Anyone who’s as geeky as me has probably read by now about how the Obama administration has revised its budget and economic forecasts, and not for the better. The basic gist is that, at the beginning of this year, the White House’s Office of Management and Budget (OMB) had made some fairly rosy assumptions about growth and spending, whereas the Congressional Budget Office (CBO) had made what many considered much more realistic assumptions. Here’s a chart comparing their results:
Now the OMB is admitting that the numbers are more in line with the CBO’s. This has generated headlines about the projected debt over the next 10 years rising from 7 to 9 trillion dollars.
This morning I learned that even the CBO’s numbers are based on some not-too-realistic assumptions either. For example, the CBO assumes that the Bush tax cuts will expire for all tax brackets. Perhaps this could be defensible for the top bracket or two, but not the low end. We’re going to raise taxes on the poor? Doubtful. Another: CBO assumes that the latest “fix” of the alternative minimum tax will be allowed to expire, subjecting millions of middle-class taxpayers to the higher rates of the AMT. Republican and Democrat congresses for the last 10 years and more have been patching this, each time on a “temporary” basis. Nobody wants to make it permanent, because that destroys the budget projections. Neat trick, huh? Anybody believe that this time will be different? Also, CBO assumes that spending will only increase at the rate of inflation. Even without counting the stimulus, last year, spending increased 8% (inflation was 2% or lower).
Now, as bad as all that is, that’s only the “cash method” picture. For you non-accounting geeks out there, there are two methods for looking at your financial picture - cash and accrual. Cash is the way normal people keep their checkbook. You take an item into account as income or expense when the cash is actually received or sent out. Accrual accounting is what most larger businesses use. Under the accrual method, you take an item of income into account when your right to receive it becomes fixed, and you take an expense into account when your obligation to pay it becomes fixed - the actual date of payment is irrelevant. Accrual accounting gives a more accurate picture of what’s coming, whereas cash shows what’s actually there.
Budget numbers like these are generated on a cash accounting basis. They don’t take into account the underfunding of America’s vast entitlement programs and the annual changes in the net present value of those programs.
Calculated on an accrual basis, much as a corporation would estimate its pension and healthcare liabilities, the annual deficit number would be at least $6 trillion this year. In 2008, for example, the headline budget number — the one calculated on a cash in, cash out basis — was $454 billion. But if you ran the number as the federal deficit plus the net present value of all those unfunded liabilities, the deficit was $5.1 trillion with total fiscal obligations at $66 trillion. As Elmendorf [the CBO director] dryly puts it: “Putting the nation on a sustainable fiscal course will require some combination of lower spending and higher revenues than the amounts now projected.”
Stated differently, even the 9 trillion ($9,000,000,000,000) deficit over the next 10 years does not even begin to take into account the fact that Medicare, Medicaid, and Social Security are or soon will be flat broke.
Can someone explain to me how it is that, with the country in as deep a financial hole as we are, anyone suggesting that we create a new entitlement to healthcare isn’t laughed off the stage?
I read this morning about the demise of the government’s “Cash for Clunkers” program. The idea started off pretty simply: get old, fuel-inefficient cars off the road and stimulate new car buying at the same time. If a buyer trades in a “clunker” they get a credit of $3,500 to $4,500 toward the purchase of their new ride. Sounds straightforward enough, right? The dealers were required to destroy the engine of the clunker and submit proof of that and various other paperwork to the Department of Transportation, who would then reimburse the dealer. The deal was supposed to last until $1 billion dollars was spent, or November 1, whichever came first.
What could possibly go wrong?
It turns out, the government pretty much doesn’t need anything to go wrong to screw something simple up completely beyond all recognition. The program turned out to be wildly popular. But, really, who could have possibly foreseen that the government giving four grand off a new car would be attractive to many people? So, the government is overwhelmed with these applications from dealers. Payments to reimburse the dealers are slow. Quickly, the government realizes that it’s running out of money for the program. So the Congress hurries up and increases the budget to $3 billion.
But, shockingly, the popularity of the giveaway continues, and more applications pour in. So the government has finally thrown in the towel. Cash for clunkers ends Monday. A grand total of seven percent of the applications for reimbursement have been paid out to date. Dealers are angry, since they’re out of pocket with no reimbursement. And, to cap this all off, yesterday, news came out that the Department of Transportation was going to reassign workers from the FAA (you know, the folks who oversee air traffic) to try to clear out the backlog of applications for payment. But, don’t worry, they assure us that it will only be non-essential personnel reassigned.
So let’s review. The program has gone 200% over its original budget. The government’s projections of how many applications there would be were wildly far off. The DOT has only made payments to a tiny fraction of those requesting it. And, there were not enough workers in place to handle the demand. And, since this is Congress and the bureaucracy, you can rest assured that no one will be fired or held to account in any way for this woeful underperformance.
Now, is there any reason not to view this as an object lesson for what a government-run health insurance plan will be like? I’m sure there’s not. Government-run health insurance will be TOTALLY different. It’ll be just as efficient and well run as, say, the postal service.
Doug Wilson had a fun take on Sarah Palin’s influence on the health care debate with her “death panel” comments. He also links to her own FB comments. Couldn’t keep all the fun to myself. Read and enjoy.http://www.dougwils.com/index.asp?
I find it maddeningly frustrating to try to read a “news article” as opposed to a commentary, and find that it is, in fact, an editorial or commentary, disguised as an article….or perhaps the lines have become so skewed the writers don’t realize the difference anymore. Here’s an example of what I’m referring to, from a Times article about President Obama”s “health-care advisor” Ezekial Emanuel.
” The attacks on Emanuel are a reminder that there is a narrow slice of Americans who not only don’t trust government, but also have come to regard it as a dark conspirator in their lives. This peculiar brand of distrust helps create the conditions for fast-moving fear-mongering, especially on complex and emotionally charged topics like the life and death of the elderly and infirm. Prairie fires of that kind are hard to douse when the Administration’s own plan for health care remains vague, weeks away from being ready for a public rollout. The health-care bill that recently passed the House does not contain, as some have suggested, any provisions that would deny treatment to the elderly, infirm or disabled…”
(o.k. it’s Time, what do I expect, right?) but…if it were just Time I guess I would overlook it…but I see it EVERYWHERE and it drives me CRAZY! I grew up thinking the news was supposed to be objective and report facts. Maybe that’s my problem to begin with…naivite. But I would love to think I could read something without the internal commentary and opinions inserted and THEN follow up by reading opinions about said news if I so choose. Here’s a link to the entire “news article” if anyone’s interested. It is just one of the grossest examples of this blended “commentary/news reporting” that is running rampant. What do they teach in those journalism schools these days?
http://news.yahoo.com/s/time/20090812/us_time/08599191583500
Here’s a political palate cleanser. Remember Hillary Clinton? You know, the Secretary of State? I know, she hasn’t really been in the headlines much, what with Bill swooping off the North Korea to get those two Americans released and all.
Apparently this has gotten under her skin. Watch this video. It is quite amazing.
http://corner.nationalreview.com/post/?q=ZjhjMjc0MGZmOTVlMGZmMjM5MzgxNjZkOGUyYTAxZGE= interesting article on health care, if you like to stay awake at night thinking on these things.
