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Sen. Max Baucus is the David Blaine of the Senate. In a world-class act of contortion, he stuffed his version of Obamacare beneath $1 trillion over ten years and twisted it into a deficit-reduction measure.
The bill stacks rickety assumptions atop political improbabilities, but the Congressional Budget Office says that, on paper, it costs “only” $829 billion and reduces the deficit by $81 billion over the next decade. This is enough to garner headlines hailing its fiscal responsibility. By the standards of hurry-up-and-spend Washington, $829 billion is the new affordable.
But it is deficit reduction that only spendthrifts could love. Looked at another way, the Baucus bill finds $910 billion worth of spending reductions and tax increases, and spends all but $81 billion of it. On its own terms, it takes the debt that will be accumulated in the next ten years from $7.14 trillion all the way down to $7.06 trillion. Surely, Suze Orman would not approve.
Even if the Baucus bill could be taken at face value — and it can’t. Its drafters cleverly worked with the academic enterprise of the CBO evaluation in mind. The bill slowly phases in its subsidies (just $8 billion in 2013, exploding to $180 billion in 2019) so they will be offset by the more front-loaded tax increases and spending cuts in the initial ten years.
Then there are the spending cuts themselves. They are firmly within the tradition of Ronald Reagan’s infamous “magic asterisk,” denoting future unspecified savings. The Baucus bill is quite specific — it will supposedly cut Medicare provider rates by nearly 25 percent in 2011 — but wholly unrealistic. The promised Medicare reductions are budgetary leprechauns, fodder for fools and the self-deluding.
The last time Congress said it was going to impose drastic across-the-board Medicare cuts, in the 1997 budget deal, it lost its will almost immediately. Not delivering on mandatory Medicare cuts is practically an annual rite. Since the 1990s, a “sustainable growth rate” formula has been written in law to keep Medicare spending from outstripping the growth of the overall economy, which it always does. Congress invariably defers the cut.
It’s against this backdrop that the Baucus bill undertakes to squeeze $100 billion of savings annually (!) out of Medicare and Medicaid by 2019. In the most polite and understated bureaucratic language, the CBO expresses its doubt: “These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation.” In other words: We know that you know that we know this is a charade.
In fact, once real-world political pressures are considered, the bill is a fiscal time bomb. Its premier tax increase, an excise tax on insurers offering expensive insurance plans, will simply be passed along to consumers. It is structured so that, as health-care costs increase, more insurance plans will meet the threshold for taxation, and more middle-class families will be affected. Over time, pressure for relief from its growing bite will likely become irresistible.
On the spending side, the Baucus bill offers generous insurance subsidies only to a tightly limited group of people who don’t already have employer-provided coverage. As James Capretta of the Ethics and Public Policy Center writes, “CBO’s assessment of the Baucus bill is built on the dubious assumption that Congress can hand out a lucrative new entitlement to a limited number of low- and moderate-income voters while denying it to tens of millions of others.”
If the Medicare cuts won’t materialize, and the revenues won’t grow as expected, and the subsidies (already projected to grow at 8 percent per year) will expand, the Baucus bill is merely the thin wedge of another out-of-control entitlement. We already have several of those, and already are slated to run $1 trillion annual deficits before the advent of a new one. The Baucus bill is faux fiscal restraint on the road to budgetary Armageddon.