Donald Marron

This chart shows a year-over-year increase in consumer prices for shelter from 1995 to 2010. Over the past year, shelter costs have been rising. (Donald Marron)

How is housing affecting inflation?

By Donald Marron, Guest blogger / 02.21.11

A few months ago, I argued that housing was messing up inflation measures, in particular the core CPI. With last week’s release of fresh CPI data, I decided to check in to see if that’s still true.

Answer: Yes, but less so. The cost of housing is still rising slower than for other core goods and services, but the gap has narrowed.

In my earlier post, I found that year-over-year core inflation through October was a remarkably low 0.6% and that housing costs (as measured by the CPI for shelter) had fallen 0.4%. As a result, core inflation less shelter was 1.3% — low, but not remarkably so.

We now have data through January: core inflation has picked up a bit to 0.9% over the past 12 months. Shelter costs rose 0.6% over the same period, and core inflation less shelter is 1.2%.

As you can see, the big change is that shelter costs over the past year are now rising, not falling:

Bottom line: Housing costs have dragged the core CPI down over the past year, but not as much as was true a few months ago.

P.S. My earlier post provides details about the BLS measure of shelter prices.

Add/view comments on this post.

------------------------------

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

Obama proposed a 10-year plan for the federal budget that would both cut and increase taxes. Would the proposed budget snip away too much tax revenue to reduce the deficit? (Graham Brown Photography / Business Wire)

Obama plans to cut taxes. And raise them, too.

By Donald Marron, Guest blogger / 02.15.11

Here’s a quick multiple choice quiz about President Obama’s new budget.

Over the next ten years, would the budget:

a. Increase taxes by $819 billion

b. Cut taxes by $2 trillion

c. Increase taxes by $1.6 trillion

d. All of the above.

If you answered (d), you have a fine future as a budget watcher.

As noted expert Johnny Depp demonstrated some months ago, it all depends on how you measure things.

For starters, you might compare ten-year tax revenues under the President’s proposal ($38.747 trillion) to what they would be if there were no new policy actions ($37.928 trillion under the President’s notion of “baseline” policy). That gives you answer (a), a tax increase of $819 billion.

But wait. The President’s baseline assumes that many expiring tax provisions get extended. They include the “middle-income” tax cuts originally passed in 2001 and 2003 and now scheduled to expire after 2012, the “patch” of the alternative minimum tax through 2011, and 2009-style estate tax law through 2012. If you treat extending those provisions as a policy choice—a defensible view since it will take new legislation for them to happen— you should score them not as freebies, but as a $2.845 trillion tax cut. Offset that by the President’s $819 billion in tax increases and you get answer (b): the budget calls for roughly a $2 trillion tax cut.

But wait again. Congress and the President recently had a chance to let the “high-income” tax cuts expire. And they didn’t. And they enacted a new estate tax law for 2011 and 2012 that’s lower than 2009 levels. Those are now (temporarily) the law of the land. So you might view them as being current policy. And relative to that policy, the President’s baseline represents an $807 billion tax increase. Add in the other $819 billion and you get answer (c), a tax increase of about $1.6 trillion.

The President’s budget would thus cut taxes by $2 trillion relative to current law, but raise taxes by $1.6 trillion relative to current policy. Or something in between if, like the President, you prefer to use a baseline that’s a mix of current law and current policy.

Does your head hurt yet?

If not, please move on to our extra credit short essay question. How can we square any of these figures with the Administration’s talking point that the budget reduces future deficits by $1.1 trillion with about two-thirds of that coming from spending cuts?

Think about that for a moment. On its face, that would seem to imply that one-third of the deficit reduction comes from revenue increases. And that would put the revenue increase somewhere in the neighborhood of $350-400 billion.

Which bears no resemblance to any of our earlier figures.

I am not sure of the exact calculation behind the talking point (anyone?), but it appears that the main issue is that the administration identifies only some tax increases as being related to deficit reduction. For example, the budget includes an additional $328 billion in revenue to finance new transportation projects. Those revenues are not counted as reducing the deficit. And the budget includes another $56 billion in higher revenues from “program integrity” efforts – i.e., administrative actions to improve enforcement of the tax code. As best I can tell, that revenue, too, is not counted as part of deficit reduction (perhaps because budget experts are hesitant about giving credit for purely administrative changes).

