The President Has a Math Problem

In mortgages, there's a trick that mortgage professionals use to hide costs. It's called "rolling in the costs". It's pretty simple. Let's say you owe $115,000 and closing costs are $3000. So, a mortgage broker will simply make your loan $118,000. The $3000 in closing costs are "rolled into the loan". They don't go away. Borrowers just don't see them because there aren't any out of pocket expense associated with them. Instead, you just owe that much more on your mortgage. You'll get that much less when you sell and your payment is that much higher. You aren't winning. All that happens is that you don't see the true costs of your loan. The math is the same. It just looks different.

The president is attempting the high stakes legislative version of rolling in the costs. The president's plan will cost somewhere in the neighborhood of $1 trillion over the next ten years. Some will argue that it's much more, but let's use that number for the sake of argument. That's the cost. Everything else after that is the equivalent of rolling in the costs.

The president says that his plan will be revenue neutral. That's dubious, but, even so, that doesn't mean it won't cost money. By revenue neutral, all that means is that he'll attempt to raise revenues in other places to account for the new costs. On the other hand, President Obama claims to be able to find cost savings to counter the increases caused by this plan.

Either way, the plan will cost a projected $1 trillion over ten years. There's only one way to raise revenues and that's through raising taxes. Since that's unpopular, the president tries to find fring taxes to raise. He raises taxes on the really, really wealthy. Max Baucus wants to raise taxes on insurance companies. They want to raise taxes on soda, junk food, and all sorts of other marginal items. All they're trying to do is roll in the costs. They are hoping to raise taxes you aren't going to notice. Just as costs get rolled in so you don't actually pay anything at closing, the Democrats are trying to raise every tax they can that won't be noticed by the masses.

Then, there's cost cutting. That's no different. After all, when you cut costs, you cut programs. So, instead the president claims that he will cut waste, fraud, and corruption. After all, no one wants waste, fraud and corruption. Every president claims that because it's much better to announce you'll cut waste, fraud, and abuse than say programs for critical health care to poor folks. The problem is that there's a lot of waste, fraud and abuse in the system and it's always been there. If you could just cut it, it would have already been cut.

The president has a math problem. His health care proposal will cost a lot of money. That's the problem. He'll attempt to roll in the costs of the health care proposal by taxing us and promising spending cuts elsewhere, but he won't be able to get around the costs. In my mortgage example, there was still $3,000 in closing costs. They may have been rolled in but they were there. The costs are here as well only they are much higher.