At the end of this piece I posted Robert Reich’s solid
liberal criticism of the deal which passed the Senate last night. The fiscal cliff plan faces an
uncertain future in the House. I still support the deal. These are not good
times, and these are not terribly wise men. If the goal of establishment Republicans
was to scare the shit out of the rest of us by exposing how absolutely over-the-moon-yahoo-howl
crazy the hard right TP members are so that we would be softened up for a less
appealing deal, it worked brilliantly.
Reich mentions the extension of unemployment insurance, but
the 5 year extension of the 2009 expansion of tax breaks for low-income
Americans: the Earned Income Tax Credit, the Child Tax Credit, and the American
Opportunity Tax Credit are also significant support for the poor. There was,
however, no new stimulus money which lengthens the Republicans ability to see
that the recovery will continue to be painfully slow and painfully jobless.
Not sure what fix was included on the Alternative Minimum
Tax bit that is critical for an increasing number of “middle income” families
especially in high wage states like New York where I live.
No deal was struck on the debt limit, so another cliff looms
ominously and almost immediately. The US is already beyond its legal
limit and Treasury is deciding who not to pay so bondholders stay in line.
Entitlement reform was not addressed. The Inflation indexing
Obama previously Ok’d was pulled back. The firestorm of criticism from the left
over such a modest measure does not bode well for real reform. The proposal
would have saved $149 billion over 10 years by slowing annual cost-of-living
increases for various programs, including Social Security. According to the USA
Today, “Based on estimated inflation, in 2014 an average monthly Social
Security benefit for someone retiring now would be $1,260 under the new
formula, instead of $1,263 under the existing formula. By 2022, the average
benefit would grow to $1,462 a month, $39 less than it would be under current
law.”
On the upside, extending the Medicare eligibility age to 67
was also withdrawn. Considering the modest movement on taxes and the
uncertainty about Medicaid budgets in the future, extending the age, it seems to me, would have been uniquely unfair and
eminently dangerous for millions approaching the retirement cliff. More on that
later.
All of this deficit talk is dishonest to a certain extent
and the main reason for the dishonesty is Medicare, Medicaid, and Healthcare
inflation.
Obama’s proposed budget is available on line. The entire
thing with loads of tables and accessible understandable numbers can be
uploaded in basic excel format.
Medicare spending which averaged $240 billion per year in
Bush’s first term, and $350 billion in his second, increased to an average of $462
billion in Obama’s first term. In Obama’s second term, through 2017, Medicare
expenditures are projected to be an average of $586 billion per year. That’s a 140% increase over the term of two
Presidents. Each four year period now brings Medicare increases equal to what
America spends on Education and what that represents is a vast transfer of the nation’s
wealth from the young to the elderly of which it should be noted I will very
soon become a charter member. In total spending for the Department of Health
and Human Services which also includes Medicaid spending for the poor is
projected to increase from $870 billion year in 2012 to $1.2 trillion in 2017.
By comparison defense spending, while still ridiculously high,
is projected to be reduced from $688 billion to $560 billion in the same period.
Education spending, which increased dramatically under Obama from around an
average of $87 billion in the bush years to an average of $111 billion in
Obama’s first term, is projected to level off at roughly that level through
2017. All agency spending at the federal level excluding Defense, Veteran’s
(which includes significant healthcare spending), and Social Security, is
projected by the Obama administration to go from $1.5 trillion in 2012 to $1.7
trillion in 2017. This is less than the rate of inflation and these outlays cover
all other government functions form the Department of Homeland Security to our
investments in infrastructure and education to parks, the EPA, and Government
Administration. Everything.
Since discretionary government spending, excluding
healthcare, is essentially unchanged, and per year healthcare expenditures are
projected to increase by about 20% beyond the rate of inflation, some reform or
cost containment MUST be a minimum requirement of any serious deficit reduction
proposal.
Paul Ryan’s budget which passed repeatedly in the House
before the election did not shy from that challenge. He proposed to cut
Medicaid by 1/3. While it’s fair to say that this was a cut in the rate of
growth, in combination with Medicare changes the effect on the middle class and
poor would be devastating. Medicaid is not just a program for the poor.
Medicaid spending is a lifeline of government support for millions of middle
class families with special needs kids or parents requiring nursing home care.
FY 2012 Medicaid spending is projected to be $275 Billion.
The Kaiser Foundation projects that to increase to $486 in 2022. Ryan would
have capped that growth at $323 billion. In total Ryan’s plan cuts nearly $800
billion from the president’s projected Medicaid expenditures from 2013 to 2022,
a 24% reduction. After that the cuts average 30% per year. When those cuts are
combined with an increase in the age at which Medicare is available an America
with millions of over-60 citizens without any medical insurance will become a
stark reality.
