Sighting: The Baucus Bill and the Deficit

"The problem for Mr. Obama is that the Baucus bill is being sold on the strength of accounting tricks that make it appear that it won't add to the deficit.... The bill imposes tax hikes and benefit cuts right away, including $121 billion of Medicare reductions between 2011 and 2015. But new spending really doesn't start until five years out (2015) and isn't fully operational until 2017. The bill uses 10 years worth of tax hikes and benefit cuts to fund a few years worth of benefits....

"And that's just the start. For example, the Congressional Budget Office (CBO) released a report [PDF] claiming the [Baucus] bill won't add to the deficit. But this assumes that employers who dump employee coverage under the Baucus bill will then increase worker paychecks by an amount equal to what they had spent on health care. This replaces a nontaxable event (providing health insurance) with a taxable one (increasing worker paychecks), magically producing $83 billion in revenues. Without this windfall, the Baucus bill adds billions of dollars to the federal deficit in the first decade. Of course, why would a company drop employee coverage just so it could pay more (in fines, taxes and wages) than it did before?

"The CBO report also estimates that receipts from the 40% excise tax the Baucus bill would levy on 'Cadillac' insurance policies 'would grow by roughly 10 percent to 15 percent' a year after 2019. That's nonsense. If you tax something heavily you'll get less of it. If this tax is enacted, there will be fewer Cadillac plans — and hence less revenue.

"Under questioning at a Senate hearing, CBO Director Douglas Elmendorf admitted that the $500 billion in tax hikes in the Baucus bill would be passed onto consumers, jacking up insurance premiums. That undercuts the argument that Democratic reforms will make health care more affordable." (Republican Karl Rove, "Obama Hasn't Closed the Health-Care Sale," Wall Street Journal, 10/15/2009)