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.

Administration Official Admits: Health Care Debate Hurt the Economy

In this Sunday’s New York Times Magazine, Peter Baker has another long feature story on the inner workings of the Obama Administration, this one focused on White House debates on economic policy.  The article summarizes both policy debates and bureaucratic gossip, but one quote in particular stands out – this one from Christina Romer, the former Chair of the Council of Economic Advisors:

Where we didn’t do enough [on the economy] was in the fall of ’09.…We never coalesced and never made as strong a push as we should have for some of the things that finally got done last month, like a payroll tax cut.

The answer of course about why the Administration “didn’t do enough” on the economy in the fall of 2009 is simple.  At a time when the economy was sputtering, both the White House and Congress maintained a single-minded focus on passing a massive health care bill – 30 days of Congressional markups, thousands of pages of legislation and amendments, and 25 days spent debating the health care bill on the Senate floor (compared to zero days debating legislation providing permanent tax relief to small businesses).

Granted, had Democrats chosen to pass more badly targeted “stimulus” in the fall of 2009, that legislation may not have helped the economy either, much as the original “stimulus” has fallen well short of Administration projections.  But a payroll tax holiday – a policy suggested by Republicans when debating the “stimulus” in early 2009, and finally enacted into law last month – might have had a significant impact in creating jobs.  So when policy-makers evaluate the economic effects of the health care law, they shouldn’t just examine what the bill does – the employer mandate that “could reduce the hiring of low-wage workers,” or perverse incentives that will reduce the labor supply by discouraging work.  They also need to calculate the jobs NOT created because Congress spent all its time on a controversial health care debate rather than putting Americans back to work.