James Kwak, associate professor of law at the University of Connecticut and co-author of the book 13 Bankers, skewers those who claim we can’t afford Medicare– by simply reciting the facts.  The truth is paying for Medicare is well within our reach and if we decide we don’t want to pay for it, that’s a choice we can make.  The point being it’s a choice, not an inevitability.  This article appeared in The Atlantic magazine.  Kwak is also co-author of the popular blogsite, Baseline Scenario.

Medicare needs a structural overhaul in order to avoid bankrupting the federal government–or so Republicans and many Democrats would have you believe. The latest evidence of this consensus is the Paul Ryan-Ron Wyden proposal to change Medicare into a voucher system where traditional Medicare is one of the options, but there are artificial caps on the value of the vouchers.

There’s only one problem with this consensus. It’s wrong.

The push for Medicare reform comes from understandable concerns about health care. Rising medical costs are a serious problem. We spend more than people in other countries, we get less, our gains in life expectancy  are mediocre, employers are struggling with increasing health care costs, and of course, 50 million people are uninsured.

Washington says we can’t afford Medicare. What does the math say?

Second, rising health care costs are the most important factor in the federal government’s long-term deficit. The CBO projects that spending on Medicare, Medicaid, CHIP, and subsidies for insurance purchased through exchanges will grow from 5.4 percent of GDP this year to 10.3 percent in 2035, and that’s assuming a slight slowdown in the growth rate of health care spending. (But there’s a major caveat to that well-known talking point, discussed below.)

Third, policies that actually reduce the overall, economy-wide price level for health care–for example, by shifting toward payment methods that focus on outcomes and promote accountability–are good. We should do all of that that we can.

But policies that simply shift costs from the federal government onto families–like arbitrary caps on the growth rate of “Medicare” vouchers–are worse than pointless. Substituting out-of-pocket spending for government spending doesn’t save the American people any money. In fact, it is likely to only increase costs, since Medicare has more purchasing power than private health care plans. Policies like Ryan-Wyden only make sense if they can reduce the overall price level–but there’s no evidence that competition in the private insurance market can reduce health care costs. There is, however, evidence that it will only increase costs. (For example, charging people more at the point of service doesn’t even reduce overall health care costs, as attested to by Atul Gawande.)

THE GREAT MEDICARE SCARE

When people say we have to drastically overhaul Medicare, they generally don’t provide the numbers to back up that claim. That’s because they can’t. Let’s take a look.

First of all we have to know how much money Medicare loses today. It’s important to realize that Medicare was never designed to be self-funding. Part A (hospital insurance) was supposed to be self-funding through payroll taxes, but Parts B and C were always meant to draw on general government revenues in addition to beneficiary premiums. In 2010, Part A’s deficit was $48 billion, or 0.3% of GDP. (That’s from the 2011 Medicare Trustees’ Report, Table III.B4.) Parts B and C together ran a deficit of $205 billion (funding from general revenue, which by construction fills the gap between expenses and other income, in Table III.C1), or 1.4% of GDP, for a total deficit of 1.7% of GDP.

Then we have to know how much worse that deficit is going to get. (Remember, Medicare was always supposed to run a deficit.) By 2040, Part A’s deficit will double as a percentage of taxable payroll (Table III.B7), so it should be about 0.7% of GDP. The Part B/C deficit will be 2.3% of GDP, for a total of 3.0% of GDP.*

In other words, over the next three decades, Medicare’s additional contribution to annual deficits will only be 1.3% of GDP.

YES, WE CAN AFFORD IT

That’s not peanuts, but there are plenty of ways to pay for it. For one thing, we could eliminate the tax exclusion for employer health plans, which currently costs the Treasury Department 1.9% of GDP (see “Tax Expenditures Spreadsheet”), including lost income taxes and lost payroll taxes. Forty percent of the value of this exclusion currently goes to households in the top income quintile. If we eliminate the tax exclusion and use half of the proceeds to fund rebates to low-income households, we save 0.9% of GDP right there. Increase the Medicare payroll tax by 1 percentage point (from a level that hasn’t changed since 1986, despite twenty-five years of rising health care costs) and you get another 0.5% of GDP. In other words, those two policy changes alone — one of which eliminates a distorting subsidy that largely goes to the well-off — could buy us 30 years of Medicare.

