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OMB, ACA, CBO and the deficit

The OMB has dug into the CBO's projections for the Affordable Care Act, and they're pretty pleased with what they see. I'm going to quote the analysis, but if you just want to read one line, the ACA wipes out about a quarter to a third of our long-term deficit -- and that's in the nasty scenario, where we continue things like the Bush tax cuts and the Medicare doc fixes.

• CBO projects that the Affordable Care Act will, unless Congress reverses some of its provisions in the future, reduce the long-term fiscal gap — the amount by which revenues must be raised or spending cut to produce a stable debt trajectory — by 2 percent of GDP over the next 75-years. (Between CBO’s long-term report from last year and its report from this year, the 75-year fiscal gap under the "baseline scenario" has been cut by 2.5 percentage points of GDP. There has been only one major change to fiscal outlook in that period — the enactment of the Affordable Care Act. And, based on both the CBO report’s narrative and backup data, the Affordable Care Act is responsible for about 2 percentage points of GDP of this deficit reduction.)

• Furthermore, CBO's analysis may underestimate the impact of effectively implementing the Act. Specifically, starting in 2030 under its baseline scenario, CBO essentially assumes that a number of the savings measures in the Affordable Care Act — most importantly, the Medicare Independent Payment Advisory Board (IPAB) — are "turned off," with the growth rate of Medicare costs returning to what it would have been in the absence of the legislation instead of continuing at the lower rate both assumed by CBO prior to 2030 and explicitly required by the law as a target for the IPAB process. If instead, the IPAB continued limiting cost growth in Medicare after 2030 as it is supposed to, this would increase the deficit reduction produced by the Affordable Care Act by about another half of a percentage point of GDP over the next 75-years — so the reduction in the fiscal gap would amount to about 2.5 percent of GDP.

• Last year, CBO put the 75-year fiscal gap at about 8 percent of GDP; this assumes current policies — such as the 2001/2003 tax cuts, relief from the Alternative Minimum Tax, and a fix to the Medicare physician payment system — are continued. The figures above suggest that if fully implemented, the Affordable Care Act would reduce this by about one quarter to one third, or to roughly 5 to 6 percent of GDP.

At this point, some conservatives say, that might all be true, but the cost controls in the health-care reform bill are tough, and we'll never implement them. Unfortunately, there are no policies that will substantially cut the long-term deficit and aren't tough and difficult to implement. We can either pass deficit-reducing legislation and implement it or we can go bankrupt. There's no other choice. And the upside for the Affordable Care Act's cost controls is that they've been passed into law, and you'd need 60 votes to stop them, which is better than hypothetical policies where you'd still need 60 votes to stop them.

In other words, the system's bias toward inaction is in favor of the ACA's cost controls, while it's against hypothetical alternative policies. The correct position for deficit hawks is to advocate the full implementation of the ACA, not to give aid and comfort to those who'd repeal its cost controls by saying they'll never be implemented in the first place.

By Ezra Klein  |  July 8, 2010; 5:55 PM ET
Categories:  Budget , Health Reform  
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Comments

NAnd deficit hawks should also say: No LONG-TERM tax cuts, unless they are offset by simultaneous LONG-TERM government spending cuts!

Because the LONG-TERM budget is in rough balance. In other words, there is no LONG-TERM deficit we can't handle.

The CBO just showed that the end of the Bush Tax Cuts + the cost savings in Obamacare have solved the problem.

Now the Bush Tax Cuts are sunsetting, just as SHORT-TERM things are supposed to do.

Economics says that tax cuts can be good for a SHORT-TERM stimulus, but they don't much affect LONG-TERM growth. (Actually Bush's tax cuts should have been better designed, to give a larger SHORT-TERM stimulus, but you know what happened.)

Karl Rove's new rhetoric is a second attempt to sell the well-known Keynesian SHORT-TERM stimulus effects of tax cuts -- but sell it as a LONG-TERM growth package. It isn't. SHORT-TERM stimulus is definitely not LONG-TERM growth.