Already deeply concerned about piecing together their basic
income in the years after 55 when employers find reasons not to hire, if the
Republican plan were enacted Americans would add the anxiety of receiving and
paying for Healthcare. The Republicans argue that the Government ought not be responsible
for the medical care its citizens receive. They argue that Americans know best
how to contain costs and get the required doctoring. During Harry Reid’s last
election battle, his opponent went so far as to suggest that America ought to
go back to the barter system (with actual chickens as payment!?) to pay for
care. She argued that would bring prices down in a hurry. As with so many other
things the Republicans seek to return to a time that did not exist in any real
sense. To the extent that even a fraction of it could be recreated, practicality
and technology prevents even the hint of reminiscence. But that does not
prevent their pitiful, moronic, nostalgia.
As we have already seen, the Republican scheme writ large
would mean that most would wait for the dire circumstances for which emergency
rooms are the last and perhaps only solution. With Medicare out of reach until
67, Medicaid, which would be cut dramatically, would not be an option either.
Republicans have argued that the states will administer the
programs more cost effectively and so reach more people, but far too many will
certainly abandon that promise. Dozens of states have already announced their
intention to opt out of the Medicaid expansion contained in Obamacare. Despite
the fact that the Federal Government assumes all the costs for the first three
years, these states opted out sighting the costs for this coverage in the years
that follow. The Obama Administration
estimates that a 3% increase in state health spending is all that would be
required to cover 17 million lower income Americans. What might we expect in
states like Texas, with its high rates of desperately uninsured, when the
Federal Government no longer insists on
coverage for the poor and block grants out its responsibility?
Republicans plans which actually contained no cuts in
Medicare speeding for ten years were not sincere. In their hearts Republicans
know that Americans now view Medicare and in the broader sense Healthcare as
their right and expect the Government to provide it. After all they had the
opportunity to overturn Obamacare in this last election and chose not do it. Moreover,
Tea Party protestors with signs reading “Government Keep Your Hands Off My
Medicare” and “Don’t Steal from Medicare to Support Socialized Medicine” are
not urban legend and can be easily googled.
The Ryan Budgets were political documents designed to garner small
wedges of voters at the polls. Only the most rigorous stooges on the right, people
like the Koch brothers, Limbaugh, and Hannity, actually believed in all of the
claptrap and even some of them seem to find found the rhetoric intolerable. No
Republican they said wanted to throw Grandma in the street. I actually believe
that that was true. No sane and decent person would want to see the calamity of
such impoverishment. Rather the goal is to just not recognize the results of
programs they espouse.
The Republican plan embodied in the Ryan budget failed. For
all the talk of gridlock in Washington and the abject failure to lead that we
have seen by Boehner and the House Republicans, it will fall to Democrats to
lead if there any hope for progress. Reasons for hope in that regard are not
great.
The Center of Budget and Policy Priorities estimates that
the Bush era tax cuts for Americans earning more than $250,000 per year will
cost the Federal Treasury about $100 billion per year through 2022, though the
numbers grow dramatically in the out years. By comparison the FY 2012 deficit will
be $1 trillion, so in plain terms taxes alone will not come close to dealing
with the structural deficits. Seldom mentioned is the fact the spending cuts
which would not crush the economy, sending millions into poverty, are also inadequate
to close the gap. As noted total discretionary
spending, excluding healthcare and the military, will be $1.5 trillion this year.
Yesterday’s deal, which exempted incomes below $400,000 for
individuals and $450,000 for couples filing jointly, took a lot of that money
off the table. The Estate Tax was also locked in for the foreseeable future as
were with only small enhancements taxes for dividends and capital gains. This
takes more another chunk off the table. Romney will no longer pay 14% of his
income in taxes, but he will not pay 20% and he will continue to pay far less
than his housekeep or his grandchildren’s teachers.
Tax reform, in which rates fall in ways designed to embolden
economic activity while simultaneously increasing government revenue still hold
out some hope of passage, but it is unclear what factors would motivate the two
sides to come to the middle closer to each other. Enlightened political
self-interest has been replaced with mutually assured destruction. Gamesmanship
and macho posturing prevail in both parties. At long last are there no adults
left in the room? Compromise, even when miniscule in scope, is a dirty word.
The restructuring of Social Security inflation adjustments noted above is a
case in point. Neither side feels they need give because the other side has
relented so little. Still the Republicans want lower rates (for corporations
also), and everyone wants more revenue, so some tax reform may be
possible.
