“Budget Neutral” Means Revenue
I’ve seen focus group data indicating that the — entirely accurate — charge that John McCain is proposing a gigantic tax increase on employer-provided health care benefits is extremely effective. Consequently, it’s no surprise that the McCain campaign is furiously accusing Obama of lying. But Ben Furnas points out that Sarah Palin implicitly admitted the truth of the tax hike charge when she described McCain’s health care plan as budget neutral:
She says:
He’s proposing a $5,000 tax credit for families so that they can get out there and they can purchase their own health care coverage. That’s a smart thing to do. That’s budget neutral.
A $5,000 tax credit costs a lot of money. But as Palin says, McCain’s plan is budget neutral. That’s because the tax credits are offset by a large increase in taxes on recipients of employer-provided health care.
34 Responses to ““Budget Neutral” Means Revenue”
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October 4th, 2008 at 8:52 pm
“But Ben Furnas points out that Sarah Palin implicitly admitted the truth of the tax hike charge when she described McCain’s health care plan as budget neutral:”
Jesus. Given that we’re going to win the election easily and have to govern for a decade or so, can we stop lying about stuff we’ll end up regretting that we lied about?
By definition, if it’s budget neutral, it ain’t a tax hike.
October 4th, 2008 at 8:54 pm
This isn’t rocket science.
John McCain proposes replacing your current un-capped employer-based healthcare tax credit with a capped, individual/family-based healthcare tax credit.
It’s budget-neutral (and actually, revenue-generating in the out years) because he’s just swapping out the existing tax credit and swapping in a smaller one.
And why, under that system would healthcare be more affordable? Because McCain also promises to get rid of state regulation of the individual market–which, in the real world, is getting rid of ALL regulation in the individual market (the insurance company lobby openly states that the individual market is regulated by the states).
McCain argues that with less regulation, health insurance will be cheaper, because the market will come up with awesome new risk tools (like they did in banking!). And that’s true–but, of course, you’re only cheap to insure so long as you are young and healthy and never actually get sick or pregnant and need to use your health insurance.
If you think the problem with our current healthcare system is that the existing tax credit is too generous and there are too many protections for individuals, then by all means McCain has the plan for you.
October 4th, 2008 at 8:54 pm
http://www.nytimes.com/2008/05/01/us/politics/01mccain.html
October 4th, 2008 at 8:59 pm
Petey, if you’re giving people money, that money has to come from somewhere. McCain wants that money to come from taxing the benefits of people who already have healthcare. So, it’s budget neutral because it doesn’t make a difference to the budget because the tax credits are paid for.
October 4th, 2008 at 9:03 pm
That’s completely unfair Matt. You know damn well Palin has no idea what budget neutral means.
October 4th, 2008 at 9:31 pm
So, obvious question (actually I have no idea): — where does Obama plan to come up with the money with which to subsidize insurance payments?
October 4th, 2008 at 9:37 pm
“Petey, if you’re giving people money, that money has to come from somewhere. McCain wants that money to come from taxing the benefits of people who already have healthcare. So, it’s budget neutral because it doesn’t make a difference to the budget because the tax credits are paid for.”
Right. But by definition, budget neutral means it ain’t a “tax hike”, as Matthew states.
If I raise taxes by $100b on upper income earners and lower taxes by $100b on lower income earners, have I raised taxes? Of course not. I’ve done something revenue neutral.
Respect, defend, and support the “revenue neutral” phrasing. It’s something that will come in handy for us going forward past November. Honest budgeting language is something that is more favorable for D’s than for R’s.
McCain’s healthcare plan may be lousy policy, but folks shouldn’t be referring to it as a “tax hike”. There are plenty of valid ways to criticize it without fucking with useful language.
October 4th, 2008 at 9:37 pm
“By definition, if it’s budget neutral, it ain’t a tax hike.”
No, not by definition. If you lower taxes on one group and pay for it by raising them on another, the latter group got a tax hike. If you give people a health care tax credit and pay for it by raising taxes on employer health care benefits, then people who get health care through their employer are going to see a net tax hike, or at least a cut in total compensation because of the tax increase. People who have no health insurance or who get it themselves will do better with the tax credit. But a lot of people *do* get it through their employer, which is why it justifably alarms them to hear a completely accurate account of McCain’s plan.
October 4th, 2008 at 9:38 pm
Wait a minute. Petey thinks we’re going to win easily? Now I’m fucking nervous.
October 4th, 2008 at 9:45 pm
“Wait a minute. Petey thinks we’re going to win easily? Now I’m fucking nervous.”
This election ended about two weeks ago. Haven’t you been paying attention?
Obama didn’t seem capable of pivoting the campaign to economic matters, but events did the job for him.