You may say that this is only sticking fingers in the dike, since health care costs will continue to grow. But this ignores another important fact: Revenues are growing, too, not only in real terms but as a share of the economy. A major reason for this is what’s called “real bracket creep.” Even though the tax brackets are indexed, they are only indexed to inflation. Over time, as real incomes rise, more and more income slides into the higher tax brackets. Most people think that people who make more money can and should pay higher taxes; by that logic, it’s perfectly fair that people pay higher taxes as they make more money over time.

So, for example, the CBO says that most government health care spending will grow from 6.9% of GDP in 2020 to 11.4% in 2040  (see “Data Underlying Scenarios and Figures”), which looks scary. But it also says that, under current law, tax revenues will grow from 20.6% of GDP to 24.2% over the same time period–which means that four-fifths of the growth in health care spending is covered by growth in tax revenues.** (If the Bush tax cuts are extended, the 2020 starting point for revenues will be lower, but the growth rate of tax revenues will be similar.)

In summary, if you look closely, the deterioration of Medicare’s finances (1.3 percentage points over three decades) is not as big as most people would have you believe. And if someone tells you about rising long-term health care spending under current law, he should also tell you that tax revenues are rising in the long term under current law.

The people who say Medicare has to be radically transformed, though, just don’t know the numbers. Or they do, but they ignore them either because they hate social insurance or because they want to raid Medicare spending to fund tax cuts for the rich.

You may think traditional Medicare is a bad program. It does have its problems. Most notably, it’s based on the fee-for-service model that produces high costs and poor care. But if you want to get rid of it, you should argue that it’s a flawed program instead of hiding behind the myth that we can’t afford it.

______________________

* Table III.C4 says that government funding in 2040 will be 22.1% of total individual and corporate income taxes, assuming that those taxes remain at their fifty-year average level as a share of the economy; the fifty-year average for those two taxes is 10.5% of GDP  (Table 2.3).

** Growth in Medicare payroll tax revenues is included in those numbers–but growth in Medicare premiums paid by beneficiaries is not included, which also helps the situation slightly. I used the health care costs from the supposedly more realistic “alternative fiscal scenario” but the tax revenues from the “extended-baseline scenario.” The CBO’s alternative fiscal scenario assumes that tax revenues are magically kept constant at 18.4% of GDP; I think it’s excessively pessimistic to assume that current law regarding spending is not changed but current law regarding taxes is changed.

Beezer here.  Like so many other issues, when it comes to Medicare the American public is being fed an unending amount of misinformation.  Most of this misleading information comes via the mass media, where poorly  trained but pretty journalists make their living.  The truth is that buying and selling the public is a full-time job.  Weaving all the lies together to make the construct believable takes a lot of effort.  Nonetheless, the truth survives despite all attempts to stamp it out.

When immense power and trillions of dollars are at stake one shouldn’t be surprised if political competitors might lie outright in an attempt to win public support and an election.   In the country that invented the marketing and advertising industry, the United States, slipping in a series of half truths or even outright lies should surprise few people.

Still, the massive flow of intentional distortion and mis-representation coming out of Republican candidates surprises.

Princeton economist Paul Krugman, a daily contributor to the New York Times, is a vigilant and reliable source for pointing out the truth when Republicans lie.  At times Krugman can hardly keep up with the flood of inaccurate Republican information.

From a Krugman blog post today in the Times.

I’ve noticed an odd thing in comments whenever the subject of Obamacare comes up. Many commenters scoff when I say that the Obama health reform was fully paid for; not only that, but some of them confidently assert that the Congressional Budget Office says that the reform will increase the deficit.

I assume that this is coming from some right-wing source. But you know, the CBO has a web site, and it’s easy to check this; there’s a convenient summary of the estimates here. .And, well, the estimates say that the reform is fully paid for:

Oh, and it’s paid for year by year, too — whatever you may have heard about 10 years of taxes paying for 6 years of coverage, or whatever, they’re basically lies.

