Congratulations to Team Canada in Winning the Winter Olympics Men's Hockey Gold
I'm not a big hockey fan, but I was pulling for Team USA to win as they did in Lake Placid 30 years ago. Tournament rules had changed since the Miracle on Ice in 1980, when the underdog US beat the Soviet Union in a come-from-behind victory. (Technically the US then had to beat Finland to win the gold.) To a certain extent, I thought that the same might happen again, especially since the US beat Canada in an earlier tournament game. But Team Canada sped to an early 2-0 lead, only to see the US score the tying goal with less than 30 seconds in the game, forcing sudden death overtime. I felt the momentum was with the Americans heading into overtime, but Canada scored the winning goal roughly 7 minutes into the overtime. Ironically the US finished second to Canada in both men's and women's hockey.
A Generalized Discussion of Ryan's Critique
Rep. Paul Ryan (WI-R) delivered salient critique of the Democrats' "smoke and mirrors" CBO scoring of their health care reform package (a sample transcript of the clip is here). Paul Ryan appeared on Fox News Sunday today to further discuss the discussion, which really got to be arcane at times; one could see Chris Wallace struggling to find some way to get Ryan to explain in plain English what Ryan means by the Democrats double-counting of money, issues with CBO scoring and the like.
I started a relevant discussion in last Monday's post, where I discussed the myth of the Clinton surplus; Clinton took credit for the fact that the Republican House turned down a large percentage of his domestic expenditures, and there was a significant booking of unsustainable capital gains taxes fueled by the NASDAQ stock bubble and other bullish stock market returns. A lot of the bubble in the tech sector reflected illusory demand for information technology reflecting duplicate and accelerated purchases (from Bush's first term) to guarantee delivery, and of course the Federal Reserve had flooded money into the economy in advance of what would prove to be overblown Y2K fears. Progressives attribute the surpluses to Clinton's class-based tax hikes, in what I refer to as the "leaky bucket" strategy, an artifact of lowering the net marginal benefit of income: tax revenues did rise, but less than expected. In fact, conservative economists would argue that there is an opportunity cost to such tax increase mischief, i.e., higher economic growth at the current tax rate could result in higher tax revenue than the higher tax rate with slower economic growth. ( For example, WalMart fueled its internal growth on higher inventory turnover with low prices/smaller item profits.) Other factors also entered the picture: productivity increases resulting from favorable business-friendly policies stemming from the Reagan and Bush administrations.
But let me build on the actual smoke and mirrors discussion in the post: many people think that the budget deficit refers to federal operations, but the budget also includes dedicated cash flows relevant to major entitlements which should be stand alone. The increases in entitlement reserves constitute a captive source of funding for federal operations, masking the true operational deficit.
I discussed the budget (versus operations) deficit/surplus as being federal inflows - federal outflows.
budget inflows = (money raised from public debt)+(federal revenues)+(trust fund contributions/premiums)
budget outflows = (money used to retire public debt)+(federal expenses)+(trust fund disbursements)
Now for the trust funds, e.g., payroll taxes (which are really trust fund contributions), we would ideally see a lockbox where contributions add to a critical mass of diversified investments which yield sufficient income to handle ongoing fund disbursements on an ongoing basis. That has never really happened. What has happened is something like this (assuming an adequate reserve):
trust fund contributions/Medicare premiums = (trust fund disbursements)+(loan to the federal government)
where the loan is from the change in fund reserves.
The reason we conservatives have been pushing for social security and Medicare reform is that the day is rapidly approaching where the dedicated payroll contributions won't match the distributions, e.g., social security checks and payments to doctors and hospitals. Once that happens, we have to realize that federal expenditures can no longer depend on trust fund contributions partially covering federal expenses. 100% of the fund contributions will go to disbursements--and if there aren't enough contributions, fund administrators will have to sell off their Treasury IOU's, which the government must reimburse out of federal operations (I'm not holding my breath) or public debt; this is over and beyond any public debt needed to cover an operations deficit. If and when the reserves are exhausted, it now becomes more serious--it goes beyond paying interest on the debt to borrowing principal as the disbursements become a de facto federal expense and contributions become a federal revenue.
