Deficit/Debt Discussion Thread

[Drake Tungsten]

Hu Jintao: How exactly is extending healthcare coverage to 30 million people going to save you money?

Barack Obama: I don't know.

Hu Jintao: You know, as I listen to you, I am noticing that each of your plans to save money involves spending even more money. This does not inspire confidence.

It's funny cuz it's true...

[Drake Tungsten]

The Coming Deficit Disaster
The president says he understands the urgency of our fiscal crisis, but his policies are the equivalent of steering the economy toward an iceberg.

President Barack Obama took office promising to lead from the center and solve big problems. He has exerted enormous political energy attempting to reform the nation's health-care system. But the biggest economic problem facing the nation is not health care. It's the deficit. Recently, the White House signaled that it will get serious about reducing the deficit next year—after it locks into place massive new health-care entitlements. This is a recipe for disaster, as it will create a new appetite for increased spending and yet another powerful interest group to oppose deficit-reduction measures.

Our fiscal situation has deteriorated rapidly in just the past few years. The federal government ran a 2009 deficit of $1.4 trillion—the highest since World War II—as spending reached nearly 25% of GDP and total revenues fell below 15% of GDP. Shortfalls like these have not been seen in more than 50 years.

Going forward, there is no relief in sight, as spending far outpaces revenues and the federal budget is projected to be in enormous deficit every year. Our national debt is projected to stand at $17.1 trillion 10 years from now, or over $50,000 per American. By 2019, according to the Congressional Budget Office's (CBO) analysis of the president's budget, the budget deficit will still be roughly $1 trillion, even though the economic situation will have improved and revenues will be above historical norms.

The planned deficits will have destructive consequences for both fairness and economic growth. They will force upon our children and grandchildren the bill for our overconsumption. Federal deficits will crowd out domestic investment in physical capital, human capital, and technologies that increase potential GDP and the standard of living. Financing deficits could crowd out exports and harm our international competitiveness, as we can already see happening with the large borrowing we are doing from competitors like China.

At what point, some financial analysts ask, do rating agencies downgrade the United States? When do lenders price additional risk to federal borrowing, leading to a damaging spike in interest rates? How quickly will international investors flee the dollar for a new reserve currency? And how will the resulting higher interest rates, diminished dollar, higher inflation, and economic distress manifest itself? Given the president's recent reception in China—friendly but fruitless—these answers may come sooner than any of us would like.

Mr. Obama and his advisers say they understand these concerns, but the administration's policy choices are the equivalent of steering the economy toward an iceberg. Perhaps the most vivid example of sending the wrong message to international capital markets are the health-care reform bills—one that passed the House earlier this month and another under consideration in the Senate. Whatever their good intentions, they have too many flaws to be defensible.

First and foremost, neither bends the health-cost curve downward. The CBO found that the House bill fails to reduce the pace of health-care spending growth. An audit of the bill by Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services, found that the pace of national health-care spending will increase by 2.1% over 10 years, or by about $750 billion. Senate Majority Leader Harry Reid's bill grows just as fast as the House version. In this way, the bills betray the basic promise of health-care reform: providing quality care at lower cost.

Second, each bill sets up a new entitlement program that grows at 8% annually as far as the eye can see—faster than the economy will grow, faster than tax revenues will grow, and just as fast as the already-broken Medicare and Medicaid programs. They also create a second new entitlement program, a federally run, long-term-care insurance plan.

Finally, the bills are fiscally dishonest, using every budget gimmick and trick in the book: Leave out inconvenient spending, back-load spending to disguise the true scale, front-load tax revenues, let inflation push up tax revenues, promise spending cuts to doctors and hospitals that have no record of materializing, and so on.

If there really are savings to be found in Medicare, those savings should be directed toward deficit reduction and preserving Medicare, not to financing huge new entitlement programs. Getting long-term budgets under control is hard enough today. The job will be nearly impossible with a slew of new entitlements in place.

In short, any combination of what is moving through Congress is economically dangerous and invites the rapid acceleration of a debt crisis. It is a dramatic statement to financial markets that the federal government does not understand that it must get its fiscal house in order.

What to do? The best option would be for the president to halt Congress's rush to fiscal suicide, and refocus on slowing the dangerous growth in Social Security, Medicare and Medicaid. He should call on Congress to pass a comprehensive reform of our income and payroll tax systems that would generate revenue sufficient to fund its spending desires in a pro-growth and fair fashion.

Reducing entitlement spending and closing tax loopholes to create a fairer tax system with more balanced revenues is politically difficult and requires sacrifice. But we will avert a potentially devastating credit crisis, increase national savings, drive productivity and wage growth, and enhance our international competitiveness.