If you have heard from your favorite source of information that the CBO says that Obamacare increases the deficit, you’ve just learned how reliable your source is.

Beezer here.  The barrage of lies coming into public discourse from the increasingly ideological Republicans is, in our opinion, a fairly recent development.  It began innocently enough with President Ronald Reagan in the 1980s.  Reagan successfuly attacked government as too big and expensive for the nation’s good.  He cut taxes in order to stimulate an economy that went into recession under President Jimmy Carter.   As recessions go it was a deep recession.  Federal Reserve Chairman Paul Volcker had raised interest rates into the double digits to quell inflation and he succeeded.  But as a consequence the economy came to an almost complete halt.  After Reagan was elected and Volcker considered inflation defeated, the Fed Chairman went the other direction and dropped interest rates back to normal levels.  To no one’s surprise the economy recovered smartly as a result.  Reagan’s tax cuts, rather than Volcker’s actions, were incorrectly credited with the recovery and a new political ideology was born.   Reagan spent the rest of his two terms reversing the initial tax cuts in an unsuccessful attempt to balance the federal budget, which went into deficit to no small degree because of the tax cuts.   A new political dynamic was born, however.  Tax cuts pay for themselves was a main tenet of this ideology.  Politically it was sugar and honey:  Republicans discovered they could, based on their new interpretation of reality, promise tax cuts and better government at the same time!    The Big Lie was born.   Today as the nation struggles to recover from a recession even worse than that caused by Paul Volcker in the late 1970s, Republican ideology has evolved into a dogma that blames the government for everything–something Reagan never intended.    But the underlying, completely inaccurate concept that you don’t need to pay for what you want when it comes to government, must still be somehow supported.  If the initial idea was wrong, then the web of lies to support it forty years later becomes pervasive.  The result is that today’s Republicans need to lie almost constantly.   

Make no mistake, the Bush tax cuts, and the series of tax cuts piled on since the economy plunged into deep recession beginning in 2007, are the primary cause of deficits and a major contributor to projected long term debt.

From an article by Bruce Bartlett, top economic advisor to former President Ronald Reagan among other leading conservative Republicans at the time.

But revenue has been below 15 percent of G.D.P. since 2009, and the last time we had three years in a row when revenue as a share of G.D.P. was that low was 1941 to 1943.

Revenue has averaged 18 percent of G.D.P. since 1970 and a little more than that in the postwar era. At a similar stage in previous business cycles, two years past the trough, revenue was considerably higher: 18 percent of G.D.P. in 1977 after the 1973-75 recession; 17.3 percent of G.D.P. in 1984 after the 1981-82 recession, and 17.5 percent of G.D.P. in 1993 after the 1990-91 recession. Revenue was markedly lower, however, at this point after the 2001 recession and was just 16.2 percent of G.D.P. in 2003.

The reason, of course, is that taxes were cut in 2001, 2002, 2003, 2004 and 2006.

It would have been one thing if the Bush tax cuts had at least bought the country a higher rate of economic growth, even temporarily. They did not. Real G.D.P. growth peaked at just 3.6 percent in 2004 before fading rapidly. Even before the crisis hit, real G.D.P. was growing less than 2 percent a year.

By contrast, after the 1982 and 1993 tax increases, growth was much more robust. Real G.D.P. rose 7.2 percent in 1984 and continued to rise at more than 3 percent a year for the balance of the 1980s.

Real G.D.P. growth was 4.1 percent in 1994 despite widespread predictions by opponents of the 1993 tax increase that it would bring on another recession. Real growth averaged 4 percent for the balance of the 1990s. By contrast, real G.D.P. growth in the nonrecession years of the 2000s averaged just 2.7 percent a year — barely above the postwar average.

Much is made of spending projections for Medicare, Medicaid and Social Security but it’s seldom mentioned that even those rising costs could be covered if Congress rolled back it’s tax cutting frenzy of the past 12 years.