LONG-TERM growth depends upon innovation, and that depends upon good education. Tax cuts have almost nothing to do with it. But the Republicans hope to benefit again from the confusion of SHORT-TERM and LONG-TERM policy in the minds of voters.

Here is how the short-term affects the long-term: It is a matter for your SHORT-TERM consideration that the LONG-TERM budget is in balance.

We can draw a line at this moment: If you decide that everything should be balanced from here on out, everything "paygo", well then: if they extend the Bush Tax Cuts, they must balance them at the same moment with long-term spending reductions. Otherwise, there should be no tax cuts.

Hold them to it.

This would be the only, practical, step-by-step way to reduce the size of government.

Notice that this state of affairs was brought to you by the Democrats... It will remain best for the country to keep the Democrats in charge, at least for the MIDDLE-term, because they are the only ones who try to care about good design instead of blind chopping, and who care about the impact on the bottom half of the people.

Posted by: Lee_A_Arnold | July 8, 2010 6:34 PM | Report abuse

What provisions in PPACA would cut the deficit so dramatically?

Posted by: bobsimmons | July 8, 2010 6:44 PM | Report abuse

Ezra,

I'm no conservative, and I don't believe for a minute that the PPACA policies will remain in place. Do you sincerely believe that Congress won't touch the subsidy levels? We're asking a family of four with a diabetic child to cough up 18-20% of their income every single year -- not just one year but every single year -- just so their child can live live. We're asking an HIV-positive hotel worker earning $25,000/yr. to cough of a similar percentage of his income every single year -- again, not just one year but every single year -- just to be able to live. Do you honestly believe these policies will remain intact? Would you as a liberal want these policies to remain intact? For some odd reason, I have a hard time believing this. ...

Posted by: moronjim | July 8, 2010 7:06 PM | Report abuse

And outgoing OMB director Orszag concludes the cited message by stating that "the figures also show that even with enactment of the Affordable Care Act, we remain on an unsustainable fiscal course." He then advocates "enacting substantial, long-term deficit reduction — deficit reduction that this Administration is committed to implementing and building on."

The ball is the in the court of the Obama/Pelosi Regime to propose some deficit-reducing measures... at least SOME deficit reducing measures... any at all! The question becomes more critical as the Regime must now appear in Court and submit documents under oath: mere accounting tricks won't be enough this time.

Again, Orszag says "even with enactment of the Affordable Care Act, we remain on an unsustainable fiscal course."

Posted by: rmgregory | July 8, 2010 7:54 PM | Report abuse

I'm a fan of the ACA, but I think you miss out some important context when you make this point that, "yes, it will be hard to implement these cost controls, but we have to implement cost controls at some point anyway". There is a difference between a certain Congress passing cuts or taxes into law, to take effect during their incumbency: the Congressmen who pass it take the hit for it, and they soften the blow with the spending goodies. But think about it from the perspective of a Democratic Congressman in 2018, when the excise tax kicks in. The achievement of passing a historic health care reform will be ancient history by then, and you don't take any credit for the subsidies and insurance reforms, but yet you'll be the one taking the hit for a tax that hits unions pretty hard. Why *wouldn't* you vote to delay it, or raise the threshold, or halve the tax? Granted you'll still need 60 senators to achieve that, but it's a classic case of 'kicking the can down the road'.

Posted by: bigmandave | July 8, 2010 8:19 PM | Report abuse

@moronjim, I suppose the rejoinder to your point is that those families already have to contribute that much of their earnings to health care, they just do it through the employer's subsidy of their insurance premiums. Since the total amount of cash salary plus benefits is the worker's actual salary, the employee is already paying that amount. The question is what amount of the insurance premium the employer was paying will be returned to the worker in cash salary once the employer drops coverage to offset the difference between the subsidies the government will provide and the subsidies the employer provided.

