Bait and switch: Now health-care reform won't solve deficit problem

Henry J. Aaron and Isabel Sawhill attempt to switch directions on deficit issues in today’s Washington Post, trying to sell higher taxes as the long-term solution to America’s fiscal woes.  In doing so, Aaron reverses his past statements on the nature of the deficit, when he claimed that the deficit was entirely caused by health-care costs. Now, however, ObamaCare won’t be nearly enough to undo deficit spending, and Aaron and Sawhill pump for a value-added tax (VAT) on top of all the other new and higher taxes Americans will pay:

Anyone who thinks that health-care reform alone is going to close the massive current — and even larger projected — U.S. budget deficit is deluded.

Really?  Here’s Aaron on April 12, 2007, in a presentation for Brookings:

  1. There is a long term fiscal problem; all of it is health care
  2. There is no entitlement crisis other than health care

This analysis helped drive the push for a government-imposed overhaul of the private-sector health-care industry in the first place.  Supposedly, such a “reform” would solve our deficit spending problem, which is why the federal government claimed jurisdiction for such legislation in the first place.  Now, however, people who bought that argument are deluded.

President Obama has pledged that health-care reform will not make matters worse. But that isn’t good enough. There is no way to restore this nation to fiscal health without higher taxes — for the middle class as well as for the rich. The only question is when. Those increases should be enacted now, phased in gradually after the recovery is well established, and tied to the increased spending that health-care reform will generate.

And here’s Aaron from the same presentation in 2007:

… since taxes are assumed to remain a constant share of GDP, projections show no other long-term budget problem.

But now that we’ve begun working on health-care reform, suddenly Aaron acknowledges that it will increase spending, and that Congress needs to raise taxes as a result.  Reform itself won’t solve the deficit crisis, Aaron now argues.  Only the deluded would have believed it in the first place!

I contacted Chuck Blahous of the Hudson Institute for a comment, and he replied:

We are witnessing perhaps the most ambitious, and damaging, bait-and-switch in federal fiscal policy history.  For the past few years, some have irresponsibly argued that we have no long-term spending problem that can’t be fixed by comprehensive health care reform.   This fallacy was used to provide cover to politicians who wanted to duck responsibility for addressing unsustainable spending growth elsewhere in the budget, including Social Security.  Those who bothered to scrutinize the canard understood that this could only lead to massive tax increases.  Now that it’s clear that health care reform won’t fix our budget problems, the mask is slipping off.   We need either to get serious about tackling rising spending – meaning both Social Security reform, and health reform that reduces rather than expands federal commitments – or the American people are going to be taxed like they’ve never been taxed before.

Andrew Biggs all but predicted this outcome:

Some claim that health care cost growth is by far the dominant source of projected increases in overall entitlement program costs, using that claim to justify a far-reaching overhaul of both public and private health care provision. . . .  While reasonable changes in assumptions or methodology could easily swing the balance of influence in either direction, it is clear that aging does not play the minor role in driving entitlement spending that purveyors of the new consensus purport. . . . The recent work of the CBO in exploring health care cost and quality issues in new detail is of great value, but neither task should be taken as an excuse to ignore the direct financing challenges of Social Security, Medicare, and Medicaid.

VAT is a consumption tax that will be much more regressive than people think.  Basically a sales tax, it encourages people to save money, and that will be much easier for those with larger percentages of disposable income.  It discourages purchasing, which will dampen retail business, while soaking those who can least afford it — the working and middle classes.  The wealthy will simply curtail consumption and wait for a more propitious moment to spend.

How does that square with Barack Obama’s pledge that people making under $250,000 a year won’t see “one dime” in increased taxation?  He already broke that pledge with higher cigarette taxes, but this would hit broadly across the entire spectrum of American voters.  Every time they bought something, the voters will be reminded of that broken pledge.

Obama should ignore the 2009 version of Aaron.  In fact, he should also ignore the 2007 version, inasmuch as Aaron does the same.

Update: Bruce Kesler notes that Aaron’s not the only one doing contortions over their previous statements on health-care reform.