs to administer the provisions of the plan, which are sure to be quite large. Therefore, that $1 trillion figure is most definitely going to increase.
Also, as is the case with most government cost estimates, the CBO is likely underestimating the eventual costs of these plans. This was certainly true regarding the 2003 Medicare reform package. Recall that the initial CBO estimates for that proposal put the costs at approximately $400 billion over the next decade. Shortly after the package was passed, the cost estimates increased immediately.
Current estimates of the Medicare reform package range anywhere from $724 billion to $1.2 trillion over the 10-year period from 2006 to 2015. It is one thing to underestimate some government costs, but when the actual figures turn out to be nearly double and possibly triple the original estimates then that is just simply unacceptable. There is no possible way that the taxpayers could afford to pay for a healthcare reform that actually ends up costing upwards of $3 to $4 trillion, but empirical evidence shows that outcome is quite probable.
So how does Dr. Obama prescribe to pay for this multi-trillion dollar government takeover? One is by limiting the percentage of itemized exemptions for high income individuals to 28%. Obama, HHS Secretary Kathleen Sebelius and others have repeatedly noted that this will simply take the exemption rate back to the same level as it was at the end of the Reagan administration. According to Obama this provision will save about $330 billion over a 10-year period.
Of course what Obama and his minions always fail to mention, or choose not to mention, is that at the end of the Reagan administration the highest income tax rate was also 28%. Now though it is 35%, and if Obama gets his way it will be 39.6% in the near future – the pre-Bush rate. Obama seems to think it is somehow fair that some people have to pay taxes at one rate, but can claim itemized deductions only at some lower rate. Along the way he may decrease the incentive for people to buy homes or give to charities (see previous article below). That latter issue is probably of little concern to Obama since he seems to believe that charities are doing work that only his idea of a government can do anyway.
Beyond reducing the amount that individuals can deduct from their taxes, Obama and others are looking for additional taxes to increase revenues. One of those ideas is the new tax on sugary drinks, an idea which will reap relatively small benefits at best (see previous article below). The most optimistic estimates of this tax show that it could raise about $100 billion over a ten-year period.
A bigger and more controversial new revenue generation plan is to begin taxing individuals for the amount of their employer-provided healthcare plans. One major problem with this idea is that health insurance plans can vary widely in terms of costs and in terms of the portion paid by employers. To alleviate that concern, Obama has suggested that only plans costing over a certain amount will be taxed. So for the people who receive those types of plans, generally higher income earners, they will potentially be paying even more in taxes based on a new taxable benefit and then at tax time will be unable to deduct as much as they could have in the past. What a double-whammy way to soak the rich!
Finally Obama believes he can save up to $300 billion over a 10-year period in Medicare and Medicaid savings just from running those programs more efficiently. Obviously he has not noticed that the history of those programs which shows that they are anything but lean-running operations. They have been wrought with fraud and waste, but somehow Obama believes that he can wave his magic wand and ‘poof’ – suddenly $300 billion are saved. Good luck on that one.
So now it is time to do a little math to see how close Obama is to creating a deficit-neutral healthcare reform package. Giving him the most generous assumptions on the revenue side of the equation results in a total of $1.03 trillion ($330 billion for the exemptions limit, $100 billion for the sugary drinks tax, $300 billion in Medicare/Medicaid savings and just a bonus $300 billion for the new tax on employer-provided healthcare benefits). As noted above, the lowest estimate of the costs from the CBO so far is $1 trillion for a plan that has only been partially evaluated to date.
From this analysis it is very clear that Obama’s plan even in a best case scenario will not be deficit-neutral. Therefore, at some point he will have to decide whether to scrap his ambitious plans to take over the healthcare industry or renege on his pledge to only support a deficit-neutral reform. Given Obama’s empirical evidence of reneging on previous pledges (more transparency, 5-day waiting period before signing bills, no earmarks, no lobbyists in administration, etc.), the latter seems more likely. Plus, in his first five months Obama has shown that he is perfectly comfortable spending all of the current taxpayers’ money and sending the bills for his overspending to all of the future generations of taxpayers.
For more information: Saving charitable contributions, Sin taxes on sugary drinks are a sour idea
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