With those two adjustments, it appears that the deficit-reducing revenue increases, as the Administration measures them, total about $425 billion over the next ten years. Which is still more than a third of the $1.1 trillion in deficit reduction. But maybe we are close enough for partial credit.

Add/view comments on this post.

------------------------------

This photo made on Jan. 27, 2011, shows a home for sale in Mount Lebanon, Pa. There is still debate about the government's role in the prime mortgage market, but there seems to be some agreement on other issues in housing finance, writes guest blogger Donald Marron. (Gene J. Puskar / AP / File )

A better future for housing finance?

By Donald Marron, Guest blogger / 02.14.11

Today was a big one for housing finance. Treasury kicked things off with its much awaited report to Congress on “Reforming America’s Housing Finance Market.” And then the Brookings Institution hosted a full day conference on “Reforming the U.S. Mortgage Market.“

Both Treasury’s report and the conference showed that there’s still important debate about the potential merits and demerits of a continued government backstop in the prime mortgage market. Treasury’s three options, for example, run the gamut from no guarantee to a backstop guarantee that kicks in during bad times to a permanent, broad-based guarantee. I’ll have more to say on these options in the future.

For now, I’d like to highlight several other aspects of the Treasury report and the discussion at Brookings that I found encouraging. Based on what I heard (and what I read between the lines of the Treasury report), there appears to be near-consensus on five important issues:

The multi-trillion dollar investment portfolios of Fannie Mae and Freddie Mac were a mistake. As the Treasury report puts it: “Fannie Mae and Freddie Mac were allowed to behave like government-backed hedge funds, managing large investment portfolios for the profit of their shareholders with the risk ultimately falling largely on taxpayers.” Such government-backed portfolios have no place in our future mortgage finance system.
Any future government assistance must be better targeted. For example, the conforming loan limit (and its FHA counterpart) need to come down.
If there are any future government guarantees for prime mortgages, they must be protected by greater private capital.
If there are any future government guarantees for prime mortgages, they must be explicit, and financial firms must pay at least actuarially fair rates to purchase them.
Affordable housing programs should be transparent and on budget, rather than embedded in regulatory requirements on Fannie Mae, Freddie Mac, or any successors.

Each of these would be a substantial improvement from the old GSE system.

Add/view comments on this post.

------------------------------

Guest blogger Donald Marron uses a pizza analogy to show how raising taxes can hurt both consumers and the government. (Eric Risberg / AP / File )

Imagine the economy were a pizza parlor

By Donald Marron, Guest blogger / 02.08.11

At last Wednesday’s hearing on tax reform, three witnesses–Rosanne Altshuler, Larry Lindsey, and I–invoked a famous rule of thumb about taxes. We each told the Senate Budget Committee that high tax rates are disproportionately harmful for the economy and that:

If you double tax rates, you quadruple the resulting economic harm.

If a 10% tax rate on some activity does a certain amount of economic damage, for example, then it’s a reasonable guess that doubling the tax rate to 20% would multiply that damage by a factor of four.

It was nice to hear such agreement among the panelists, but judging by the senators’ reaction, this idea is not intuitive. So let me try to explain with a simple example.

Suppose there are five people who might buy a pizza. The first person values a pizza at $14.50, the second at $13.50, the third at $12.50, the fourth at $11.50, and the fifth at $10.50.

If pizzas cost $10, all five people will buy one. The first person gets a net benefit of $4.50, since the pizza was worth $14.50 to her, but she paid only $10. The second person gets a benefit of $3.50, and so on. Add it all up, and the benefit of the pizza market is $12.50 (= $4.50 + $3.50 + $2.50 + $1.50 + $0.50).

