Peter Orszag: These Aren’t the Budget Gimmicks You’re Looking For

by Morgen Richmond

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Here’s budget director Peter Orszag writing on his White House blog yesterday:

Recently, a lot of attention has been paid to a claim that this deficit reduction is achieved only through a business-as-usual Washington budget gimmick: paying for just a few years of costs with many more years of savings.

This charge is simply false—and let’s get the facts straight.

  • First, it’s true that loading savings up front and costs in later years is a time-honored budget gimmick. It has a single purpose—to hide the ball and make programs look paid for in the near term that will in fact substantially add to the deficit over the long-term.
  • Second, it’s also true that some of savings under the health plan start sooner than the major costs in the legislation. We can move quickly to begin identifying waste and improving quality in the current health care system, as well as make certain reforms to rebalance the tax code. But, the major coverage expansion does not occur until 2014, in part because we need to take time to establish a system of state-based exchanges through which private insurance companies will provide quality insurance to those not getting it through their employer. Still, it is important to note that the vast majority of the savings in the next ten years occur in 2014 and thereafter.
  • Third, this is not a budget gimmick. The purpose the tried-and-true gimmick described above is to make a proposal that adds to long-term deficits appear fiscally responsible. But if that were the course we were taking, we would expect to see a large fiscal hole at the end of the first decade and larger and larger deficits in the second decade. Instead, over the long-term, the savings under the President’s plan are expected to grow faster than the costs. So, when the Congressional Budget Office is done with its scoring, we expect it will find that the President’s plan reduces deficits by roughly $100 billion in the first 10 years and roughly $1 trillion in the decade after that. In other words, health reform should reduce the deficit by growing amounts over the long-term.

Put simply: Health reform will reduce the deficit in this decade, and it will reduce the deficit by even more thereafter. There’s no gimmick in that.

Orszag’s attempted sleight-of-hand here is almost laughable. His argument boils down to this:

  1. It’s true that front-loading revenues and back-loading spending is a common tactic to misrepresent the true cost of a bill, and can be fairly labeled as a “gimmick”.
  2. As it happens, our healthcare bill does indeed use this tactic, by front-loading revenues and back-loading spending over the first 10 years.
  3. But this is most assuredly not a gimmick in our case, because even though we are using this (ahem) gimmick to understate the deficit over the first 10 years, we expect the CBO to say that this bill will somehow generate a surplus in years 11-20 (when we are long gone).

To borrow an increasingly loathsome expression, Mr. Orszag, you are entitled to your own opinion but not your own set of facts.

Let’s look at the initial 10-year budget window first, since this is the only time period for which the CBO or anyone else can generate a reasonably accurate forecast. It is simply undeniable that the only reason the CBO has scored healthcare reform as generating a surplus over 10 years is because of the budget gimmicks in the bill. And not just the back-loading of spending, which Orszag readily admits.

Even with this tactic, the only reason the bill shows any surplus at all is the inclusion of incremental revenues for social security ($50+ billion) and a brand new assisted-living entitlement program (CLASS – $70+ billion). In both of these cases, these excess revenues represent payment of premiums for deferred benefits, and are a future liability for the government. Adjusting for these two provisions alone, the $100 billion surplus touted by Orszag turns into a $20 billion deficit. If the overall revenues and outlays were also more evenly distributed, we would likely be looking at a 10-year deficit well in excess of $100 billion.

Even granting Orszag his arbitrary re-definition of what a “gimmick” is, there is another bit of chicanery being used to further obscure the real short and long term costs of the bill. The surplus figures cited by Orszag, and all of the forecasts put out by the CBO, have been calculated using Medicare physician reimbursement rates which are substantially lower (20%+) than anyone, including Orszag, expect to ever occur. Democrats actually included the so-called “doctor’s fix” to address this in earlier drafts of the legislation, but removed it once they realized that it would be impossible to achieve budget neutrality if it were included. As noted by this CBO memo to Congressman Paul Ryan, factoring in the planned fix for doctor reimbursements would result in a long term increase, not reduction, in the deficit. In fact, this factor alone is enough to flip the longer-term projection from a $1 trillion surplus to a $500 billion deficit.

Notably, the CBO has also repeatedly emphasized the uncertainties surrounding these calculations, even within the initial 10-year window, but especially with the longer term projections. As a former director of the CBO himself, Orszag is well aware of the imprecision of these sorts of calculations. He is also aware that historically these estimates have grossly underestimated the long term fiscal impact to the federal government (e.g with Medicare).

Orszag is also well aware that future Congresses are highly unlikely to sustain all of the planned tax increases and Medicare cuts. Especially since Republicans in Congress and a substantial majority of the American public are unified in their opposition to this bill. It would take a broad coalition of Democrat and Republican leadership for there to be any hope of enacting or sustaining meaningful entitlement reform. Unfortunately, the White House precluded any possibility of this right from the start, by reserving the right to force a bill through using budget reconciliation, and by crafting the legislation and cutting unseemly deals behind closed doors.

The entire process has been a gimmick, and Orszag is most likely the chief architect of many of the budget tricks which have been used to confuse the American people and misrepresent the true cost of reform.

Put simply, he’s a liar.


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Posted Mar 5th 2010 at 10:37 am in Healthcare, Uncategorized | 128 Comments