It took me awhile to catch onto this (I guess real life got in the way of reading the legislation or even the revenue estimate carefully), but the House health care reform bill (.pdf) not only fails to provide a revenue source that will keep up with rising health costs (and thus is less likely to stay deficit-neutral beyond the first ten years), but it relies on a revenue source that’s likely to fall short of even that tax’s own standards. Why? Because it’s a surtax on the highest-income households (of 5.4% on income over $500K for singles and $1 million for couples)…and is NOT indexed for inflation. Sound familiar?
It should, because this is how the current-law “alternative minimum tax” (AMT) is supposed to work as well: a tax on rich people that over time digs deeper down into the income distribution as inflation reduces the real value of the unindexed exemption level. Now, in the case of the AMT there’s been this interaction with the ordinary income tax that also pushes more people onto the AMT whenever there’s a big cut in the ordinary income tax (for rich people) that doesn’t coincide with a matching adjustment to the AMT’s specification.
In CBO’s analysis of the House bill (.pdf), they suggest that if all the policies in the bill are carried out as written, the bill is likely to stay deficit neutral even beyond the first ten years–because the tough choices on Medicare and Medicaid spending will produce savings that will grow more rapidly (10-15 percent per year) than the costs of expanded coverage will (8 percent per year), so that even though the growth in surtax revenue (at 5 percent per year) will fall short of the growth in the costs of expanded coverage, on net the cost-saving and revenue-raising provisions combined will keep pace with the cost-increasing provisions. (Here’s a link to the revenue estimate by the Joint Committee on Taxation that feeds into the CBO analysis.) As CBO summarizes, with those assumptions (emphasis added):
CBO expects that the legislation [as written] would slightly reduce federal budget deficits in that [second] decade relative to those projected under current law—with a total effect during that decade that is in a broad range between zero and one-quarter percent of GDP. The imprecision of that calculation reflects the even greater degree of uncertainty that attends to it, compared with CBO’s 10-year budget estimates, and the effects of the bill could fall outside of that range.
I add “as written” after “the legislation,” because legislation often fails to be carried out as written. Exhibit A: the “sustainable growth rate” in Medicare physician payments that year after year is overridden by the so-called “doc fix”–preventing scheduled (in law) cost savings in Medicare from materializing. Exhibit B: revenue from the AMT, which under current law would keep rising year after year as long as there is inflation, but which Congress overrides year after year by passing “AMT relief.” Both exhibits have deficit financing in common, which means that year after year Congress (with the prior and now current Administration’s support) makes sure that what was supposed to reduce the deficit actually increases it.
CBO’s judgment that the House bill will remain deficit neutral beyond the first ten years (and even within the first ten years) relies on a reversal of practice on both the old “Exhibit A”–because the “doc fix” is not included in the bill and so is effectively assumed not to happen–and the new “Exhibit B”–because this new, unindexed surtax on the rich is suspiciously like the existing AMT.
So forgive me if I don’t believe the House health reform bill will actually save us money, no matter what it says it will do “in law.” Congress and the Administration(s) are in the bad habit of not practicing what they preach–uh, pass.
