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Dean Baker's commentary on economic reporting

The WAPO's Missing Logic on Tax Cuts and Health Care

The Washington Post's obsession with the deficit thoroughly contaminates and confuses its economic and budget reporting. The obsession showed its ugly head yet again in a front page news story.

The article notes that President-elect Obama's health care plan is likely to carry an upfront price tag of $65 billion a year, even though it is projected to save money in the long-run. The article reports that Obama had originally planned to pay for this cost by raising taxes on the wealthy in 2009, but he now is planning to put off the tax increase until 2011 because of the recession.

The article then tells readers "That could sour some deficit hawks on the idea. 'It's going to be very problematic to me unless they can tell me how it's going to be paid for,' said Sen. Ben Nelson (Neb.), a leading centrist Democrat."

Okay, perhaps Mr. Nelson hasn't noticed, but we are in a severe recession. As a result, the overwhelming majority of economists want to see the government stimulate the economy by running large deficits. That means that we want spending that is not paid for.

Of course in 2011, when hopefully the economy will be back on track, we will be collecting the taxes that Obama had wanted to cover the cost of his health care plan. In that sense the plan will be paid for in the period in which we want it to be paid for.

It is possible that Mr. Nelson doesn't understand basic economics and how stimulus works, which should have been pointed out in the article, since he is clearly an important figure among centrist Democrats. However, the Post article makes it appear as though Mr. Nelson's objections make sense. This is not true. If someone supports a large stimulus, then the fact the first years of a health care reform plan are not paid for, should be a non-issue.

--Dean Baker



COMMENTS

The tax increase for the wealthy is their main concern. Republicans have been fighting back the expansion of the social safety net for decades because a safety net requires wealth redistribution.

If we would have a better distribution of wealth in the first place, we would not need a redistribution at all.

But we have not. So it is necessary to have a system of redistribution.

If some people are not happy with a system of redistribution, there a lot more people who are not happy with the system of distribution.

Gerry Flaychy wrote, But we have not. So it is necessary to have a system of redistribution.

We have a system of redistribution: one that goes from those who are poorer and work for a living and to those who are richer who are parasites.

I'm not sure I consider health insurance to be wealth re-distribution. The point of insurance is to spread risk and starting from age 0 we all have the risk of health problems that will require medical treatment.

To liberal: By what "we have not", I was refering to the " better distribution of wealth", not the "redistribution".

The system of land property to wich you refer in your link, is a system of distribution of wealth. The systems of taxes and fees imposed on land or landlords, whatever they may be, is part of a system of redistribution.

The rents that the users of land pay to the landowners is a part of the distribution system of wealth.

At least, it's the way I see it.

I note that Senator Nelson is from Nebraska, and that one of the largest companies and employer in Omaha is the insurer, Mutual of Omaha. A less ideological article might point out that Senator Nelson's skepticism about health care reform may have less to do with its budget implications then for health care reform's implications for Mutual of Omaha. I am not implying corruption on Senator Nelson's part, but merely his self-interest as a politician in getting reelected and in representing the interests of his state, Nebraska, and one of its principal businesses and its employees.

Why can't we agree that the government is already overspending, and that more isn't really needed? Basically the government is in permanent Keynesian mode... overspending when things are good, overspending when things are bad. What would several billion dollars more in overspending achieve that we're not already achieving?

Ben Nelson is more "Republican" than the GOP Senator from NE, Chuck Hagel is on foreign policy, and just as right-wing on economic and social issues. Why persist in calling him a "centrist"? I am hardly stunned to learn that he serves the interests of Mutual of Omaha and other insurance behemoths--I would assume that to be the case.

It is possible that Mr. Nelson doesn't understand basic economics and how stimulus works, which should have been pointed out in the article

Whether and how stimulus works (whatever one's definition of "works" might be) is very much debated, though obviously the mainstream opinion is that it does. That stimulus is generally agreed to as a good thing is certainly not a foregone conclusion, unless we're talking about whether or not it's considered a good thing by other likeminded economists.

Pay for Health Care ?

We are already paying for it. Those that have it are paying for those that don't in higher premiums ...

Because the system is so fragmented we are losing hundreds of billions a year on record keeping, defensive medicine and monopolistic pharma pricing.

Because it is privatized we are spending 15% on profits and 15% on overhead when Medicare could run the system for no profit and a 5% overhead.

The system is broken and will bankrupt America if it is not single payer and if it is not reformed.

Posted by petekva: "Basically the government is in permanent Keynesian mode... overspending when things are good, overspending when things are bad."

Citizens too were overspending ... and overindebted. The difference between them and the government, is that the government has a "personal banker" who lend him all the money he wants, in good time as in bad times.

The other difference between the two, is that the personal banker of the citizen stop lending him in bad times ! But, happily(?), it's not the case for the government.

Posted by Erik L: "I'm not sure I consider health insurance to be wealth re-distribution."

With a private insurance company, you have to pay to receive. With a government insurance, you may receive even if you didn't pay. In both case, some may receive more than they give, since others may pay and receive nothing.

It is not by itself a system of redistribution of wealth, in the sense that the ones who receive more then others due to the system of distribution, give a portion of what they receive to the ones who receive less due to the system of distribution.

But, in another way, we can say that it is too a kind of redistribution, a redistribution of what has been paid and put in a common reserve, from wich it is re-distribute to whom who needs it. But it is not a system who is correcting, or trying to correct, what is seen as a system of mal-distribution put in place at first.

Kevin Phillip's book BAD MONEY gives some interesting context to "the National Debt". Based on data from a few years ago the following debt was accumulated by various sectors of the economy over the last 25 years.

Federal debt $5 trillion
Household debt $11 trillion
Corporate debt $23 trillion

Of the corporate debt, $14 trillion was accumulated by just the financial sector. All other corporate debt was $9 trillion. At least some of the money from the Federal debt went to provide for average citizens. Real jobs were created by some of that money. What did we get from all the corporate and finacial sector debt? We bankrupted previously healthy companies with leveraged buyouts. The finacial sector debt overwhelmingly went to the ultra rich Wall Street insiders. Very little was actually spend on new plant and equipment or on new research and development. All that corporate debt was also used by corporations to eat up their profits, so they wouldn't have to pay corporate income tax. Yes too much debt is distructive to the country. But why does the political right only want to talk about the Federal debt and household debt? Why aren't they talking about the far more distructive corporate debt?

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