Barney Frank yelling “regular order” to cement the initial bailout bill failure on the House floor was the fat lady singing of the 2008 campaign. For the first time since ‘96, election day will be devoid of superheated drama.
October 4th, 2008 at 9:53 pm
This election ended about two weeks ago. Haven’t you been paying attention?
I thought it ended a couple of months ago, when Obama let McCain define him as a celebrity just before the convention. At least, that’s what you told everyone at the time.
October 4th, 2008 at 9:54 pm
The election was decided when people like Karl Rove criticized McCain in public. A world in which Sarah Palin was president of the US would be much too dangerous.
There could still be an October Surprise, of course. All events aren’t dictated by American people with money. But insofar as people with money influence American elections, the gig is up.
October 4th, 2008 at 10:33 pm
If McCain claims that at BEST it is budget neutral, “you betcha” there are economists that will claim it is an overall tax hike.
In this case, there are economists who do just that. As a nifty result for Team O, they are now branding McCain as a “radical,” tax-hiker. Most rational people are scared to death about Health insurance, and thus Team O is riding this issue into Nov. 4th, and McCain really doesn’t have a strong comeback.
That’s why Team O did not have mandated Health Care for adults, as a result his plan comes off as a “centrist” solution. I’m guessing in debates he will bring up CRITICISM from the left and right to position his plan as the centrist one.
October 4th, 2008 at 10:39 pm
There are more than two parties in this game. Budget neutral from the point of view of the government is not the same as budget neutral from the point of view of an American household.
In any case, let’s assume this is budget neutral for everyone. Then one must ask why it is worth bothering to do it! If you’re not going to save any money, your employer isn’t going to save any money, the federal government isn’t going to save any money then health care costs don’t change and we’re just exactly at the same place where we are now.
The whole thing is a dodge. Rather than being insured through major employers every employee will negotiate their own insurance. Insurance companies will be able to drop everyone with a preexisting condition from coverage. Those who are healthy may come out ahead in the short term. But in the long term this is just going to exacerbate the societal cost of covering emergency coverage for a greater number of uninsured.
October 4th, 2008 at 10:42 pm
Fuck. Petey saying it’s an easy win is worse than all the Cubs’ curses combined.
Couldn’t you just have gone to an undisclosed location until November 5th?
Anyway, Matt’s point is fine. If one side says “it’s budget neutral” and the other side says “they’re going to tax your health benefits”, who do you think comes off more favorably? That’s not a hard argument to win with undecided voters.
October 4th, 2008 at 10:47 pm
At an individual/family level, which is a reasonable way to look at this, its only not going to have an effect on you if your health care plan costs less than $5000 per year. If it costs more than that, you get a tax increase.
October 4th, 2008 at 10:49 pm
From what I have read about the plan it isn’t a “tax credit”. The McCain website describes it as cash paid directly to your chosen insurance provider. This is like a government managed deduction.
A tax credit would be potentially useless for low-income families, and very useful for anyone who pays over $5000 in taxes.
Here is the diff: a tax credit reduces the tax you pay, a deduction just allows you to remove that expense from your income. There is no better deduction than one that your employer can take to give you a benefit, because it means that neither your or your employer have to pay federal income tax or SS or FICA.
Maybe the best way to describe this is as a limited, absolute deduction. It is limited to $2500/$5000, but you get the amount even if you don’t buy health insurance. The balance can go into a health savings account.
This sounds bad for everyone.
October 4th, 2008 at 11:31 pm
If you cost it out by looking at an average benefit and salary, over time it isn’t budget neutral for a family of four making 40-50k in 2009. It’s a tax hike. It’s a cut in year one, but depending on your benefit and salary, by year five or so its all the other way. Unless health care costs don’t grow the same way they’ve been growing. And that’s the catch. The plan is designed to make sure that healthcare costs don’t grow the way they’ve been growing. The logical response is for people to get less coverage.
This all assumes you apply the payroll tax. Which I think you have to for Palin to be right about revenue neutral for the feds early on.
October 4th, 2008 at 11:51 pm
Palin:
“…unless you’re pleased with the way government has been running anything lately…”
Thanks Sarah, for reminding everyone how badly the country has been hurt by 8 years with Republicans in the White House!
October 5th, 2008 at 12:06 am
OK, I’m going to come out of my self-induced exile to do battle with some more of Matt’s arrant hackery.
tomj is right. Basically, this is a classic Republican voucher program. The money can only be used on private health insurance, and will be sent directly to the health insurance company. Apparently, neither “voucher” nor “federal subsidy” test so well, so they’ve decided to call the subsidy a “tax credit” and administer it through one’s tax return. That way the money is waved under your nose as a kind of teaser on your tax return, and if you stay with the employer based-plan you will both be pissed about the higher taxes you are paying because of the tax on your employer plan and also be pissed that you aren’t getting the tax credit. This gives you a very strong incentive to drop the employer plan in favor of a tax cut or subsidy, which is the whole purpose here – to help businesses by putting an end to employer provided health insurance.
