Monday, January 24, 2011

Peter Orszag on Health Care, the Deficit, and Taxes

Before the State of the Union address and an expected message from President Obama about fiscal responsibility, it’s worth examining closely what one of his closest budgetary advisors has admitted are the fiscal consequences of the health care law.  First, Peter Baker’s story in this Sunday’s New York Times Magazine includes this interesting nugget about Peter Orszag, Obama’s first budget director: “One reason he left…was the sense that the Administration was trapped in a dynamic that would make it hard to reduce the deficit adequately.”

Viewed from a health care perspective, this is a startling admission:  The White House’s leading fiscal hawk – the one who helped coin the mantra that “Health care reform is entitlement reform” – believes the Administration’s actions over the past two years made it HARDER to reduce the federal deficit.  And the $2.6 trillion health care law was – by far – the largest fiscal measure enacted during that time frame.  So while Democrats are going around claiming the health care law will reduce the deficit, one of its main architects has admitted the measure was in reality a major contributor to an environment of budgetary profligacy within the Administration.

But that’s not all.  It’s also worth examining Orszag’s first op-ed column for the New York Times, in which he laid out his prescription for deficit reduction.  In advocating for the Bush-era tax relief to expire for all Americans in 2013, he included this little nugget: “The health reform act included substantial savings in Medicare and Medicaid, so there aren’t further big reductions available there in our time frame.”  Put differently, because the health care law re-directed Medicare savings to create new entitlements rather than reducing the deficit (or improving Medicare’s solvency), another major tax increase will soon be in order.  So in reality, Orszag admits that the more than half-trillion dollars in tax increases included in the health care law itself are just the leading edge of the tax hike spear needed to fund health care entitlements – because the law used a major source of potential deficit reduction as a “honey pot” to fund yet more entitlement spending.

It’s refreshing that Orszag’s comments demonstrate his apparent awareness that the health care law will in reality prove a major contributor to future budget deficits.  It’s much less encouraging to read his statements saying the way around this dilemma is another massive tax increase on all Americans.