NYT Deficit Calculator

The New York Times has a nice deficit scenario tool that allows you to balance the budget yourself. I will give you a hint....cutting foreign aid and ending earmarks won't do it....

Here is my take. No problem.

Orszag on Bowles/Simpson

Peter Orszag in today's NYT defending the Bowles/Simpson plan to extend actuarial life of Social Security. I would prefer the proposed Soc Security fix to not fixing it, but would still rather not raise the retirement age. However, I agree with the spirit of this piece (as I wrote in the previous two posts) that the Bowles/Simpson proposal is a serious one that is very useful to help us move ahead. In particular, for all the politicians who were saying they would support health reform if only it did more on costs, what Bowles/Simpson outlines is what that will look like: capping the unlimited tax expenditure for private insurance, and amping up the Medicare programs ability to influence what/when/how care is reimbursed.

Social Security and Rev Cap

I mostly like the health care aspects of the Chairman's mark of the Fiscal Commission. I don't like the Social Security proposals so much, and understand people not liking the revenue target of 21% of GDP for revenue and could personally live with higher taxes, but think it is a move in the correct direction so can support this revenue cap.

• The problems facing Social Security are relatively small compared to those facing Medicare. Social Security can pay out promised benefits until 2037 or so. If we do nothing, then Social Security will be constrained in 2038 or so to pay out only the total money flowing in. This would mean a substantial benefit cut of 20-22%. This is the default way to 'fix' Social Security; to impose a large benefit cut. The CBO put out a list of 30 policy options to address Social Security and extend the life of the program. They include different ways to increase taxes or decrease benefits....of course you could have a mixed strategy.
  

• I think the Chairman's mark is correct in suggesting the the maximum taxable wage should return to the 90th percentile of wages. This was the essence of the Greenspan Commission in 1983. Bowles/Simpson want to do this slowly. I would prefer to do this faster and to add to this a reduction in benefits for higher income persons to extend the life of Soical Security instead of doing so by increasing the retirement age for Social Security. Extending the OASDI payroll tax to the 90th percentile of wages in 2012 would extend Social Security ability to pay full benefits to 2050, by itself. The Chairman's mark would eventually put the full retirement age to 69 by 2075 (68 by 2050). I respect the argument that the retirement age should rise due to increased life expectancy, but the reality is that these gains have not been equal across income levels. I think for blue collar workers this is likely to be a hardship, and I would prefer to deal with the problem in another way. I would rather apply the OASDI payroll tax more rapidly to the 90th percentile and to choose one of the ways to reduce benefits (or make more benefits taxable) for high income persons and leave the full retirement age at 67. In fact, I would rather unify the eligibility age for Medicare to 67 staring two months per year in 2014 (along with the planned Social Security increase) and maintain the Social Security retirement age at 67 in 2025 and beyond. Keep in mind that in 2014 the exchanges will be fully in operation and income based subsidy will be available for persons not eligible for Medicare. So, I don't think the Social Security suggestions in the Chairman's mark are the best ways to address the relatively small (as compared to Medicare) Social Security problem. But, I am willing to listen.
  
• Revenue/Spending targets. The Chairman's mark aims to cap revenue at 21% of GDP, and spending at 22% of GDP by 2020 and then dropping to 21% in later years for a balanced budget. Several points on this. (1) I agree in general that I would prefer to not have hard targets/caps because flexibility and actual policy choice would be better. However, I think that given our longstanding difficulty in having a balanced budget I think a cap is a good idea, and will help bring some folks along for what are some large changes we will be undertaking if we do something anywhere near to the Chairman's mark. (2) A basic question if you accept the notion of a cap is what should the cap be.... (3) 21% Of GDP is being criticized by some progressives because it is too low (they would prefer to deal with deficits with more tax increases relative to benefit cuts), however, it is important to remember that if we have a tax code that raises 21% of GDP in revenue that will be the highest proportion of GDP raised in revenue in the past 40 years (we were close in 1999/2000). So, 21% of GDP is a substantial tax increase over what amount has been raised the past 40 years....that is why we have had a deficit 36 of the past 40 years!
• The Chairman's mark stabilizes the debt and gets to long term balance by roughly cutting $2 for each $1 raised in taxes. This is a policy choice. It could be 50/50, which would mean the revenue target would be greater than 21% of GDP, or it could be $2/$1 the other direction, which would mean the revenue target would be even higher. Conservatives are correct in saying the proportion of the GDP to be redistributed by government is a profound choice. The trouble is that they only want to talk about reducing taxes and don't actually propose spending cuts....hence, large deficits. We progressives need to stick in and commit to a long term balanced budget. Conservatives have gotten away with massive hypocrisy on this issue, in part because progressives ceded the political territory of worrying about budget deficits. We can argue and make the case that the correct percent of GDP that should be raised by taxes should be above 21%, but we need to commit to long term balance, and we then have to live with less spending than we would prefer if we cannot make the case. Our country needs to have a discussion about what level of government spending we desire, and then develop a tax code that pays for it over the long run (you will always have deficits in emergencies; our problem is long term structural deficits under the default, do nothing). So, I can live with a 21% of GDP cap on revenue as a starting point, even though I would be willing to have taxes a bit higher. I don't see any way they can be lower if we are to have a hope of a long term balanced budget.
  

