Thursday, October 22, 2009

Obama/Baucus-care as a "classic" raid on the Social Security trust fund. 

Andrew Biggs tells us something worth knowing. Obama/Baucus-care meets its test of 10-year budget neutrality by increasing the Social Security surplus and then spending it all on the health care plan -- leaving the government that much more in debt for entitlements.

Ah, but the increased debt for entitlements is "off budget" -- so it doesn't count in their 10-year budget calculation.
Baucus Plan Would Raid Social Security

The health legislation sponsored by Senate Finance Committee chairman Max Baucus (D., Mont.) received an apparent boost when the Congressional Budget Office stated it would reduce the budget deficit by $81 billion over the next ten years. Obama administration budget director Peter Orszag crowed that the CBO scoring "demonstrates that we can expand coverage and improve quality while being fiscally responsible."

But the CBO analysis actually leads to a very different conclusion: that [it is] a classic "raid" on Social Security...

Baucus's plan purportedly would improve the budget balance by $81 billion from 2010 through 2019, and in 2019 itself would cut the deficit by $12 billion...

But the devil is in the details of the CBO memo. CBO breaks down the Baucus plan's budgetary effects into those occurring "on budget" (where the substantive policy changes are) and those "off budget" (meaning through the Social Security program). The Baucus plan's on-budget provisions would reduce the ten-year budget deficit by a tiny $1 billion and in 2019 would increase borrowing by $6 billion. In the real world, where entitlement costs rise faster than projected and Congress fails to implement promised cuts to Medicare spending, the Baucus plan will doubtless generate significant deficits.

Meanwhile, the Baucus plan's fiscal skullduggery takes place off-budget. Social Security revenues would increase by $80 billion over ten years, with an $18 billon increase in 2019 alone.

Around 3 million individuals would leave employer-sponsored health coverage — which is exempt from taxes — to purchase insurance through a subsidized "exchange." Leaving employer-sponsored coverage would raise workers' taxable wages and thereby boost Social Security revenues. Millions more would trade a portion of their insurance benefits for higher wages to avoid a new tax on high-cost policies.

By skimming the new Social Security taxes, the Baucus plan appears to significantly cut the deficit when, in truth, it balances only by the skin of its teeth.

This is perhaps the clearest example of "raiding the trust fund" on record.

Democrats and Republicans have long believed that Social Security surpluses encourage the rest of the budget to run larger deficits, as borrowing from Social Security does not increase the measured budget deficit or the publicly-held national debt. But it's difficult to tell whether any particular legislation comprises a "raid," since the legislation might be passed even in the absence of Social Security surpluses.

In the case of the Baucus proposal, however, it is incontrovertible. The plan does not simply rely on existing Social Security surpluses but creates new ones to offset higher spending on health coverage.

Without new Social Security revenues the plan would not balance and, if the president is to be believed, would face a presidential veto. It's that simple: no new Social Security taxes, no new spending.

A health debate that began with earnest claims that we could "bend the cost curve" to cut costs while increasing quality has devolved to a farce in which vastly increased government spending is papered over with implausible spending cuts and dubious bookkeeping.
Spelling things out, they work like this...

The Obama/Baucus-care plan converts billions of dollars worth of currently tax-free benefits to taxable wages -- thus creating additional Social Security taxes to collected on the wages and an obligation for more Social Security benefits to be paid on them in the future. Then...

The plan spends all the new Social Security taxes on health care, leaving the government's obligation for the additional Social Security benefits unfunded. Then...

As the result of spending all the new Social Security taxes on health care, the Obama/Baucus plan is able to declares itself “deficit neutral” over 10 years. Of course, every dollar of Social Security tax spent on health care is "borrowed" from the Social Security trust fund, and thus increases debt owed by the government via newly issued Social Security trust fund bonds by one dollar. But since this increasing trust fund debt is treated by the government as "off budget", Obama and Baucus ignore it. Then...

After the 10 years pass, the increased debt owed to the Social Security trust fund, plus interest on it, comes due in cash money owed by the government. At that point, to pay this, the government must either roll this "off budget" debt into the massively growing "on budget debt" by issuing more bonds to the public (so the credit rating of the US falls even faster than this) ... or else raise taxes by even more than is currently projected as needed to stay even with exploding entitlement costs (a 50% income tax increase by 2030).

But to Obama and Baucus this is not an issue because they are retired from politics, so it is somebody else's problem. (Indeed it is everybody else's problem.) And, long prior to this, circa 2009...

Obama and Baucus "pop the cork" and celebrate with their fellow Democrats their historic passage of Obama/Baucus-care, on a deficit neutral basis for 10 years!

They also quietly rejoice in their ability to use governmental accounting rules, which made it all possible. For if as a CEO and CFO they'd ever tried to use this same "keep all our new debt 'off the books' for 10 years" ploy anywhere outside of government, they’d have ended up sharing a cell adjacent to the ones holding the guys from Enron.

Which leaves what is a continuing mystery of human behavior for me: Why do we all en masse accept behavior on the part of politicians and government on a level so much below the lowest we would ever accept in the private sector — even as we all rush to them to save us from the private sector?