Now suppose that the government levies a 10% tax on pizzas; that lifts the price to $11. Now only the four consumers who place the highest value on pizzas will buy them; Mr. $10.50 won’t buy. The four remaining consumers now benefit by $3.50 + $2.50 + $1.50 + $0.50 = $8.00 from buying pizza. The government collects $4.00 in revenue, so the total economic benefit of the pizza market is $12.00, $0.50 less than before. That 50-cent loss falls on the hungry guy who no longer buys a pizza. The $1 loss for each of the four buyers isn’t lost to the economy; instead, it transfers to the government.

Now suppose, instead, that the tax is 20%; pizzas now cost $12 each, and only three consumers will buy. Their total benefit is $4.50 (= $2.50 + $1.50 + $0.50). The government collects $6.00 in revenue, so the total economic benefit is $10.50. That’s $2.00 less than without a tax.

So there you have it. When you double the tax from 10% to 20%, you quadruple the economic harm from $0.50 to $2.00.

Why does this happen? Because doubling the tax doubles the number of consumers who drop out (from 1 to 2) and doubles the average economic value of the pizza sales that never happen (from $0.50 to $1.00). Two times two is four, so the overall effect is to quadruple the economic harm.

Put another way, the value of the second lost pizza ($1.50) is three times larger than the value of the first one ($0.50). So the economic harm of the 20% tax is four times the harm of the 10% tax.

This is a big deal when you design a tax system for the entire economy. To avoid needless economic harm, you should aim for low tax rates and the broadest possible tax base. If you need to raise $6.00 from our mythical food economy, for example, it would be far better to levy a 5% tax on pizzas, tacos, and hamburgers, than a 20% tax on pizzas alone.

I hope that whets your appetite for base-broadening tax reform.

P.S. Did I cook the pizza example to get the increase to be exactly a factor of four? Of course. In the real world, the actual multiple will vary. If the fifth person valued the pizza at only $10.25, for example, the loss from the 10% tax would have been $0.25, and the loss from the 20% tax would have been seven times larger at $1.75. Conversely, if the fourth person valued the pizza at only $11.00, the loss from the 20% tax would have been $1.50, only three times larger than the $0.50 loss from the 10% tax. The double/quadruple rule of thumb assumes an even spread of consumers and their values — a reasonable starting assumption until you have more information.

Add/view comments on this post.

------------------------------

Guest blogger Donald Marron thinks the $14,000 estimate of Mars's worth is too low. So, he makes a 100 percent mark-up offer of $28,000 to Marvin the Martian. (Scripps Howard Photo Service/Newscom)

Marvin, would you take $28,000 for Mars?

By Donald Marron, Guest blogger / 02.07.11

Over at Boing Boing, Lee Billings interviews astrophysicist Greg Laughlin about his formula for valuing planets. Or, more precisely, measuring how much it appears we value those planets based on (a) how much we spend to search for them and (b) planet characteristics like stellar age, stellar mass, light, heat, brightness, etc.

According to the formula, Earth is worth about $5 quadrillion. Which seems about right if you believe my only-partly-joking estimate that the United States alone is worth $1.4 quadrillion.

Mars, however, rings in at a measly $14,000. That seems low to me, so let me make an offer.

Dear Marvin: I would gladly pay you $28,000 for your home, Mars. That’s a 100% mark-up on today’s value. And you and your goons could continue to live there. Thanks, –Donald P.S. Please send Spirit back.

And then there’s Venus. Laughlin ran his equation two ways for the brightest planet in our sky:

Venus is a great example. It does pretty well in the equation, and actually gets a value of about one and a half quadrillion dollars if you tweak its reflectivity a bit to factor in its bright clouds. This echoes what unfolded for Venus in the first half of the 20th century, when astronomers saw these bright clouds and thought they were water clouds, and that it was really humid and warm on the surface. It gave rise to this idea in the 1930s that Venus was a jungle planet. So you put this in the formula, and it has an explosive valuation. Then you’d show up and face the reality of lead melting on the surface beneath sulfuric-acid clouds, and everyone would want their money back!
If Venus is valued using its actual surface temperature, it’s like 10^-12 of a single cent. @home.com was valued on the order of a billion dollars for its market cap, and the stock is now literally worth zero. Venus is unfortunately the @home.com of planets.