Deficit Commission--Health Portions

I have had a chance to read the Bowles/Simpson 'Chairman's mark' of the Deficit Commission. This isn't the final report. The 18 members of the Commission will have to vote on what they can agree on. There had been a previous commitment that any parts that 14 of the 18 members agreed upon would be submitted as a piece of legislation into the lame duck Congress. 14 of 18 would mean that at least several Republicans would have to sign on to anything.

The Chairman's mark is a serious and comprehensive proposal. In early twitter chatter, it seems that most can find things they really like and really hate. This is in one sense the best test of whether the Chairman's mark is balanced, broad ranging and actually addresses the issues of long term sustainability. It everyone loved it, it would mean that it didn't really address the issue with hard choices.

Here are my thoughts on the health policy provisions.

• It is a broad proposal, that not only addresses long term health care issues, but even offers a detailed 'doc fix' which is of course an immediate issue that must be dealt with in the next few weeks. Their proposed doc fix: (1) provides payment cuts; (2) introduces what they call a comprehensive medmal reform, I think along the lines of what the CBO scored last Fall that they said would reduce the deficit by around $54 Billion over 10 years. Key in this provision is capping non economic damages; (3) expand Medicare beneficiary cost sharing, by ending first dollar coverage in Medigap plans [note: updated 9:10pm, 11/11, earlier I wrote erroneously, Medicare Advantage plans here], and to have a unified deductible across parts A and B of Medicare. In return for expanded co-pay there is a cap on catastrophic or max out of pocket expenses for beneficiaries; (4) expand the authority of the Independent Medicare Payment Advisory Board (IPAB). They propose allowing IPAB to address all types of providers (incl hospitals: good idea, see Willie Sutton), and include benefit design issues and payment decisions. Further, they want to further preference the recommendations of IPAB by saying if Congress rejects them, other automatic cuts of equal value would be made. I totally support this idea. Medicare is really the only payer that can lead the way on this. It seems paradoxical to most, but Medicare has lead with most of the insurance innovations of the past 30 years or so. (5) Medicare would create a replacement for the current payment schedule by 2015.
  
• On balance, this is a plausible doc fix, especially given that Congress has been kicking the can down the road for over a decade on dealing with the SGR. Politically, medmal seems inevitable and a good thing. There are non cost saving reasons to address this issue, not the least of which are that it could lead to better quality improvement efforts that are harmed by an adversarial system. I have written about the role of medmal being important above and beyond cost savings (cost savings will be modest, but we need what we can get).
  
• The proposal asks for large scale tax reform that would begin by repealing all tax expenditures and then 'adding back' any ones that Congress and the President can agree upon. I totally support this process; these are hidden and silent spending that even the folks benefitting don't often understand. These tax expenditures are worth around $1.1 Trillion next year according to the report and reforming the tax exclusion of employer paid health insurance is the policy option with the best hope of slowing health care cost inflation in the private portion of the system. Slide 24 is one of the most important in this document. It provides the direct trade off between what the marginal tax rates would have to be in order to achieve $80 Billion in deficit reduction over 10 years with no tax expenditures (this would make employer paid premiums totally taxable as income, no Earned Income Tax Credit, Child Credit, cannot deduct mortgage deduction, etc) and then if you add back certain tax expenditures. I favor capping the tax exclusion of employer paid insurance and moving to ending it eventually. I hope that slide 24 will help draw attention to the concept of tax expenditures and how they create to the budget deficit.
• They suggest $200 Billion of further health cuts over the next 10 years (what they call medium term) and provide a laundry list that are a mix of relatively small cuts who together add up to a consequential amount.
• They discuss moving dual eligibles into Medicaid managed care programs. The dual eligible population (around 8.5 Million people or so) are elderly and have become impoverished due to disability, long term poverty, and/or spending down to Medicaid eligibility via paying for nursing home care. An issue that should be considered is federalizing the LTC portion of Medicaid. I will write more about this later, but Medicaid is essentially two programs: pregnant women, children and young adults via PPACA and then elderly and disabled persons. The more numerous persons are the young and they are much cheaper as compared to the elderly and disabled. Shifting responsibility for LTC financing to Medicare would help states and allow for better care for these most vulnerable citizens since it would make one payer responsible (Medicare) instead of having Medicare and Medicaid shifting costs back and forth.
• Long term cost control growth targets (starting in 2020) would set overall federal health spending at GDP growth +1%. This is much slower than costs have grown the past 40 years. I think setting this (or some) capped target or goal makes sense, but the real key is the heavy lifting necessary to implement PPACA and do something along the lines of what is outlined here.

