Liberal Democrats, including President Obama, are ecstatic about their new healthcare bill in the House.  Unfortunately, the bill falls short on two of the most crucial issues.  A Washington Post editorial this morning explains that the financing for the legislation only works on paper because the budget horizon is ten years.  Additionally, after yesterday’s Senate Budget Committee hearing, we know the bill fails to curb costs.

Sustainability:

The measure would cost just over $1 trillion between 2010 and 2019; the income tax surcharge on those earning more than $350,000 a year would bring in $544 billion over 10 years, while cuts to Medicare would take care of the rest. But the program appears to be paid for during the 10-year window only because the Medicaid expansion and insurance subsidies don’t begin to kick in until 2013; the tax surcharge would apply beginning in 2011. Meanwhile, the trajectory of rising costs is alarming: The net price tag of expanded coverage would be $202 billion in 2019, up 8 percent over the previous year. The tax surcharge, however, would bring in just $86 billion in 2019, up 5 percent from 2018. So to keep the program adequately financed, Medicare savings would need to be $116 billion — and growing by some 10 percent annually, an awfully optimistic stretch.

Cost Control:

The legislation doesn’t give the secretary of health and human services authority to implement the changes on a wider scale; it doesn’t boost the power of the Medicare Payment Advisory Commission (MedPAC) to set payment policies. As CBO Director Douglas Elmendorf told the Senate Budget Committee yesterday, “In the legislation that has been reported we do not see the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.” Given Mr. Obama’s repeated exhortations to change that trajectory, his celebration of this legislation is hard to understand.

ABC News reports the touted cost savings that would come from the healthcare overhaul doesn’t exist.

Here’s a blow to President Obama and Democrats pressing health care reform.

 

One of the main arguments made by the President and others for investing in health reform now is that it will save the federal government money in the long run by containing costs.

 

Turns out that may not be the case, according to Doug Elmendorf, director of the nonpartisan Congressional Budget Office.

 

Answering questions from Democrat Kent Conrad of North Dakota at a hearing of the Senate Budget Committee today, Elmendorf said CBO does not see health care cost savings in either of the partisan Democratic bills currently in Congress.

Read the transcript here.

A front page New York Post article today slams the House Democratic healthcare plan for its tax surcharge on the rich.  With the headline “SICK JOKE,” the article discusses the threat posed to small businesses in New York.

Congressional plans to fund a massive health-care overhaul could have a job-killing effect on New York, creating a tax rate of nearly 60 percent for the state’s top earners and possibly pressuring small-business owners to shed workers.

 

New York’s top income bracket could reach as high as 57 percent — rates not seen in three decades — to pay for the massive health coverage proposed by House Democrats this week.

 

The top rate in New York City, home to many of the state’s wealthiest people, would be 58.68 percent, the Washington-based Tax Foundation said in a report yesterday.

These tax plans violate a central campaign pledge from President Obama.

The $544 billion tax hike would violate one of President Obama’s ironclad campaign promises: No family will pay higher tax rates than they would have paid in the 1990s.

 

Under the bill, three new tax brackets would be created for high earners, with a top rate of 45 percent for families making more than $1 million. That would be the highest income-tax rate since 1986, when the top rate was 50 percent.

The primary threat is to small businesses, who already suffer from high tax rates in New York.  Business leaders all say raising the tax rate in New York City would devastate small businesses and destroy jobs.

One business advocate sums up the threat of the House plan to the city:

If the House plan passes, Wylde said, “There literally, at this point, is very strong reason to relocate your family and your business outside New York.”

Today, an excellent editorial from the Washington Post takes aim at the House healthcare bill.  Democrats’ plans to tax only the wealthiest Americans are not only unrealistic, they damage any prospect of getting the long-term deficit under control.

There is no case to be made for the House Democratic majority’s proposal to fund health-care legislation through an ad hoc income tax surcharge for top-earning households. The new surtax would hit individual households earning $350,000 and above. It would start at 1 percent, bumping up to 1.5 percent at $500,000 in income and to 5.4 percent at $1 million. The new levy would begin in 2011 and is supposed to raise $540 billion over 10 years, about half the projected cost of health-care reform.

…

The traditional argument against sharp increases in the marginal tax rates of a very narrow band of Americans is that it could distort their economic behavior — most likely by encouraging them to put more of their money into tax shelters as opposed to productive investments. This effect could be greatest in certain states, such as New York, where a higher federal rate would add to already substantial state income taxes. The deeper issue, though, is whether it is wise to pay for a far-reaching new federal social program by tapping a revenue source that would surely need to be tapped if and when Congress and the Obama administration get serious about the long-term federal deficit.

…

The House actions echo President Obama’s unrealistic campaign promise that he can build a larger, more progressive government while raising taxes on only the wealthiest.