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Wednesday, July 15, 2009

Fun With Numbers and the Democrats Health Care Bill

According to the Congressional Budget Office, the House Democrat's health care proposal will cost somewhere in the neighborhood of a trillion dollars over ten years. A Congressional staffer told Michelle Malkin that much of this cost will kick in five years from now. This is also being reported by Fox News and other news outlets.

In fact, if you study the proposal, you can see why and what it means is that the one trillion dollar number over ten years is misleading. In fact, most of the bill doesn't kick in until 2013. In that year, Medicare expands to anyone making 400% of the poverty line. Medicaid kicks in to anyone making 133% of the poverty line. Also, in that year, individuals will be mandated to have health insurance. Anyone without health insurance will be fined. Furthermore, all businesses will be forced to provide health care in that year at risk of fine.

So, the reason that the cost go up so much in the last five years is because this bill really only kicks in starting in 2013. The CBO didn't have a year by year breakdown of the costs but I'd venture to guess that 2010-2013 won't have many costs. That means the one trillion dollars will really be spent mostly over seven years.

The presentation of this bill is both sensible and misleading. It's sensible in that no overhaul this dramatic should start immediately. Everyone needs to be given time to prepare. It's misleading because we shouldn't then look at the costs over ten years. In 2010, 2011, and 2012, the costs will be near zero. That's because the bill will have negligible effect in those years. That puts the costs of the bill at near $150 billion yearly. That of course assumes the costs won't go up down the road. The tax increases the Democrats propose will provide an extra $50 billion yearly at best. They have no answer as to where the rest will come from. That means it will be financed. As such, we are looking at adding an extra $100 billion yearly to our deficit for their health care plans.

Here's the reality. There are simply not enough rich people around to pay for the sort of health care expansion that the Democrats want. So, either, it will be paid for with medical cuts elsewhere, higher taxes on other people, or it's financed. That is something that will soon become clear to everyone, and that's why I believe the sort of health care reform that the president wants will be rejected.

5 comments:

walterc said...

With the plan being cost heavy on the back end, there will still be time for Conservatives to take control in 2010 and 2012 and repeal the darned thing.

Once this program is entrenched into the economy and society, it will be impossible to unravel ourselves from it.

So IF it passes both houses, there is at least a chance that it could be stopped down the road.

Frankly I'm hoping cooler heads prevail. But I'm not holding my breath.

Anonymous said...

Notice that the costs kick in AFTER the next election cycle.

This gives political "cover" as the talking points for the election can be said now, while the effects won't be felt until after the election cycle, and it will all have to be paid for.

In other words, vote for me because looky what I did for you. Later, I'll tax you because you already agreed to it by re-electing me.

Anonymous said...

I was under the impression that the funds would be raised in advance though, so wouldn't the tax increases take effect sooner?

Anonymous said...

To say out loud, as the House has just done, that those in our society who can most readily afford it should pay for the health insurance of those who cannot is, well, audacious.

There's another word for it: fair. According to the most recent data (for 2007), the best-off 1 percent of American households take home about 20 percent of total income -- the highest percentage since 1928.

Critics will charge that these are the very people who invest, innovate, and hire, and thereby keep the economy going. So raising their taxes will burden the economy and thereby hurt everyone, including those who are supposed to be helped.

But there's no reason to suppose that taking a tiny sliver of the incomes of the top 1 percent will reduce all that much of their ardor to invest, innovate, and hire in the future. Yet if this tiny sliver means affordable health care for a far larger number of Americans, who will be able to get regular checkups and thereby stay healthy and productive, the positive effect on the American economy is likely to be far greater.

Don't believe critics who say the surtax will harm small business. According to the Center for Tax Justice, it would hit only five percent of small business owners -- realistically defined as taxpayers for whom small business income makes up at least half of their adjusted gross income (from schedule C businesses, partnerships, family farms, and Subchapter S corporations).

Besides, only the profits of a small business would be taxed. The owner of a small business deducts money paid to employees as compensation, as well as operating costs. So, for example, a couple whose income comes entirely from a small business would have to earn more than $350,000 in business profits -- after paying all their expenses, including salaries -- before the surcharge would affect them at all. And if they earned more, the surcharge wouldn't reduce their incentive to hire more employees because they pay employees with pre-tax income. And not even purchases of equipment to expand business operations would be affected because most small business owners can write off up to $250,000 of the costs of such equipment immediately.

A surtax is easy to administer. And the whole idea is easy to understand. Tax the wealthy to keep everyone healthy. Not even a bad bumper sticker.

Anonymous said...

You are right Mike.

There are not enough rich people to pay for the bill.

The solution is quite simple, up the tax to 2% to 5% extra. The solution is so simple.

Here is an interesting table from CBO showing the historical pattenr of income change from 1979 to 2005.

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TABLE 10: SHARE OF PRE-TAX INCOME
BY PERCENTILE INCOME GROUP 1979 to 2005 in US Dollars
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.............1979....2005...%CHANGE

1st 20%......05.8%...04.0%....-31%
2nd 20%......11.1%...08.5%....-23%
3rd 20%......15.8%...13.3%....-16%
4th 20%......22.0%...19.8%....-10%
Top 20%......45.3%...54.4%....+20%

Top 10%......30.5%...40.9%....+34%

Top 05%......20.7%...31.1%....+50%

Top 01%.......9.3%...18.1%....+95%

NOTE: Dr. Reich´s 20% 2008 Share figure for Top 1% percentile class matches COB 2005 18.1% figure in 2005 I cited above.

Source: Congressional Budget Office, Dec. 2007
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