Posts Tagged ‘ medicare ’

Yes, Obamacare will significantly reduce our Debt

Today, a former Bush administration official (Charles Blahous) made a big splash when he wrote a new “study” saying Obamacare will increase the United States’ debt by $340 billion over ten years. This is exactly the opposite of what every independent organization has found about the law. The CBO, Washington’s authoritative legislation scorer, says that Obamacare will reduce our debts by $100-200 billion (depending on what time period you use) over a decade. So who’s right?

Not the new guy. Charles Blahous came to his figure using a dishonest accounting trick that does not reflect the costs of the ACA at all. Basically, he assumed that Medicare spending would be cut drastically, starting in 2017. No one in all of America actually thinks (or ever thought) this would happen. Since Obamacare makes it explicit that Medicare funding will not be severely curtailed in 2017, Blahous says that Obamacare will increase the deficit.

His assertion is preposterous. Obamacare makes Medicare spend its money more efficiently, cutting its spending by about $500 billion over a decade. But in twisted Blahous’ logic, Medicare cuts actually increase the deficit! What? If he used this same logic against the Republicans’ budget (which he wouldn’t) he would also find that their budget significantly increases the debt. That’s because his method is a preposterous way to look at our debt.

For a less succinct, more technical account of how this works, read Jonathan Chait or Paul van de Water.

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Obama’s strategy and prospects for re-election

Before continuing with “diversity week” on this blog, I’d like to do something I haven’t done yet and talk directly about President Obama’s prospects for re-election. Currently, his poll numbers are lower than ever, and the Democrats just lost two special elections that may portend bad news for their chances in 2012. The economy is looking like it will grow only slowly for the next year, so unemployment will remain about where it is now.

Since Republicans won the House of Representatives last year, Obama has tried to portray himself as the “responsible adult in the room,” who can mediate Congress’s damaging and unproductive conflicts. The results have been underwhelming. Instead of separating himself from Congress, Obama’s poll numbers have been pulled down along with Congress’s since Republicans almost forced the country to default.

Talking about the deficit, as Republicans wanted to do, meant that talk about jobs and economic revival had to be put on the back-burner. In order to seem reasonable (and because he truly did want a deal to solve the nation’s debt problem), Obama agreed to put Social Security and Medicare on the table for cuts. When Speaker of the House John Boehner refused Obama’s deal on the debt, Obama was just left with egg on his face. He had given miles in the negotiations while Republicans refused to give an inch, making him look like a weak leader and like he was ready to sacrifice Medicare to the GOP. This angered the Democratic base and confused independents, who had previously turned against Republicans in another special election because of their plans to end Medicare as we know it.

Obama’s response has been to sharpen the contrasts between himself and the Republicans. He is going to portray himself as the champion of the middle class and a fighter for jobs. The centerpiece of this effort is the American Jobs Act that he announced last week. The Act is full of traditionally bipartisan policies that independent economists say will create millions of jobs in the next year. These include tax cuts for all working Americans, tax credits for small businesses who hire, and spending on roads, bridges and schools.

According to a recent CNN/ORC poll, it seems that Obama is on very strong ground here. Moving the conversation to the economy is good because people trust him over Republicans to handle the economy 46-37%. They narrowly favor Obama’s entire jobs package 43-35%, but the individual portions of the package have very wide support. For example, his tax cuts, increased funding for roads, schools and bridges, and increased money for states to hire teachers and first responders all receive about two-thirds of Americans’ support.

These proposals are popular and Republicans have supported them in the past, but of course they are not going to support them now  because that would be good for Obama (and incidentally, America). So Obama can paint Republican opposition as hypocritical and as standing in the way of creating jobs.

But wait, Republicans say, Obama wants to pay for this package by “raising taxes”! Ah, yes. Obama wants to lower taxes for all working Americans and pay for it by limiting the tax breaks very rich people can take advantage of. This is also an argument Obama can win. In order to oppose his jobs plan Republicans will argue that the rich deserve tax loopholes more than everyone else deserves a tax break. Obama’s position, that the rich should pay more in tax, is very popular. If this argument comes down to: “do the top 2% deserve a tax break or does everyone deserve a tax break?” then Obama surely wins.