The time to worry about the deficit is not next year, but now. There is no time to waste.

Mr. Holtz-Eakin is former director of the Congressional Budget Office and a fellow at the Manhattan Institute. This is adapted from testimony he gave before the Senate Committee on the Budget on Nov. 10.

http://online.wsj.com/article/SB10001424052748704888404574547492725871998.html

[loinburger]

Saturday Night Live is even less funny than This Modern World

[Ramo]

Second, each bill sets up a new entitlement program that grows at 8% annually as far as the eye can see—faster than the economy will grow, faster than tax revenues will grow, and just as fast as the already-broken Medicare and Medicaid programs. They also create a second new entitlement program, a federally run, long-term-care insurance plan.

The CBO still doesn't exist.

[Drake Tungsten]

Saturday Night Live is even less funny than This Modern World

The Obama and Palin skits from last night were pretty funny. The rest of the show seems to have been a wasteland, as usual.

[Wezil]

Hulu

Post a useful source.

[Drake Tungsten]

Move to a real country.

[loinburger]

SNL is pretty anal about taking down youtube videos

[Drake Tungsten]

SNL is pretty anal about taking down youtube videos

True. There's a YouTube video of the Palin skit up right now (and no Hulu video of it yet), but I'm wary of posting it considering it could be down in a couple hours.

[Ramo]

From the Senate bill:

Effects on the Deficit. CBO has developed a rough outlook for the decade following the
10-year budget window by grouping the elements of the legislation into broad categories
and assessing the rate at which the budgetary impact of each of those broad categories is
likely to increase over time. The categories are as follows:

The gross cost of the coverage expansions, consisting of exchange subsidies, the
net costs of expanded eligibility for Medicaid, and tax credits for employers:
Those provisions have an estimated cost of $196 billion in 2019, and that cost is
growing at about 8 percent per year toward the end of the 10-year budget window.
As a rough approximation, CBO assumes continued growth at about that rate
during the following decade.

The excise tax on high-premium insurance plans: JCT estimates that the provision
would generate about $35 billion in additional revenues in 2019 and expects that
receipts would grow by roughly 10 percent to 15 percent per year in the following
decade.

Other taxes and other effects of coverage provisions on revenues: Increased
revenues from those provisions are estimated to total $63 billion in 2019 and are
growing at about 8 percent per year toward the end of the budget window. As a
rough approximation, CBO assumes continued growth at about that rate during the
following decade.

Changes to the Medicare program and changes to Medicaid and CHIP other than
those associated directly with expanded insurance coverage: Savings from those
provisions are estimated to total $106 billion in 2019, and CBO expects that, in
combination, they would increase by 10 percent to 15 percent per year in the next
decade.

http://www.cbo.gov/ftpdocs/107xx/doc10731/Reid_letter_11_18_09.pdf

The CBO is not perfect, obviously. The right has reason to be skeptical about projected cost savings from the Medicare commission as the CMS report has suggested. But if you were to design a system designed to extract savings from Medicare as Holtz-Eakin claims he want, how exactly would it differ from the proposal? And by the same token, the left has its reasons to be skeptical about projected lack of savings: the use of comparative effectiveness research, pilot programs in delivery reform, greater preventative care among certain populations, the fact that every other developed country has a universal program that is drastically cheaper, etc.

But it's amusing that the right has decided that the CBO has suddenly not become a useful arbiter a couple months ago. Stick with WSJ opinion pieces, guys.

[Drake Tungsten]

I actually kind of like this skit, even though it's just an excuse to be weird.

[Wezil]

Move to a real country.

If that means a country like the US I'll take a pass thanks. You guys are comedy gold but I wouldn't want to live there.

[Darius871]

Hu Jintao: How exactly is extending healthcare coverage to 30 million people going to save you money?

Barack Obama: I don't know.

Hu Jintao: You know, as I listen to you, I am noticing that each of your plans to save money involves spending even more money. This does not inspire confidence.

It's funny cuz it's true...

Jesus, that was the first time I ever saw that guy's sh*tty impression and will damned sure be the last. That's the best talent they can come up with these days?

[Drake Tungsten]

The problem is that Kenan Thompson can't do an Obama impersonation and SNL sure as hell isn't going to hire more than one black guy. As such, we're stuck with Armisen's ****ty impression.

[Darius871]

SNL sure as hell isn't going to hire more than one black guy.

I thought it was a white guy in shoe polish, which was until now the only silver lining...

Edit: NM, I missed that those are two different people. OK, so one silver lining.