Feldstein in the WSJ: Why ObamaCare will Cost $2 Trillion, Not $1 Trillion

Feldstein was the former Chairman of the Council of Economic Advisors under President Reagan, and writes today in the WSJ:

 “Dropping the Obama health plan would significantly reduce fiscal deficits over the next decade and help restore public confidence in the ability of Congress to control spending. The CBO estimates that the House committee versions of the Obama health plan would add more than $1 trillion to federal deficits over the next decade. But the actual costs would be much higher.

For starters, $1 trillion of extra debt-financed spending would cause the government to pay about $300 billion of extra interest in the next decade. Moreover, the CBO’s method of estimating the cost of such a program doesn’t recognize the incentives it creates for households and firms to change their behavior.

“The House health-care bill gives a large subsidy to millions of families with incomes up to three times the poverty level (i.e., up to $66,000 now for a family of four) if they buy their insurance through one of the newly created “insurance exchanges,” but not if they get their insurance from their employer. The CBO’s cost estimate understates the number who would receive the subsidy because it ignores the incentive for many firms to drop employer-provided coverage. It also ignores the strong incentive that individuals would have to reduce reportable cash incomes to qualify for higher subsidy rates. The total cost of ObamaCare over the next decade likely would be closer to $2 trillion than to $1 trillion.”

“…the administration and the congressional designers of ObamaCare say they would finance a substantial part of health reform with the revenue from new taxes on corporate foreign profits and on high-income individuals. The likely revenue from these tax changes would be much less than the official estimates because of the induced changes in taxpayer behavior that the estimators ignore. Previous experience with changes in the marginal tax rates of high-income individuals implies that the current proposal to raise the marginal tax rate to about 50% from today’s 40% would produce only about half of the official revenue estimates.”

The behavior changes of individuals and employers will expand the cost of ObamaCare, while the new taxes will substantially produce less revenue, because of the change in behavior by those subject to the taxes, to minimize their effect.

Feldstein repeatedly states that abandoning ObamaCare would only be a small step in the direction of responsible spending, but just one that would help to restore investor confidence in the dollar, but that other steps must also be taken.

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2 Responses

  1. September 10, 2009

    […] Your health plan will change; 2) The deficit will increase (this link is about an op-ed from the WSJ on why ObamaCare will cost $2 Trillion, not $1 Trillion) […]

  2. September 11, 2009

    […] the rational estimates that ObamaCare will, in fact, cost $2 Trillion and not $1 Trillion, then is it any wonder Americans simply no longer trust Congress and large segments of the […]

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