Posted by: StokeyWan | July 8, 2010 8:56 PM | Report abuse

Look, is it possible that some future Congress will repeal the deficit reducing measures in the ACA? Yes, of course it is. Now, it's not easy to repeal it since it's already passed into law, so under current Senate rules you'd need 60 votes. Now, we should be honest that lots of us are advocating for getting rid of the filibuster, so it might be easier to repeal the deficit reduction portions later.

The real point, however, is that as Ezra points out, there's no fun and magical way to reduce the deficit. You're either going to make unpopular spending cuts, or you're going to find new or increased sources of revenue, or both, or we're going to go bankrupt. If Congress will repeal the deficit reducing portions of the ACA then they're just as likely to repeal (or simply not pass) any other deficit reducing measure.

If there's a high degree of certainty that Congress won't let any tough deficit reducing measures actually make it into law, then we've already lost and we can all go back to playing video games or whatever. Personally, I'd like to come up with good and interesting ways to come up with the other 2/3 of the deficit that the ACA doesn't cover.

Posted by: MosBen | July 8, 2010 10:14 PM | Report abuse

Rmgregory: "Orszag says 'even with enactment of the Affordable Care Act, we remain on an unsustainable fiscal course.'"

It would help to explain the reason: Because although the long-term budget is roughly balanced, it still drifts up to a size of the GDP which is suspected by the Mainstream Establishment to be unsustainable. That remains to be seen (either whether it gets there, or whether it would be unsustainable) but there's now no doubt that the Dems are the ones that the voters should keep in charge of watching it and working on it. They've gotten this far, and they are still paying attention to difficult policymaking. Ronnie and Dubya, to take two recent Republican heroes on the other hand, just blew big holes in the budget.

Also, your statement "The ball is the in the court of the Obama/Pelosi Regime to propose some deficit-reducing measures" does not distinguish whether you are talking short-term or long term.

Short-term deficit reduction in the current circumstance is ludicrous and now Republican and conservative pundits are having second thoughts. The question is the Republicans in Congress: they already talked Obama's short-term stimulus down to half its necessary size, early last year, and now they have (so far) refused to okay an extension of unemployment insurance to ease some immediate pain. Both of these are big price tickets in the short-term, but small bumps in the long-term graph. The Republicans have made it stupidly clear that they have no intention but to accept only tax cuts along every step of the way, although tax cuts are useful only some of the time, and ought to be paid for by spending reductions. Funnily enough they will benefit electorally from bad economy, because many voters are too tired to follow the intricate shenanigans of the intellectual fraud.

As for long-term deficit-reducing proposals, once again: the Democrats have just carefully enacted some in Obamacare. It's not everything and it needs work. But now there is no long-term deficit worth mentioning. You might try to give an example of what the Obama/Pelosi Regime ought to propose next, after the travesty of congressional action by the Republicans on healthcare. Now they're playing to the tea-party's call to roll-back the mandate. Wait until the voters realize that the Republicans have no intention of shooting their insurance contributors in the foot. So they're either lying, or they intend to roll-back universal coverage -- which after all, they fought against without trying to say so, along every step of the travesty.

Posted by: Lee_A_Arnold | July 8, 2010 10:23 PM | Report abuse

"Between CBO’s long-term report from last year and its report from this year, the 75-year fiscal gap under the "baseline scenario" has been cut by 2.5 percentage points of GDP. There has been only one major change to fiscal outlook in that period — the enactment of the Affordable Care Act."

Is that true???.....this is from CBO report earlier this year.


"The net impact of the recent legislation was to increase federal spending for most of the next 20 years; but by 2035, the incremental effect of the legislation (if all of its provisions are fully implemented) is a net reduction in projected expenditures (see Figure 2-4 on page 42). By that point, the savings in Medicare are expected to exceed the combined increase in outlays for Medicaid, CHIP,and the exchange subsidies. Even so, most of the difference from last year’s projection for 2035 is attributable to CBO’s technical changes rather than the effects of the legislation

I thought the technical changes played a significant role in the numbers changing from last year.

As far as I can tell, ACA will have a minor impact on the deficit if we're lucky.

