Friday, July 16, 2010

ACA Makes Deficit Reduction Harder...By Lowering Deficit

Kevin Drum thinks Charles Krauthmmer is on to something when he says:
Obamacare's $500 billion in Medicare cuts and $600 billion in tax increases are siphoned away for a new entitlement -- and no longer available for deficit reduction.
Drum responds:
As it happens, the healthcare reform bill makes only small changes to both funding and spending on Medicare. Its long-term needs haven't actually changed all that much. But it is true that Obamacare plucked some of the lowest hanging fruit, which means that further cuts will be tougher and tougher. My take is that major cuts in Medicare were never likely, but it's true that the passage of healthcare reform makes them less likely still.
Well, yes, it's no longer possible to make those cuts again.  But...they're real cuts!  And, as a result, projected deficits are much smaller!   See, for example, Ezra Klein's summary of OMB's recent analysis of the latest CBO numbers: "The ACA wipes out about a quarter to a third of our long-term deficit."  So, yes, the using the low-hanging fruits in the ACA makes future deficit reductions more difficult, but also a whole lot less necessary.  In fact, as far as I'm concerned, a combination of implementing health care reform, sticking to PAYGO, and phasing out the Bush-era tax cuts that Obama and Congressional leaders say they want to phase out is more than enough long-term deficit reduction, given how uncertain long-term projections tend to be.  Others, I'm sure, would disagree, but as far as Obama's effect on structural deficits, there's really no argument.  Krauthammer says that Obama has created structural deficits, but the opposite is actually true: Obama inherited massive structural deficits, and has reduced them by a fairly stunning amount.

Oh, and one more thing...I can understand why Krauthammer claims that the only two places with "real money" for spending cuts are Medicare and Social Security, but in fact there is one other place that's available, if equally politically treacherous.  And while I don't really have any idea how it compares to Medicare, I think the safest bet anyone could make is that there's a lot more low-hanging fruit in the Pentagon budget, far more waste, fraud, and abuse, than there is in Social Security.


  1. You seem to elide Krauthammer's central point, which is that the deficit impact of the ACA cuts is given over to the "new entitlement," by which I assume he means insurance subsidies. What of that?

  2. Yes, there's new spending. But on the whole, the ACA lowers the deficit.

    This gets to the whole thing about conservatives and the deficit; they can't seem to grasp the fact that deficits are an entirely different thing than the spending levels. Yes, the ACA increases spending, but as long as it also cuts other spending plus raises taxes, and the combination lowers the deficit...well, then, it lowers the deficit.

    It's a bad thing if your goal is to minimize government spending -- and if that's your goal, that's fine. It's just not the same goal as reducing the deficit.

  3. I hope that the other low-haning fruit for deficit reduction is savings from Iraq. I'm fearful that it's not a low-hanging as I would like, but that'd make a big dent in the deficit.

  4. Matt,

    No, Iraq is already cooked in -- leaving basically on the current schedule won't save anything against the long-term deficit forecasts. Sorry.


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