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Saturday, October 17, 2009

The Enron Accounting of Health Care Reform

The president wants a massive health care overhaul. He also wants to keep it under $900 billion over the next ten years, and he wants it be deficit neutral. So, how do the Democrats plan on accomplishing all these things? It's through Enron style accounting.

1) Collect taxes and revenues in year one but don't begin to provide services until year three.

The CBO has become the "gold standard". Everyone has treated it as the gospel. It's so called scoring system has flaws however. It only takes the first ten years of revenues and expenses. So, how did the Baucus bill come in with a budget surplus? It begins to collect taxes and revenues right away. The plan, however, doesn't begin to be implemented until 2013 and doesn't take full effect until 2015. So, some taxes are collected for up to five years before expenses begin to take full effect. Yet, the CBO only scores for the next ten years. So, when you take ten years of revenues and only seven years of expenses, it's no wonder that the plan looks as though it reduces the deficit.

Of course, the CBO doesn't score the consequences of this. First, this won't be paid with CBO scoring. It will be paid with real dollars. So, at some point the revenues collected before there are any expenses will run out. That will happen in the second ten years. Of course, by then President Obama will be out of office. No one will remember the promises made now. The consequences of these budget deficits will be the same nonetheless. Second, collecting revenues is just a fancy term for raising taxes. That will happen starting next year. Raising taxes in a recession is counter productive. It only perpetuates any recession. So, while this Enron Accounting trick will make things look good for the CBO, it won't stop the real world effects of the policies.

2) Expansion of Medicare and Medicaid

All the plans call for a major expansion of both Medicare and Medicaid. Of course, Medicaid programs expect the states to pick up a major piece of the tab. The extra strain on state's budgets isn't figured into any CBO scoring. In fact, it's not even mentioned by any politician. Of course, states can't print money and most have balanced budget amendments. So, asking them to pick up an extra tab for a federal government program only strains their budgets even more. There's a reason why Governors have been sounding the alarm. They're about to be on the hook for a major federal government expansion. Of course, the strain on state government's budgets isn't factored into the scoring of the CBO. In fact, it's barely acknowledged by anyone pushing the reform. Of course, the costs are still real. Putting extra pressure on the fifty state budgets has real consequences even if they aren't acknowledged.

3) Phantom cuts to be decided later.

The biggest scam and the biggest promise made by the administration is the cuts to fraud, waste and abuse in Medicare and Medicaid. These cuts aren't actually in the plan. They're just promised and they'll be taken on by later Congress. Of course, later Congress aren't bound by the promises of this Congress. The cuts aren't specific except for the amount, $500 billion. That just happens to pay for half of reform. In other words, proponents of health care reform know how much they want to cut but they don't know where these cuts will be. The same government that counts a slow down in the increase in government spending as a cut is now to be trusted to make significant cuts to a major government program. Of course, these cuts won't start until 2013, just conveniently after the next election.

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