In short, Venus might be worth as much as the United States or nothing. If the astrophysicist thing doesn’t work out, Laughlin could clearly find work as an economist.

Add/view comments on this post.

------------------------------

Our tax system is broken, writes Donald Marron. Reforming income tax is one thing that will start to fix the problem. (Photo illustration / Newscom)

Seven ways to reform a broken tax system

By Donald Marron, Guest blogger / 02.02.11

This morning I appeared at a Senate Budget Committee hearing, “Tax Reform: A Necessary Component for Restoring Fiscal Sustainability.” My full testimony, “Cutting Tax Preferences Is Key to Tax Reform and Deficit Reduction,” is available here.

Here’s my opening statement:

America’s tax system is broken. It’s needlessly complex, economically harmful, and often unfair. It fails at its most basic task, raising enough money to pay our government’s bills. And it’s increasingly unpredictable, with large, temporary tax cuts not only in the individual income tax, but also in corporate, payroll, and estate taxes.

For all those reasons, our tax system cries out for reform. Such reform could follow many paths. Some analysts recommend the introduction of new taxes—such as a value-added tax, national retail sales tax, or pollution taxes—to supplement or replace our current system. Those ideas are worth serious discussion, but in today’s testimony I would like to focus on a more traditional approach to reform: redesigning our income tax.

I would like to make seven main points:

1. Tax preferences pervade the tax code. These preferences total more than $1 trillion annually, almost as much as what we collected from individual and corporate income taxes combined. These preferences narrow the tax base, reduce revenues, distort economic activity, complicate the tax system, force tax rates higher than they would otherwise be, and are often unfair.

2. The first step in any income tax reform should be to broaden the tax base by reducing or eliminating tax preferences. Doing so would help level the playing field among different economic activities, reduce the degree to which taxes distort economic behavior, and make taxes simpler to file and administer.

3. Policymakers can use the resulting revenue – potentially hundreds of billions of dollars each year – to lower tax rates, reduce future deficits, or both. Lowering tax rates would further reduce the economic distortions created by the tax system and would encourage economic growth. Reducing future deficits would help tame our federal debt, which threatens to grow to unsustainable levels in coming years and thus poses a significant risk to our economy.

4. Many tax preferences are effectively spending programs run through the tax code; that poses a challenge for how we talk about tax reform and the size of government. Any cuts to these spending-like preferences will increase federal revenues, but will reduce government’s influence over economic activity. Advocates of smaller government are often skeptical of proposals that would increase federal revenues. When it comes to paring back spending-like tax preferences, however, an increase in revenues may actually mean that government’s role in getting smaller.

5. Other tax preferences, however, are not spending programs in disguise. More and more observers have embraced the idea that tax preferences resemble spending through the tax code. That’s a promising development. Unfortunately, that enthusiasm has sometimes led to the misconception that all items identified as tax preferences are akin to spending. That’s understandable given that these items are often called “tax expenditures.” But it is not correct. Preferential tax rates on long-term capital gains and qualified dividends, for example, are (imperfect) efforts to limit the double taxation that can occur when investment income is subject to both personal and corporate taxes. Such provisions should be viewed and evaluated as tax measures, not as hidden spending programs.

6. Many tax preferences provide benefits to millions of taxpayers; they aren’t just “tax breaks for special interests.” For example, the three largest tax preferences are the exclusion for employer-provided health insurance, preferences for retirement saving, and the mortgage interest deduction. Americans should understand that to get the benefits of tax reform – lower rates, simpler taxes, and a more vibrant economy – they will need to give up some popular tax breaks.

7. Policymakers should re-evaluate the design of any tax preferences that they decide to keep. Some preferences are needlessly complex and could be simplified; that’s true, for example, of the preferences aimed at low-income workers and families. Other preferences might operate more efficiently as credits rather than as deductions or exclusions. Credits can provide more uniform incentives to particular activities – e.g., homeownership – than deductions or exclusions whose value depends on whether a taxpayer itemizes and what tax bracket they are in.