Obama’s strategy is shifting. He has seen his “responsible adult” strategy fail and has also witnessed the power of attacking Republicans on Medicare. It appears he will stop his tendency to make preemptive concessions to Republicans and will propose shrinking the deficit without touching Social Security and Medicare. Republicans’ support for tax cuts for the rich (above all else) can also be used against them.

Imagine Rick “Social Security is a Ponzi scheme” Perry versus Barack “protector of the social safety net” Obama in the next election. Obama certainly is, and he likes what he sees.

Should we raise taxes or cut Medicare?

Soon America must face a choice. Our government’s status quo taxing and spending policies cannot continue much longer. No, this isn’t based on Obama’s spending over the past few years or Republican intransigence over the debt limit. Those are important to this debate, but they’re not the long-term factors I’m talking about here. Spending and taxing have to change because we, as a society, are getting older and our health care costs are continuing to increase. Those two factors alone mean that our traditional rates and methods of taxation cannot support the traditional benefits given out by our government. The following graph shows that the effects of an aging population will mean that our country must spend 3.5 percent more of its GDP on Medicare by 2035 than it does today. The fact that health care costs grow faster than the economy as a whole means an additional 2 percent of GDP will have to go to Medicare by 2035.

via Ezra Klein

The very predictable rising cost of aging and health care leads us to a societal choice: either we give up the social contract that America has maintained for the past 50 years, or we raise taxes AND reform our programs to support the Baby Boomers just as the Baby Boomers supported their parents in retirement.

Republican lawmakers, by and large, have chosen the first option. Most have voted for Paul Ryan’s budget plan, which gets rid of traditional Medicare by changing it into a voucher program which only covers a third of seniors’ healthcare costs. That is the path you have to take if you do not want to raise taxes or get rid of tax loopholes to pay for the cost of Baby Boomers growing old. The most important thing to most Republicans is to protect the rich from increased taxes. If their vision wins out in the future, (tax revenues stay where they are right now) the government will have to shift costs onto seniors, undoing the social contract that we have in this country. Instead of the government covering seniors’ health insurance through Medicare, seniors will have to pay out of pocket to afford private insurance. If seniors living on fixed incomes can’t afford to buy private insurance with their voucher, then too bad for them. If the government doesn’t raise taxes, it cannot afford to help them.

There is another option though. If taxes are raised, or if we just clean up the tax code so that there are not so many loopholes, we do not have to face a world of seniors dying in their homes of diabetes or cancer because they could not afford private insurance. Its also important to emphasize that this is not a complete either/or question. We can still reform Medicare to make it cheaper while raising taxes to help pay for the inevitable additional costs the program will incur. This is generally the Democrats’  position.

Either we increase taxes (by raising rates or cutting loopholes), or we have to get rid of our Medicare program. The only other option is to adopt a complete system of socialized medical insurance  to keep our costs down. Those are our options. Americans must choose.

Republican voters stand to lose the most in a US government default

As the US government fast approaches its legal debt limit, many Republicans have tried to argue that a government default would not be as bad as Democrats, the Secretary of the Treasury, Chairman of the Federal Reserve, independent economists, right-leaning magazines and Wall Street firms all say it will be. These very, very conservative (and very naïve) people say that the government has enough money to pay off all the interest on its debt and still meet some of its legal obligations, and anything beyond that will just be waste that needs to get trimmed. So, for this post I propose that we look beyond the irreparable harm that a default will cause to the “full faith and credit” of the US government, look beyond the fact that default will probably throw us back into recession and look beyond the fact that no one even has a plan for the avoiding raising the debt ceiling and just examine the direct harm that will ensue if the government defaults on much of its debt in August.

If Republicans refuse to increase the debt ceiling and the US government defaults on some of its debt on August 2, it is groups that tend to vote Republican will be the most harmed. How’s that, you ask? I though only hippy liberals and welfare queens needed the government? Let me explain.

