Democrats Press to Subsidize Insurers Over Bush Administration Objections

That is how the headline to the NYT article on a bill to extend government provided terrorism insurance should have read. The article reports that the Congressional Budget Office (CBO) estimated that the bill will cost the government $3.5 billion over five year and $8.4 billion over ten years.

There are two distinct issues here. The first is whether the private sector can be counted on to provide terrorism insurance to business. The Democrats pushing the bill say that it won't, while the Bush administration insists that the private sector would offer adequate insurance in the absence of the government program.

The second issue is if the government offers insurance, what price it should charge. The CBO projections imply that the bill would offer the insurance at below cost. There is no obvious reason that the government should be subsidizing insurance for private businesses.

The sums involved are not large relative to the budget (the five year cost is equal to 0.02 percent of projected spending), but there have been major disputes over smaller sums. For example, a proposal by Senator Olympia Snow to increase child care spending by $2 billion over five years was defeated after a heated battle. The article should have called attention to this subsidy and clearly distinguished it from the issue of whether or not the government should provide the insurance.

--Dean Baker