Friday, August 1, 2008

Health Care Reform, the Federal Deficit, and the Bush Tax Cuts--A Very Counter Productive Combination

Readers of this blog have been very fortunate this week to hear from Brian Klepper and Maggie Mahar on the subject of just how realistic is it to expect any kind of meaningful heath care reform in the next year or two.

They have both made excellent points--and both hope real health care reform will happen.

But there is a big bucket of cold water we all have to factor into such a discussion.

While everyone at least hopes health care reform will save the nation lots of money over the long-run it would be unrealistic to believe it won't cost a lot in the short-term.

Obama's health plan will cost at least $100 billion a year from the start--far more than he has estimated.

McCain says his health plan will be not have an upfront cost but it will because passing any kind of reform through a Democratic Congress will require expensive help for those who can't afford the thousands of dollars a year a health plan costs.

But here's the big hurdle:
  • The White House estimates that the 2009 federal budget deficit will hit $482 billion--and that does not include the cost of the Iraq war, any further economic deterioration, and the indirect tax high oil prices are giving us.
  • Federal spending in 2009 will already be the equivalent of 21% of the economy--the largest share since 1993--before any big health plan is passed.
  • The Bush tax cuts expire in 2010 and the cost to extend them is at least $200 billion a year more.
  • Every year the Congress eliminates the hit middle-class families would take from the alternative minimum tax and it will cost about $200 billion a year to eliminate all of it.
  • The Fannie and Freddie bail-out could cost nothing or it could cost $100 billion--no one knows.
  • Total federal debt has skyrocketed during the Bush administration to 40% of GDP (in 2001 Bush said it would shrink to 8% of GDP)--and the interest payments to maintain it have increased with it.
While the projected 2009 deficit is lower than the red ink we saw in the early 80's as a percentage of GDP, it would be the biggest nominal deficit we have ever faced.

McCain wants to extend the Bush tax cuts and cut even more taxes. Obama wants to let the Bush tax cuts expire for only high income folks, leave them in place for everyone else and in addition would cut taxes for seniors, the middle class, and the working poor.

Frankly, I don't see how either of the candidates can keep their tax cut pledges.

So, where does the up-front money for health care reform come from?

The new President and Congress will face an expectation that America's health care problems must be dealt with.

And, we're broke.

Earlier post:
Health Care Reform Will Be a Long Shot in 2009

A revenue neutral health care reform plan:
Watch the Wyden-Bennett "Healthy Americans Act"--It Could Be the Place Health Care Reform Compromise Takes Place in 2009
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