Posted by: Mazzi455 | July 8, 2010 11:16 PM | Report abuse

In the Long-Term Budget Outlook that CBO released in June 2009, total spending on health care was projected to reach about 31 percent of GDP in 2035 and about 46 percent in 2080 under the extended baseline scenario.3 The corresponding figures for this year are about 5 percentage points lower than last year’s projected levels. Essentially all of that difference in 2035 and the vast majority of the difference in
2080 is attributable to the use of updated data and to the technical changes CBO made in its methodology; the recently enacted health care legislation is projected
to have much smaller effects on total spending for health care.

Posted by: Mazzi455 | July 8, 2010 11:24 PM | Report abuse

Mazzi455: "the recently enacted health care legislation is projected to have much smaller effects on total spending for health care."

Actually the CBO says something quite different: they don't know.

On page 26 of the new PDF we read, "the agency does not have an analytic basis for projecting the effects of the recently enacted legislation on the growth rate of federal health care spending over the very long term."

Two sentences above that, we read that they extrapolated the spending beyond a few decades by "using the same growth rates that would have been applied in the absence of the legislation."

That's fine, but it is not the same thing as claiming a projection of smaller effects. In essence, they have thrown their hands up in the air. There could as well be larger effects, and indeed larger savings in the outer years are claimed by other analysts of the legislation.

Posted by: Lee_A_Arnold | July 9, 2010 1:24 AM | Report abuse

You guys should stop complaining cuz one the health care we have now isnt as good as it was supposed to be. also the law has just been signed give it a try u guys are too hard on democrats they went to college and we voted for most of these people.so if u want to say u have the right to choose tell that to ur congress men or state official. as for obama people are just tryin to make it look like america made a mistake he has done things to help us and we had a full 8 years of a terrible president and i will be so as happy as ever when a obama fixes bush's mistakes. You can find full medical coverage at the lowest price from http://bit.ly/chE6zp obama has to put up with the wo0rld judging his every move and trying to fix the mess we are in we are lucky anyone wants to be our president. STOP COMPLAINING AND GIVE HIM A BREAK. i wanna see one of yall do what he sas done. some people are just so ignorant.

Posted by: henryjose09 | July 9, 2010 6:25 AM | Report abuse

Do OMB or CBO score the fallout of the trillions sucked out of the working economy to shave a couple percent off the *government* debt?

Or are they still using the same old static models that assume individual behavior doesn't change even when staring down the barrel of a government gun?

Posted by: msoja | July 9, 2010 10:41 AM | Report abuse

"We can either pass deficit-reducing legislation and implement it or we can go bankrupt."

College student. Harvard, no less. So, please explain how a country that not only controls its own currency can, other through loss of a war to another country, go bankrupt? And please, remember "bankrupt" is a real word with a real definition. I've been sick of this idiotic "bankrupt" meme ever since the "Iceland Is Bankrupt" crap started. Bankrupt? Really? Let me see, they still print their own money and its still traded on international FOREX exchanges, and they're still paying interest on their bonds and still selling sovereign bonds, in fact the recently sold a 1/2 billion worth to private pension funds. Every "journalist" loves the emotion of the word "bankrupt" ... be nice if they understood the definition

Posted by: jsfry | July 9, 2010 1:06 PM | Report abuse

"We can either pass deficit-reducing legislation and implement it or we can go bankrupt."

College student. Harvard, no less. So, please explain how a country that not only controls its own currency can, other through loss of a war to another country, go bankrupt? And please, remember "bankrupt" is a real word with a real definition. I've been sick of this idiotic "bankrupt" meme ever since the "Iceland Is Bankrupt" crap started. Bankrupt? Really? Let me see, they still print their own money and its still traded on international FOREX exchanges, and they're still paying interest on their bonds and still selling sovereign bonds, in fact the recently sold a 1/2 billion worth to private pension funds. Every "journalist" loves the emotion of the word "bankrupt" ... be nice if they understood the definition

Posted by: jsfry | July 9, 2010 1:06 PM | Report abuse

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