Bottom line: By reducing, eliminating, or redesigning many tax preferences, policymakers can:

Make the tax system simpler, fairer, and more conducive to America’s future prosperity;
Raise revenues to finance both across-the-board tax cuts and much-needed deficit reduction; and
Improve the efficiency and fairness of any remaining preferences.

P.S. The other witnesses included two other Tax Policy Center folks – former director Rosanne Altshuler and co-founder Gene Steuerle — and Larry Lindsey. All our testimonies are available here.

Add/view comments on this post.

------------------------------

When the U.S. Treasury issues bonds, it deposits the proceeds into an account at the Federal Reserve, pictured here, instead of using them to pay the country's bills. (Alex Brandon / AP / File )

Treasury takes a step to avoid debt ceiling

By Donald Marron, Guest blogger / 01.27.11

As expected, Treasury has announced that it will allow the $200 billion Supplemental Financing Program to run down to only $5 billion; that will save $195 billion of borrowing authority under the current debt ceiling:

Treasury Issues Debt Management Guidance on the Supplementary Financing Program
1/27/2011
WASHINGTON – The U.S. Department of the Treasury’s Assistant Secretary for Financial Markets, Mary Miller, today issued the following statement on the Supplementary Financing Program:
“Beginning on February 3, 2011, the balance in the Treasury’s Supplementary Financing Account will gradually decrease to $5 billion, as outstanding Supplementary Financing Program bills mature and are not rolled over. This action is being taken to preserve flexibility in the conduct of debt management policy.”

Treasury created the SFP in order to help the Fed expand its balance sheet without “printing money” (or, more accurately, “printing reserves”). Under the program, Treasury issues bonds, as usual, but it deposits the proceeds in an account at the Federal Reserve, rather than using them to pay the nation’s bills. The Fed then uses those deposits to purchase assets. Since the money ultimately comes from investors who own the new Treasury bonds, the SFP allows the Fed to expand its balance sheet without creating reserves out of thin air.

With the program winding down — at least until the debt ceiling gets raised — the Fed will have to ask its electronic printing press for another $195 billion if it wants to maintain its targeted portfolio.

Add/view comments on this post.

------------------------------

In this April 1, 2009 file photo, a player puts a dollar coin in one of Resorts Atlantic City's dollar-coin slot machines in Atlantic City, N.J. Casino workers have some of the best health-benefits around, which causes some doctors to take advantage, according to a New Yorker article. (Curt Hudson/AP/File)

Do some doctors abuse health-care system?

By Donald Marron, Guest blogger / 01.23.11

The latest must-read New Yorker piece by Atul Gawande describes recent efforts to cut costs and improve quality by coordinating patient care – in particular that of the most expensive patients. In “The Hot Spotter” (gated), he follows several innovators, including Rushika Fernandopulle, who directs a clinic-based program in Atlantic City, New Jersey. Fernandopulle and his team face many challenges in managing costs and improving the care of his patients. But:

Their most difficult obstacle, however, has been the waywardness not of patients but of doctors-the doctors whom the patients see outside the clinic. … The Atlantic City casino workers and hospital staff … had the best-paying insurance in town. Some doctors weren’t about to let that business slip away.
Fernandopulle told me about a woman who had seen a cardiologist for chest pain two decades ago, when she was in her twenties. It was the result of a temporary, inflammatory condition, but he continued to have her see him for an examination and an electrocardiogram every three months, and a cardiac ultrasound every year. The results were always normal. After the clinic doctors advised her to stop, the cardiologist called her at home to say that her health was at risk if she didn’t keep seeing him. She went back.
The clinic encountered similar troubles with some of the doctors who saw its hospitalized patients. One group of hospital-based internists was excellent, and coordinated its care plans with the clinic. But the others refused, resulting in longer stays and higher costs.

Any guesses which internists were on salary and which were fee-for-service?

Commentators often worry that third-party payment leads to moral hazard and overconsumption by patients. That’s true, but we should also keep an eye on the providers. Payment reform is one of the key challenges in future health care reform.

Add/view comments on this post.