Tax collections could keep pace with those costs if Congress permitted the George W. Bush tax cuts to expire on schedule in 2012 and allowed the alternative minimum tax to hit millions of additional households, the CBO said. But under current tax policies, the CBO said, tax collections would barely cover the cost of the health and retirement programs alone by 2035.

Economics professor Robert Reich, former Secretary of Labor under President Bill Clinton, nails down how the solve our long term budget debt.

 

Stop the Austerity Train Wreck! 

The biggest question right now on Planet Washington is whether the congressional supercommittee will reach an agreement.

That’s the wrong question. Agreement or not, Washington is  on the road to making budget cuts that will slow the economy, increase unemployment, and impose additional hardship on millions of Americans.  

The real question is how to stop this austerity train wreck, and substitute the following: 

FIRST: no cuts before jobs are back – until unemployment is down to 5 percent. Until then, the economy needs a boost, not a cut. Consumers – whose spending is 70 percent of the economy – don’t have the money to boost the economy on their own. Their pay is dropping and they’re losing jobs.  

SECOND: Make the boost big enough. 14 million Americans are out of work, and 10 million are working part time who need full-time jobs. The President’s proposed jobs program is a start but it’s tiny relative to what needs to be done. It would create fewer than 2 million jobs. We need a big jobs program – rebuilding America’s crumbling infrastructure, and including a WPA and Civilian Conservation Corps.

THIRD: To pay for this, raise taxes on the super-rich. It’s only fair. Never before has so much income and wealth been concentrated at the very top, and taxes on the top so low. Go back to the 70 percent marginal tax we had before 1980. And include more tax brackets at the top. It doesn’t make sense that any income over $375,000 is taxed at the same 35 percent, even if it’s a billion dollars. And tax all sources of income at the same rate, including capital gains.  

FOURTH: Cut the budget where the real bloat is. Military spending and corporate welfare. End weapons systems that don’t work and stop wars we shouldn’t be fighting to begin with, and we save over $300 billion a year. Cut corporate welfare – subsidies and special tax breaks going to big agribusiness, big oil, big pharma, and big insurance – and we save another $100 billion.

Do you hear me, Washington? Do these four things and restore jobs and prosperity. Fail to do these, and you’ll make things much, much worse.

Beezer here.  The problem is that the GOP is totally owned by those in the top 1% of the income pyramid.  The nation’s wealthiest families use the GOP as a tool to protect their corporate subsidies and the tax breaks available only to the wealthy.  So far their influence in Congress has managed to control the national discussion of what to do, concentrating this discussion mainly on cutting federal programs that benefits the non-wealthy such as Medicare, Social Security and Medicaid instead of rolling back a dozen years of piling tax cut upon tax cut that have almost entirely further enriched the already wealthy.  The GOP promotes austerity programs for everyone but their 1% benefactors, even as poll after poll shows that the majority of citizens understand tax cuts are a huge part of the problem.  The GOP ignores these polls because they don’t represent the majority of Americans.  They represent a very small slice of America, the 1% who own them and to whom they owe their allegiance.  We don’t think this allegiance will survive the 2012 elections because the austerity is already being felt by the majority at the municipal level.  Services are being drastically cut at this level, not to mention the GOP proposals to extend cuts even further.   Congressional approval levels are in the single digits, below those for British Petroleum during the Gulf Oil spill disaster.   Obama’s levels are below 50%, but even at those levels the President’s approval rating is four times that for Congress.   Occupy Wall Street protests bring nothing but derision from GOP politicians, who portray the participants as nothing but unemployed malcontents who want to destroy Capitalism.  They are wrong.  Many of the participants are employed.  And many of those who are not employed are college graduates who face huge tuition debts they cannot pay back without jobs.  These young adults have parents.  The GOP response for them to ‘suck it up’ while the wealthiest 1% rake in all the income is not going to fly politically, in our opinion.  Obama appears finally to understand the overall situation and is relentlessly pressing for passage of a jobs act in the face of GOP opposition.  He should not only continue but he should up the ante by increasing the size of the jobs act.    Hiring directly to rebuild America’s crumbling infrastructure is the single policy that will begin economic recovery.  When the GOP controlled Congress balks, he should  portray Congress as a ‘do nothing’ Congress as did Truman after WWII.   Let the tax cuts expire, the money is being hoarded.  It isn’t being invested and not enough is being spent on consumption because GOP tax cut politics have starved the 99% so much they can no longer consume enough to support Main Street businesses.  Reich is correct.  If the GOP is not stopped, the nation is in for a real train wreck.  

