President Obama says that his health care overhaul plan will reduce costs. But the career estimators at the Congressional Budget Office (CBO) say it will actually increase federal spending by close to $1 trillion. President Obama keeps saying that his health plan will reduce the deficit. But CBO says it will increase the deficit by hundreds of billions.
So now liberals are arguing that the CBO actually has a history of overestimating health costs and underestimating savings. A New York Times op-ed, echoed by the Commonwealth Fund, insists that CBO underestimated the cost savings from reduced reimbursements in the past for hospitals, skilled nursing facilities, and home health services, and from the market competition included in the 2003 Medicare prescription drug plan.
But the government’s official estimators actually have a long history of grossly underestimating the costs of new health programs.
The official government estimates for Medicare when it was adopted in 1965 projected that the program would cost only $12 billion by 1990. But the actual costs of the program by that year were $109.7 billion, 9 times larger than the original estimate.
Where the government’s official estimators have had the most trouble is in estimating the effects of tax changes.
- In 1997, they estimated that a net cut in the capital gains tax rate from 28 percent to 20 percent would result in a revenue loss of $21 billion over the following 10 years. But after the tax cut passed, revenues increased by $84 billion over the pre-tax cut projections for 1997 to 2000 alone. Despite an almost 30 percent cut in the rate, capital gains revenues rose from $62 billion in 1996 to $109 billion in 1999—all missed entirely by the estimators.
- Similarly, in 2003 when Congress considered a cut in the capital gains tax rate from 20 percent to 15 percent, the official estimates projected a revenue loss of $5.4 billion from 2003 to 2006. But after Congress passed the tax cut, capital gains revenues increased by $133 billion during those years, as compared to the pre-tax cut projections.
The House health bill is filled with new penalties and taxes on income for both individuals and businesses. Anticipating how all of these new taxes would change behavior is virtually impossible to project.
One thing we can project, however, is that liberals will say anything in their effort to hide the costs even if it means misleading the public on the CBO’s projection record.
Today's TaxByte was written by Dr. Merrill Matthews, IPI Resident Scholar