The Tax Foundation has compiled a list of states that are net donors to the federal government and states that are net recipients of government aid. To do this, it took everything a state’s residents pay to the federal government in taxes and revenues in a given year and then subtracted everything that the federal government spent in that state in a given year. Expenditures include money spent on roads, education, military bases, social security, Medicare/Medicaid (everything that would be in jeopardy in a government shutdown). Then it gave a ratio of spending:revenue for each state. Here are the top ten states who received more from the Federal government than they put in:

For instance, Kentucky received $1.51 for ever $1 it sent to the Federal government. As you can see, eight of the ten states that rely most on federal aid voted for McCain in 2008. In 2004, all ten of these states voted for George W. Bush. If the debt limit is not raised, Federal spending will fall precipitously and these ten states likely stand to lose the most economically. They are also overwhelmingly Republican. Which states stand to lose the least by this metric?

You’ll note that all of these states voted for Barack Obama in 2008 and all of  them except Colorado and Nevada voted for John Kerry in 2004. They are by and large solidly Democratic states. They get much less from the federal government and give much more than their red neighbors. Looking at the debt ceiling showdown this way, it seems that Republicans are threatening to shoot their own voters in the foot by refusing to allow the government to make the payments owed primarily to people in red states. Voters in Republican states stand to lose the most if the government isn’t allowed to pay its bills once it hits the debt limit.

But of course there are some problems with looking at issues like this on a state-by-state, dollars-in vs. dollars-out measure, so let’s try another way of estimating who will be impacted by a government default.

Using this graph, we can roughly divide expenditures into 5 roughly equal groups: (for a more detailed breakdown, go here)

  1. Defense
  2. Social Security
  3. Medicare and Medicaid
  4. Interest on debt and other mandatory spending (including transportation, veterans’ pensions, unemployment, food stamps…)
  5. Discretionary programs (including foreign aid, education, disaster relief, NASA, border security…)

If the debt limit is not raised, about 40 percent of the government’s expenditures will immediately have to be cut (more will have to be cut after the initial cuts because hitting the debt ceiling wwill cause the economy to tank). So, initially about two of the five things in the list above will have to disappear overnight or some combination of 40% of all five. Who will that hurt? (Taking into account that we do not know what parts of the government Obama and Tim Geithner would choose to fund if this doomsday scenario were to come about, lets speculate about who is exposed to risk here.)

If parts #4 and #5, as well as Medicaid are cut, then that hurts a very mixed bag of people. Everyone from the TSA to scientists at the National Institutes of Health, to poor children, to border security guards, veterans and the recently unemployed will be affected by cuts in those areas that make up about 40% of expenditures. Many of the people in this group tend to vote Democratic, such as the poor, but this is such a varied constituency that it is difficult to speculate, although I assume that this group would tend to lean Democratic. However, it is easier to single out the people who would be affected by cuts in the rest of the government.

If it is Social Security and Medicare that get the ax (Medicare makes up the vast majority of MedicareandMedicaid expenditures) then that would dramatically hurt senior citizens. About 40% of the government goes directly to senior citizens through these 2 programs. Seniors were also the only age group to vote for McCain over Obama in 2008 and also voted strongly for Republicans in 2010. This Republican group stands to lose a lot if the government defaults.

If the military gets cut, that obviously hurts soldiers, their families, towns near bases and military contractors. Thats another 20% of the government. Soldiers and veterans are very Republican. Polls specifically of veterans seem to be rare, but Gallup found that veterans were solidly backing McCain by 22 points a couple months before the 2008 election, even though Obama was leading by 3 points nationally at that time. Veterans also went for Bush over Kerry by 16 points. The military and veterans currently eat up about a quarter of our budget, so they are very likely to be harmed by a default.

About two thirds of government spending goes towards groups that tend to support Republicans. If we move veterans benefits from the “other mandatory” part of the pie to the “defense” part of the pie, then we have about 65 percent of the government going towards seniors, the military and veterans, all of which tend to vote Republican.

Judging by both a state-based metric and an interest group-based metric, it would seem that Republican voters will be the ones most hurt in a government default. So why are many Republicans so hell-bent on not raising the debt limit? I have no idea. Its the triumph of ideology over socio-economic interests, I suppose.