This is supposed to be a “free market” solution designed to force workers out of employer provided plans and into the market as individual purchasers. As people leave the employer provided group plans, the size of the remaining employer groups will shrink, and those left in the groups will be the most sick, who would find it difficult to purchase quality insurance on the open market as an individual for $2500. This will make it increasingly difficult for employers to bargain for high quality plans, and should quickly render employer-provided insurance non-viable.
McCain waves his hands at the obvious problem of the most sick being left to fend for themselves with only $2500 in their pockets and without the pooling benefit of a large employee group. He basically says he is going to let states experiment with different plans for guaranteed access, and see what turns up. He mentions the possibility of NGO’s working with large pools of the sick to bargain for better plans. But obviously the main dynamic here is to reduce costs for the healthy by pushing the sick out of current employer-based group plans and into large groups composed mainly of the unhealthy. Clearly, even with a group pooling benefit, it’s hard to see how groups consisting mainly of very sick people will be able to secure health care, individually or collectively, at non-frightening prices.
The proposal is put forward as being budget neutral, not revenue neutral. I don’t think McCain is proposing to recoup all of the revenues used for the “tax credit” through the new tax on employer health benefits. The idea is supposed to be that more people will be insured through the private market- so they claim – and so there will be fewer public emergency room costs and medicare payments.
Ultimately and long term, where is all the money supposed to come from to subsidize each family to the tune of $5000 and each individual to the tune of $2500? I don’t think it could come from the taxes on the the employer provided plans, since those would quickly disappear. The key here is that they are going to pay for the subsidy through reduced spending. Killing Medicare and letting the market handle health care is what it is all about.
If you like voucher plans in education, and Social Security privatization, then you will probably like this plan too. It reflects the Republican Social Darwinist ideology that the rich should have better health care than the poor, and the young and healthy should have better health care coverage than the old or unhealthy. It’s pure Phil Gramm stuff.
Petey is right, though. This probably does not represent an overall tax hike, at least not in the long run. The idea is to use a short-term tax hike to stimulate people to leave employer based plans so they can take advantage of an overall tax cut, and use the proceeds to buy their own health insurance.
October 5th, 2008 at 12:35 am
The idea is to use a short-term tax hike to stimulate people to leave employer based plans
This means that McCain’s long-term plan is to tax employer-based health insurance out of existence. It’s still a massive tax hike on employer-based health insurance. As Colatina was the first to say on this thread, the fact that someone else gets a tax cut, and so it isn’t an overall tax increase, doesn’t mean it isn’t a massive tax increase on employer-based health insurance.
Unless the claim is that the tax increase on employer-based health insurance sunsets after a while, but I don’t think anyone’s said that. It’ll be moot once everyone has dropped their health plans because of the high taxes, but again that just means that it’s been taxed out of existence, not that there’s no tax increase at all.
October 5th, 2008 at 2:19 am
When McCain sat down with the journalists and editors in Des Moines, one of them asked, “Have you always been covered for health care by a taxpayera’ financed health care plan?” He seemed genuinely stumped by that and didn’t seem to have any response except, “That’s an interesting statement.”
(You can see this on YouTube at http://www.youtube.com/watch?v=nskNRlx0A7Y&NR=1)
October 5th, 2008 at 4:36 am
I think everyone’s forgetting the most important cost-saving mechanism in McCain’s plan. If employee-based health insurance and risk pooling goes the way of the dinosaur, and we stop “consuming healthcare like caviar” , I’d expect preventative care to become almost nonexistent and life expectancy to drop.
Fewer old people–>fewer medical issues–>cheaper healthcare costs (esp medicaid costs)
Truly a savings plan worthy of modern Republican ideology.
October 5th, 2008 at 8:17 am
Something that’s not clear here: wouldn’t the 5000 tax credit also apply to your premiums under an employer health plan? True, you’d be paying taxes on those premiums throughout the year, but at the end of the year you’d get the money back via the tax credit?
October 5th, 2008 at 8:44 am
While this could be the last nail in McCain’s electoral coffin if Obama succeeds in putting his spin on it, if Dubya couldn’t get Social Security “reform” through Congress McCain isn’t going to be able to get this through. It is more evidence that he considers 80% of the population expendable.
October 5th, 2008 at 12:13 pm
I think attempting to find meaning in Palin’s
word salad is an exercise in futility.
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