------------------------------

House Majority Leader Eric Cantor of Virginia (center) speaks during a news conference on Capitol Hill in Washington, Jan. 19, 2011, to discuss the upcoming vote to repeal the health-care reform bill. From left are GOP Reps Nan Hayworth of New York, Cathy McMorris Rodgers of Washington, Mr. Cantor, House Majority Whip Kevin McCarthy of California, and Jeb Hensarling of Texas. (Alex Brandon/AP)

Health-care reform cuts the deficit. Not!

By Donald Marron, Guest blogger / 01.22.11

Greg Mankiw set off a vigorous discussion in the blogosphere (see, e.g., Ezra Klein, Clive Crook, and the Austin Frakt) with a provocative analogy about health care reform:

I have a plan to reduce the budget deficit. The essence of the plan is the federal government writing me a check for $1 billion. The plan will be financed by $3 billion of tax increases. According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.
Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit. Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit. But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

I read Greg as raising an important rhetorical / pedagogic question which, judging by some responses, may have been overshadowed by his satire.

That simple question is “what is health care reform?”

The policy community and commentariat often equate health care reform with the legislation (actually two pieces of legislation) that President Obama signed into law last year. As everyone knows, the Congressional Budget Office estimated that those two laws would, if fully implemented, reduce the federal budget deficit by $143 billion from 2010-2019. That’s the basis for the claim that “health care reform would reduce the deficit over the next ten years.” (CBO also discussed what would happen in later years, where the law, if allowed to execute fully, would have a bigger effect, but let’s leave that to the side right now.)

The complication, which Greg’s post partly addresses, is that the health care reform legislation included many provisions. Greg notes, for example, that some expanded health insurance, while others raised taxes. In his view, only the first part constitutes health care reform — an effort that by itself would widen the deficit — while the tax increases are what made the legislation deficit-reducing.

In fact, it’s more complicated than that. By my count, the two pieces of health care reform legislation combined seven different sets of provisions:

1. Expanding health insurance coverage (e.g., by creating exchanges and subsidies and expanding Medicaid)

2. Expanding federal payments for and provision of health care services (e.g., reducing the “doughnut hole” in the Medicare drug benefit)

3. Cuts to federal payments for and provision of health care services (e.g., cuts to Medicare Advantage and some Medicare payment rates)

4. Tax increases related to insurance coverage (e.g., the excise tax on “Cadillac” health plans)

5. Tax increases not related to insurance coverage (e.g., the new tax on investment income)

6. The CLASS Act, which created an insurance program for long-term care

7. Reform of federal subsidies for student loans

(The House Republicans’ effort to repeal health care reform would overturn 1-6, but leave the student loan changes in place.)

To capture these complexities, I occasionally refer to the legislation as the health care / tax / student loan / long-term care legislation. But whenever I write that for publication, my editors take it out. Although my lengthy description is accurate, it doesn’t work for friendly conversation. So the law (which again, was really two laws) gets called the health care reform law.

Greg’s point, I think, is that this rhetorical convention creates confusion when talking about the law’s budget impacts. To say “the health care reform law reduces the deficit over the next ten years according to CBO” is absolutely true. But it often gets elided to “health care reform reduces the deficit over the next ten years” which isn’t true if, like Greg, you think the revenue raisers, student loan changes, and CLASS Act aren’t really health care reform.

I think Greg is right to worry about this distinction. Because of the information loss as the details of CBO scores get transmitted through various layers of speakers and media (including this blog), some people are indeed under the mistaken impression that health care reform, by itself, reduces the budget deficit over the next ten years. It doesn’t.

However, Greg’s analogy has a flaw: it presumes that none of the tax increases count as health reform. I disagree.

Our current tax system provides enormous ($200 billion per year) subsidies for employer-provided health insurance. They should be viewed as part of the government’s existing intervention in the health marketplace. And rolling back those subsidies strikes me as essential to future health care reform. I would count any revenues raised from doing so as part of health care reform.

That didn’t happen, but the legislation did include a tax on “Cadillac” health plans as a partial substitute. That will clearly affect health insurance markets, and it offset a portion of existing tax subsidies. For both those reasons, it should be viewed as part of health care reform.

