Monday, July 2, 2012

Ezra Klein’s Incomplete and Misleading Claims on Obamacare Taxes

Liberal blogger Ezra Klein this morning drafted a post that claims Obamacare is only the 10th largest tax increase in American history, because it raises “only” 0.49 percent of GDP.  The problem is that this claim only focuses on the first ten years of the law – which gives a misleading impression.  In its 2010 long-term budget outlook, here’s what the Congressional Budget Office said would be the fiscal impact in the longer term (page 61):

Under the extended-baseline scenario, the impact of the legislation on the revenue share of GDP would rise over time, CBO estimates, boosting revenues by about 1.2 percent of GDP in 2035 and by a larger amount after 2035; most of the increase that is projected to occur after 2035 is attributable to the excise tax on high-premium health insurance plans.

All tax increases are subject to some “bracket creep,” but in this case CBO estimates that Obamacare’s tax increases will more than double as a share of GDP between 2019 and 2035 – and will continue to grow thereafter.  That’s because the law’s biggest tax increases are designed to grow larger and larger over time:

  • The “Cadillac tax” on high-cost health plans isn’t scheduled to take effect until 2018.  But because the tax is linked to general inflation, and not medical inflation, it will hit more and more health plans over time – not just “Cadillac” insurance plans, but “Chevy” plans and even “Yugo” health plans.  That’s why CBO projects the impact of the Cadillac tax will continue to grow even after 2035, as noted above.
  • The “high-income” surtax is not indexed for inflation at all – it’s designed to hit more and more middle-income families every year.  Page 87 of the 2010 Medicare trustees report notes that the tax will hit only 3 percent of workers next year, when the tax takes effect – but a whopping 79 percent of all workers by 2080.

There’s certainly an argument to be made that, just as the President Obama avoided calling the individual mandate a tax for political reasons, the law was deliberately structured to back-load the major “pay-fors” – including the tax increases – to have them implemented on some future President’s watch.  The law’s Cadillac tax on health benefits doesn’t take effect until 2018; the law reduces spending on Exchange subsidies, but only beginning in 2019; and the Congressional Budget Office and Medicare actuary both believe the law’s Medicare spending reductions will be unsustainable after 2022 and 2019, respectively.  Does anyone believe the fact that all these onerous “pay-fors” will kick in just a few years after a putative Obama second term is a coincidence?

Therein lies the fundamentally misleading nature of Klein’s claims.   Just last week he noted as “fact” the claim that “As time goes on, the savings are projected to grow more quickly than the spending, and CBO expects that the law will cut the deficit by around a trillion dollars in its second decade.”  Do you see what he’s doing?  He’s citing the low tax increase number NOW to claim the law isn’t the largest tax increase in history.  But he’s using the deficit reduction LATER to claim the law is a major fiscal saver.  But the only way the law will get the purported deficit savings LATER is by implementing the largest long-term tax increase in history – if the tax increases get even slightly scaled back, Obamacare will raise the deficit.

Go back to the chart Klein uses to make his point.  That chart assumes the law raises taxes by “only” about 0.5% of GDP.  But if you use CBO’s longer-term estimate of 1.2% of GDP, then Obamacare’s tax increases are outmatched only by revenue measures enacted during the Korean war – several of which were temporary in nature.  That would make Obamacare the largest tax increase in modern history; the largest peacetime tax increase in history; and the largest permanent tax increase in history.

Klein has a history in recent weeks of cherry-picking facts to support his liberal positions, and side-stepping those that undermine his philosophical views.  But ultimately, he can’t have it both ways.  At minimum, Obamacare is either the largest tax increase in history, or will raise the deficit by significant sums.  Pick one, and be honest and up-front about it.