There are a variety of ways to deal with the entitlement reform problem which go beyond the scope of this post. But it is likely on the disbursement side, we would move to postpone eligibility and/or restrict eligibility to meet actuarial factors (like increased lifespan), to limit payment increases, and on the contribution side, we would look at things like raising payroll taxes or income eligibility ceilings or expanding the population paying into the system.
Now let's discuss some of the arcane details of financing the new federal health care entitlement:
First of all, we need to realize that Medicare disbursements for patient goods and services to doctors and hospitals do not cover the market rate; the government dictates how much it will pay and does not negotiate with providers. In many cases, this can be 20% or more below the going rate; in essence, doctors and their private-sector patients (and/or their insurance companies) are subsidizing the true costs of Medicare, and already we see some signs of doctors and clinics refusing to accept Medicare patients. It's not only that, but the public sector is already paying for nearly a half of the health care sector expenses; a shrinking private sector means that hospitals and doctors will find fewer opportunities to pass along Medicare payment shortfalls.
Some of the Republican objections with the Democratic Party Health Care Bill deals with how the Democrats have been using CBO scoring, which I analogize to shaking a kaleidoscope until you get a result you like. Keep in mind CBO scoring is made based on model projections, including assumptions regarding the economy and federal revenues. There are some things (e.g., defensive medicine opportunity savings) which the CBO models don't assess. [The Democrats also misdirect people on the nature of tort reform: we are not discussing economic damage resulting from doctors' mistakes, covering related medical expenses, loss of livelihood, etc., but punitive damages. Capping punitive damages also caps legal fees.]
Anyone who has listened to the debate knows that Obama and his Congressional allies repeatedly state that CBO estimates a savings from tort reform at virtually insignificant levels; the fact that trial lawyers are the second highest source of Democratic Party contributions may have something to do with their resistance to change. In part, the CBO is looking at the damages awarded against medical costs, but it doesn't account for related defensive medical costs--which HHS estimates as costing up to $50B a year: more than many of the other projected savings categories. Governor Rick Perry (TX-R) notes since tort reform passed in Texas in 2003, 10 new insurance carriers are operating in the state, and the number of practicing doctors has increased by nearly 15,000, including increased coverage in underserved rural areas.
Another Republican objection is double-counting. e.g., Medicare cuts, which do not reduce the national debt but essentially constitute a loan from the Medicare reserve to fund federal expenses, including the new health insurance entitlement.
There are hidden costs or obligations which are difficult to score. Richard Foster, Chief Actuary of the HHS Centers for Medicare and Medicaid Services, has separately challenged the House and the Senate bills by questioning the viability of proposed Medicare cuts, that there is not enough short-term slack in provider resources to accommodate a large influx of newly insured, which will result in higher overall sector costs, and doctors may respond by dropping low- or negative-margin patients. Congress may need to increase payments to providers to ensure Medicare fulfillment.
There is also cost-shifting; Ryan , notes that a proposed 21% cut in doctor fees for Medicare services is being fixed in separate legislation, which understates the actual health care legislation by the amount of the fix. There is some gimmick costing: for instance, you get the initial 10 years of tax hikes but only 6 years of benefits. Paul Ryan puts the legitimate number of the Democratic Party Health Care Bill at a $460B deficit the first 10 years, $1.4T the second..
Quote of the Day
Pay no attention to what the critics say... Remember, a statue has never been set up in honor of a critic! - Jean Sibelius
Political Cartoon
Lisa Benson no doubt that the Congress, under progressive Democratic leadership, has strayed off course with its fiscally irresponsible agenda and is headed for a crash landing with reality:
Musical Interlude: Sunshine Songs
John Denver, "Sunshine on my Shoulders"
Stevie Wonder, "You Are the Sunshine of my Life"
Katrina and the Waves, "Walking on Sunshine"