The key thing is not the difference between spending and revenues, but between provisions that fundamentally change the health care system and those that do not.

Happily, I am not alone in this view. Indeed, it has been endorsed by none other than the Congressional Budget Office. CBO grappled with this issue during the health care debate. And after much thought, it came up with a useful measure of the health care reform part of the legislation: the “Federal Government’s Budgetary Commitment to Health Care“. This measure combines the spending and tax subsidies that the government provides for health care.

Taking all the health care provisions into account, CBO concluded that the health care reform legislation would increase the federal government’s budgetary commitment to health care. But not as much as many critics suggest. Adding together items (1) through (4) on my list, CBO concluded that the health care reform parts of the legislation would increase the deficit by about $400 billion over ten years. That would then be more than offset by the other provisions — primarily taxes but also the student loan provisions and the CLASS Act. (In later years, by the way, CBO projects that the legislation would actually reduce the federal commitment to health care.)

Bottom line: Health care reform increases the federal deficit over the next ten years, but the health care reform legislation reduces the deficit. What could be simpler?

P.S. I hope it goes without saying–but will say it anyway–that one should not evaluate the health care reform legislation on its fiscal impacts alone … or even predominantly. The legislation has a wide range of benefits (e.g., 32 million more people with health insurance) and costs. The key question is how they net out.

Add/view comments on this post.

------------------------------

In the Senate, the party in power has typically been the one to raise the debt limit. (Donald Marron)

Debt limit will get raised. But who'll vote to do it?

By Donald Marron, Guest blogger / 01.18.11

Sometime this spring, Congress will vote to increase the debt ceiling. That vote won’t come easy. Newly ascendant House Republicans will threaten to withhold needed votes unless significant spending cuts or budget process reforms are attached to the measure. Democrats will denounce Republicans for threatening the government’s ability to pay its bills. And Treasury Secretary Tim Geithner will be forced into creative financing moves to buy Congressional leaders enough time to strike a deal.

But strike a deal they will. With monthly deficits running around $100 billion, the United States can’t cut spending or increase tax revenues enough to avoid further borrowing this year. It is equally inconceivable (I hope) that our elected leaders will decide to withhold payments from Social Security beneficiaries, our military, and our creditors.

So the debt ceiling will go up. And that means that at least 50 senators and more than 200 House members will cast a politically toxic yea vote.

Which lucky members will they be? The answer may well depend on what other budget provisions accompany the debt limit measure. That’s impossible to handicap today. In the meantime, though, we can look at past votes. They tell a clear story: debt limit votes are about politics, not principle.

Consider, for example, Senate votes on stand-alone debt limit measures over the past decade:

When Republicans held both the Senate and the White House (2003, 2004, 2006), they provided virtually all the yea votes, while almost all Democrats voted no. When the Democrats were in power (2009, 2010), the roles reversed: the Democrats provided all but one of the yea votes, while Republicans voted no. Only when government was divided – with a Democratic Senate and a Republican president (2002, 2007) – has the vote to lift the debt limit been bipartisan.

The House has taken fewer stand-alone votes than the Senate (because of the so-called Gephardt rule, which the Republicans abolished last week), but they show the same pattern: the party in power votes to increase the debt limit:

History thus suggests that Democrats will bear the burden of lifting the debt limit in the Senate; expect at least 50 yea votes. The only interesting question is whether individual Republicans filibuster the increase; if so, a 60-vote cloture measure would require at least 7 Republican votes as well.

Handicapping the House is more difficult since we’ve had no recent experience with divided government. If the Senate provides any guide, roughly equal numbers of Republicans and Democrats will ultimately vote for an increase. That would allow many Tea Party-backed Republicans to vote no without affecting the outcome. And other members might simply skip the vote. That’s what 21 members did in 2004, when it took just 208 votes to raise the debt ceiling.

Note: Congress increased the debt limit three other times during the past decade as part of larger bills: the 2008 housing act, the 2008 TARP act, and the 2009 stimulus. For simplicity, I have included all votes by Independents with the Democrats, since that’s how those members caucused during this period.

Add/view comments on this post.

--------------------------

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.