Jared Bernstein is a professor of social welfare (Columbia) and was most recently the head of Vice President Joe Biden’s economic team.  He left that position recently and has taken up writing a blog On the Economy.   He’s now a senior fellow at the Center on Budget and Policy Priorities.

At any rate he’s begun trying to explain the issue of why labor recently hasn’t been participating in productivity gains.  This well documented trend is not a positive one for the nation’s overall economic health, Bernstein believes.  The following is his post.

Slack Attack!

 

I’ve been working on explaining pictures like the one below, trying to understand why middle-class incomes so dramatically stopped tracking productivity growth. Productivity gains are society’s main path to improved living standards, but if those gains elude the middle class, it’s not a reach to say that the glue holding our society together starts to weaken.

Sources: BLS, Census Bureau

There are many reasons for this split and I’ll try to get to all the ones I can think of in coming days, but here’s one of my favorite, presented in a slightly complex, but hopefully intelligible way.

The diminished ability to bargain for their fair share of productivity growth is a major factor in the productivity/income split.  You may think I’m talking unions here, but I’m not. I’m talking high unemployment. (Unions matter too and I’ll get back to their role.)

The figure below plots the unemployment rate since the 1950s against a construct called the NAIRU—it’s the flat line, and it’s an acronym that stands for the lowest unemployment can go without triggering runaway inflation. You don’t have to buy the concept to agree with the analysis, though you should know that the NAIRU, as calculated by the Congressional Budget Office, moves around over time a bit to adjust for things like an older workforce.

Sources: BLS, CBO

Typically, unemployment will wiggle around the full employment level, below it for a while in periods of strong growth and visa-versa. When unemployment hugs the line, we’re close to full employment, a very good place to be. The last time we hung out there for a while, in the latter 1990s (actually, we were below the line for a while) wages and incomes of the middle class actually tracked productivity, at least for a New York minute (and, for the record, inflation did not accelerate—but that’s another story).

But here’s the problem: we used to spend a lot more time below the line and a lot less above it, and in those days, middle-class incomes tracked productivity.

Source: Previous figure

This figure simply sums up the percentage points above or below the line over the periods when middle-class income rose along with growth and when they did not. Over the period when growth and incomes were linked, we were 60 percentage points below the line, meaning labor markets were generally very tight. When growth and income became delinked, we spent over 100 points above the line, signaling weak job markets, high unemployment, jobless recoveries, and therefore much diminished bargaining power for middle- and lower-income workers.

There’s a lot more to this story and I’ll try to stick with it. But the moral of the story, as the latter 1990s showed (that NY minute I referred to above), in today’s global, low-union world, the working man and woman really have no better friend than full employment. It’s one of the only and best ways I know to relink growth and middle-class prosperity.  And we’re currently nowhere near it.

Beezer here.  Unions were the main force in allowing labor to more fully make income gains when times were good, but they no longer are strong enough to shoulder that responsibility.  Another technique could be national labor agreements covering the critical industries–something that’s done in many European democracies.  Bernstein makes no such recommendations, but he does point out in this post that higher employment levels do allow labor to participate in productivity gains.  And thus the middle class is also healthier because this class depends, to a large degree, on well paid labor.

The Ryan medical voucher proposal not only shifts costs from the government to families it increases the overall cost of health care.  This comes from the Congressional Budget Office and is cited by Peter Orszag, former White House budget director under Obama and now Vice President of Global Banking at Citigroup, in an article published by Bloomburg.