My bottom line is that the health aspects of the 'Chairman's mark' are tough, good and balanced policies. I like the health aspects more than I like the Social Security aspects of the plan (which I will write about later...getting on a plane now). The most important aspect of the chairman's mark for health policy is that it provides a route to a doc fix in the very short run and draws bright attention to the role of tax expenditures generally, and the tax preference of employer paid insurance, particularly. It also moves to expand the IPAB in ways that will allow for the nitty gritty of health policy to move out of Congress, and into a more expert driven model. I think this is good. I also think the notion of some sort of cap in growth rate in health care is good (not sure if GDP + 1% realistic in 10 years) and is the type of thing that Congress should be doing.

Update: The proposed doc fix they put forth is lacking on important details...it doesn't say how much doc payments should drop, for example. However, it is a route to a political deal on the doc fix that is paid for: some payment schedule cuts in return for medmal that is very important to doctors.

Quick Thoughts on Commission Report

co-chairs Erskine Bowles and Alan Simpson today released the 'chairman's mark' or their draft of the Deficit Commission report. This is a serious and broad-ranging proposal. All the brave politicians elected to Congress last week on platforms of dealing with the deficit and fiscal responsibility are currently running for the hills. I am travelling and reading it on my Droid (really) so it will take me awhile. Quick thoughts are

• that I don't prefer their Social Security options, but am willing to listen. I would rather raise the Medicare age than the Social Security age.
  
• They put tax expenditures, and notably the tax exclusion of employer paid insurance front and center. I am a big fan of this.
  
• And they talk of expanding the cost cutting aspect of PPACA, like the Independent Payment Advisory Board, and clearly assume that we need to implement (and improve) PPACA.
  
• They have some fairly detailed tax reform initiatives, notably around limiting many tax exclusions and simplifying the code. I am with all this in spirit....will need to pour through the details.
  
• If we are going to address/change the corporate income tax (which is a relatively small source of revenue and very uneven in terms of actual rate paid) I would prefer abolishing it than reducing it. If you just reduce Conservatives will say it wasn't low enough, that is why it didn't create jobs....
• More later after I read closely.
  

Thoughts on what next for health policy

Mostly if you read my blog and columns you have heard it before. A few emailed and asked. Briefly:

• Repeal is like the dog actually catching the car. System unsustainable before PPACA, will be again if repeal. Still not sustainable with PPACA without much more heavy lifting to address cost inflation. If you repeal, then you need a plan for how to start over. The Republicans don't have an actual plan to do anything, just ones designed to argue against something. Insurance across state lines is a great slogan, but not a consequential policy. Malpractice reform, I am for it because the system is a total mess, but it is not a cost savings panacea (though will reduce spending some).
  
• Keep in mind the numbers 218 (votes needed in the House) and 60 (votes needed in the Senate) and 1 (President that must sign). The repeal talk is fantasy and/or political theater. Maybe House should just pass one sentence repeal bill, Pres can veto and then they can get down to business. Rs can say we tried but the scary President vetoed, the Pres can say I prevented the scary Rs from repealing. Whatever. So long as they get down to business.
  
• Here are some tweaks within PPACA framework moving toward Republicans I suggested before the Feb. summit. Perhaps they can have a cross-Congress compromise. In policy terms it is there and always has been.
  
• Here is what I wrote about Deficit Commission, and the next (obvious in policy terms) step to address health care costs.
  

Post Election Forum Today @4:30

The Sanford School of Public Policy is hosting a post-election forum today at 4:30 is room 05 Sanford. I will (lightly) moderate a two-person panel. Frank Hill, former chief of staff of Sen. Elizabeth Dole (R-NC) and Pope "Mac" McCorkle, a Professor of the Practice in Public Policy at Duke and former Democratic campaign strategist will give their views and take questions. Open to the public and all are welcome.