But the 800 pound gorilla is Healthcare and it threatens not
only to eat lunch programs for schoolchildren and housing for our neighbors,
but also to savage almost every other government program. Healthcare eats up
17% of GDP while the next closest industrialized nation (and economic
competitor) is only 11%. The American
system is wildly expensive, and my great fear is that its quasi-public/private
structure is locked in or nearly so. Everyone in Washington knows that a single
payer system would be more cost effective and save the kind of money that needs
to be saved. Well, maybe not everyone, but the vast majority of Democrats and a
sizable chunk of fearful but honest Republicans. Physicians support Single-Payer
by 60%+ majorities. When the Healthcare debate was raging in 2008, Americans
supported it by near identical margins. So, one might ask, why was it withdrawn
by Obama so early in the negotiations? The short answer is he knew it had no
chance of passage. Single payer would
actually be a Government take-over of Healthcare. It would mandate preventive
care (which would save money) and unleash a wave of cost recalculations, all of
which would weaken the grip of the Healthcare/ Insurance syndicate on the
United States fiscal budget and the Congress.
Without Healthcare cost containment the hole in the Federal
budget will continue to widen. The Republican plan would have lessened the
burden of those costs by forcing them from the public ledger and into the
private sector. That said, these plans would not reduce the overall costs or
lessen their drag on the economy, which truly is the reason that Republican
plans cannot be considered serious. Once Americans figure that their out of
pocket would maintain or grow, they would quickly turn on any such proposal
that came under lengthy and public review. A deregulated private sector plan would
unleash further inflationary pressure, and would create a Healthcare underclass
more pronounced and desperate than even exists now. In absence of any cost
containment the real burden the country faces, that is the amount of GDP
invested in keeping the country healthy, would continue to escalate. With
Republicans in firm opposition, and the recent fiscal cliff battle
notwithstanding, the Democrats malleable and far sighted only to the extent
they can see the next election, there is not much to hope for in terms of a
solution.
But this much should be clear, neither party is firmly
committed to deficit reform. Or at least nether part can claim that without
reform of healthcare costs. The Republicans propose solutions that even they
know will not withstand electoral review at the polls over the long run, and
the Democrats propose a little tinkering around the edges which promises little
hope in the area of cost containment. Centrists reforms like Obamacare are
demagogued as “Socialism” and reforms which extend the life of entitlement
programs like the seven-year extension of Medicare contained the PPACA come under similar criticism. You may recall
Paul Ryan’s endless recitation of the $700 billion in Medicare cuts contained
in his own budget.
Both parties are guilty of demagoguery on Medicare. Seniors
vote and apparently are easily frightened. Too bad more young people don’t. Their
voices, though more pronounced in the last two elections cycles than in previous
elections, are a minimum down payment on this dialogue on debt. Until we can
finally have an honest discussion on the escalating costs of healthcare and the
parallel transfer of the nation’s wealth to the senior class the deficits will
keep exploding. For all the talk we have experienced in these past months about
deficit reduction, which let’s face it only became a Republican mantra when
they lost control of the nation’s purse strings, much of what we are hearing is
silliness. A progressive Mr. Rogers faces off against a heavy breathing Darth
Vader, all of it captured on the screen. And it looks so real. Too bad it’s
not. There is no fortress to protect. Our political leaders gambled it away
long ago.
Robert Reich writes: “The
deal emerging from the Senate is a lousy one. Let me count the ways:
1. Republicans haven’t conceded anything on
the debt ceiling, so over the next two months – as the Treasury runs out of
tricks to avoid a default – Republicans are likely to do exactly what they did
before, which is to hold their votes on raising the ceiling hostage to major
cuts in programs for the poor and in Medicare and Social Security.
2. The deal makes tax cuts for the rich
permanent (extending the Bush tax cuts for incomes up to $400,000 if filing
singly and $450,000 if jointly) while extending refundable tax credits for the
poor (child tax credit, enlarged EITC, and tuition tax credit) for only five
years. There’s absolutely no justification for this asymmetry.
3. It doesn’t get nearly enough revenue from
the wealthiest 2 percent — only $600 billion over the next decade, which is
half of what the President called for, and a small fraction of the White
House’s goal of more than $4 trillion in deficit reduction. That means more of
the burden of tax hikes and spending cuts in future years will fall on the
middle class and the poor.
4. It continues to exempt the first $5 million
of inherited wealth from the estate tax (the exemption used to be $1 million).
This is a huge gift to the heirs of the wealthy, perpetuating family dynasties
of the idle rich.
Yes, the deal finally gets Republicans to
accept a tax increase on the wealthy, but this is an inside-the-Beltway
symbolic victory. If anyone believes this will make the GOP more amenable to
future tax increases, they don’t know how rabidly extremist the GOP has become.
The deal also extends unemployment insurance
for more than 2 million long-term unemployed. That’s important.
But I can’t help believe the President could
have done better than this. After all, public opinion is overwhelmingly on his side.
Republicans would have been blamed had no deal been achieved.
More importantly, the fiscal cliff is on the
President’s side as well. If we go over it, he and the Democrats in the next
Congress that starts later this week can quickly offer legislation that grants
a middle-class tax cut and restores most military spending. Even rabid
Republicans would be hard-pressed not to sign on.
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