Many Republican policy makers appear conflicted about the budget plan put forward by the House Budget Committee chairman, Representative Paul Ryan of Wisconsin. They are torn because they like its substance, but believe it is bad politics, especially among elderly voters. In truth, the substance is not particularly appealing either…..

While more consumer cost-sharing would help reduce unnecessary care, the plan would not live up to its billing in cutting health costs for America. According to the nonpartisan Congressional Budget Office, it would do the opposite. That’s right: The CBO found that the Ryan Medicare proposal would substantially increase total health-care spending….

The CBO’s analysis of the Ryan plan confirms that federal expenditures would be reduced, by a lot. By 2030, payments for a typical beneficiary would be more than 20 percent lower than current projections, according to the report, and the beneficiary’s personal costs would increase.

So far, nothing unexpected. On the critical metric of whether the Ryan plan would reduce total health-care costs, though, the CBO conclusion is shocking: The plan would not only fail to decrease health-care costs per beneficiary, it would increase them –- by an astonishingly large amount that grows over time. By 2030, health spending on the typical beneficiary would be more than 40 percent higher under the Ryan plan than under existing Medicare, according to the CBO report.

Health-care costs would not be reduced on the backs of seniors; they would be raised on the backs of seniors.

Beezer here.  The political destruction is not reversible either.  House Republicans are already on record as voting for the Ryan Medicare plan, and a Senate vote is scheduled as well.  It wasn’t going to pass the Senate anyway because of the Democrat majority there, but it will be interesting to see how Senate Republicans will vote.  Massachusetts Senator Scott Brown has already said he won’t vote for Ryan’s plan.  My bet is that a large number of Republican Senators will disavow supporting Ryan.  Those who do vote for the plan will have a scarlet letter on their foreheads and will likely lose their seats.  

According to a July, 2010 Congressional Budget Office report, if the Social Security tax were hiked the equivalent of 0.6% of GDP the SS fund would be in  balance for the next 75 years.  That’s right, six tenths of one percent solves the problem.  No cuts in benefits, no raise of enrollment age, no elimination of COLAs. 

Even if nothing is done, the SS fund is solvent until 2039.

From a July 2010 article in Bloomberg’s Business Week, written by staff writer Chris Farrell:

“Fact is, there is no Social Security crisis. The system isn’t broke. There’s financial trouble down the road but it’s manageable. Yet the title of the House Ways & Means subcommittee on Social Security hearing on July 15 got to the essence of the matter: Social Security at 75 Years: More Necessary Now Than Ever. So, separate Social Security from the rest of the entitlement fight and deal with it on its own merits. “The health-care problem is hard,” says David Cutler, economist at Harvard University and senior health-care adviser to the Obama Presidential campaign. “Social Security isn’t.”

Back to Beezer.  The primary revenue source is an employee contribution of 6.2% of wages up to $106,000 which is exactly matched by a 6.2% employer contribution.  According to the CBO report increasing the contribution to 8.2% for 20 years gets you that 0.6% of GDP and 75 years of solvency.  Or you could apply the 6.2% to all wage income (eliminate the $106,000 cap) and get to the same place, that 0.6% of GDP.

Of course, the more GDP increases over whatever CBO is estimating, the less is needed. 

So what has Congress and the Obama administration done so  far?  They cut the SS payroll contribution 2% to 4.2% for this year.  Presumably this agreement is aimed at further ‘stimulating’ a recessed economy in order to accelerate economic activity.  For Republicans, who got in return a continuation of the Bush tax cuts for those who earn $250,000 or more, any tax cut is a good tax cut.

Republicans believe tax cuts increase government revenues because the money not paid in taxes creates more growth, jobs and wage increases.  It’s a total fabrication, of course, and precisely the opposite occured after the Bush tax cuts.  But ‘beautiful lies’ like this are politically powerful and Republicans are going to stick to them as long as the majority of voters don’t have a clue.

SS isn’t the problem it’s advertised to be.  In fact, the real problem is a vapid Congress that lives by these ‘beautiful lies’ and therefore leaves future generations in the lurch.