What do Obamacare and the war on ISIS have in common?

The Obama Administration has not been honest with the American people about the costs of either.

When he was in Congress, Campaign for Liberty Chairman Ron Paul ignored the ten year cost estimates ("scores") of legislation, he was only interested in how much the bill would cost in the first year. The reason Dr. Paul had this policy was that the ten year scores assumed that future Congresses would be bound by the spending levels set out in the bill and would not appropriate less (HA) or (likely) more money than authorized in the bill.

A good example of the folly of relying on ten year scores is Obamacare. Back in 2010, the Congressional Budget Office (CBO)'s score of the Patient Protection and Affordable Care Act ("Obamacare') said that the bill would reduce federal spending by $124 billion from 2010-2019. This score obviously helped President Obama and then-Speaker Nancy Pelosi get reluctant Democrats to vote for Obamacare, even though Obamacare's opponents pointed to numerous budget gimmicks--such as delaying full implementation of Obamacare's subsidies and Medicaid expansion until 2014-- used by CBO to come up with their score.

Since the last time CBO issued a complete estimate of the costs of Obamacare, as opposed to updates of their original 2010 reports, there have been a number of events that would affect the cost of ObamaCare. Among these are: the botched website, the continued economic slowdown, and employers reducing their workers' hours in order to avoid being subject to ObamaCare’s mandates.

Last week the Senate Republican budget committee issued a new estimate that Obamacare will increase the deficit by $131 billion by 2024. Some might doubt the objectivity of a study conducted by GOP staffers.  Those with that concern should consider that the Republican staffers used exactly the same estimates used by CBO in preparing their original estimate. For more on Obamacare's true costs, see this excellent article by Dr. Christopher Conover.

New study is linked here and excerpted below.

A straight extrapolation of CBO’s 2012 estimate implies that if nothing had changed since 2012, then the legislation would be projected to reduce the deficit by $180 billion over the FY 2015–2024 period. SBC Republican staff arrived at this figure by making projections for the insurance coverage provisions as well as the other provisions in the law that affect direct spending and revenues based on growth rates derived from CBO’s 2012 estimate, and then summing to determine the total net deficit impact of the legislation.

Lower Net Cost Of Coverage Provisions. After extrapolating CBO’s 2012 estimate, SBC Republican staff compiled updated estimates for the insurance coverage provisions from CBO’s baseline and produced new estimates for the other provisions in the law that affect direct spending and revenues, taking into account the significant changes that have occurred since 2012. The new estimate of the net changes in the deficit from the insurance coverage provisions is taken directly from CBO’s Updated Estimates of the Effects of the Insurance Coverage Provisions of the Affordable Care Act (April 2014). The $1,383 billion net deficit effect of those provisions shown in Table 2 is $83 billion lower than the CBO 2012 extrapolation of $1,466 billion over the 10-year period. The reduction in the net cost of the coverage provisions is the net effect of lower initial enrollment in exchange-based coverage, changes in health care cost growth assumptions, and lower penalties paid by individuals and employers who do not obtain or provide coverage as a result of specific exemptions given by the Administration, among other smaller factors.

Lower Federal Health Care Savings. SBC Republican staff estimates of the other provisions affecting direct spending were made based on the CBO 2012 extrapolation but were then adjusted downward proportionally to account for a series of technical and economic revisions made by CBO to its baseline projections for Medicare and Medicaid spending since its last cost estimate was produced in 2012. For example, CBO’s projection for Medicare and Medicaid spending in year 2020 alone is now 16 percent lower than it projected in 2010 when the health law was debated in Congress. CBO accounted for some of the reductions in its Medicare baseline in its 2012 estimate; however, substantial baseline reductions in both Medicare and Medicaid have been made since then. According to CBO, “During the past several years, health care spending has grown much more slowly both nationally and for federal programs than it did historically and more slowly than CBO projected… In response to the observed slowdown, CBO has made a series of downward adjustments to its projections of spending for Medicare and Medicaid… Those reductions mostly reflect the slower growth in the programs’ spending in recent years.” This trend of slower health spending growth has been broad and persistent and is based on data that pre-dates the passage of the health care law.

CBO’s recent baseline changes reduce the amount of projected federal health care savings from the other provisions affecting direct spending in the legislation by a total of $132 billion over the 10-year period, from $979 billion under the CBO 2012 extrapolation to $847 billion based on the SBC staff calculation.

Lower Revenue From Tax Provisions And Reduced Hours Worked. SBC staff estimate that the direct tax provisions included in the health care law will reduce the deficit by $685 billion over the next 10 years, $18 billion higher than the CBO 2012 extrapolation of $667 billion over the 10-year period. This estimate was derived using the Joint Committee on Taxation’s (JCT) detailed revenue projection from 2012, adjusted for changes in the economic forecast.

SBC staff then accounted for the labor market effects of the health care law. In the February 2014 baseline, CBO conducted its first comprehensive analysis of the labor market effects of the law. CBO’s analysis found that by 2024 the equivalent of 2.5 million full-time workers will exit the labor force as a result of the law. CBO estimates the law will reduce the total number of hours worked by 1.5 to 2 percent during the FY 2017–2024 period and will reduce aggregate labor compensation by 1 percent over the same period.

To estimate the lost revenue from the labor market effects of the legislation, SBC Republican staff assumed that like the reduction in aggregate labor compensation, taxable personal income will also be reduced by 1 percent and that this amount would be taxed at the average rate for the population as a percentage of taxable income (approximately 13.5 percent for income taxes and 8.5 percent for Medicare and Social Security taxes). The SBC calculation reveals that the revenue loss due to the labor market effects totals $280 billion over the 2017–2024 period. Therefore, after accounting for the lost revenue from the labor market effects, the total deficit impact due to the tax increases is $405 billion over the next 10 years, or $262 billion lower than the CBO 2012 extrapolation (see Table 2).

Conclusion: Health Law Pushes Deficits Up, Not Down, By $131 Billion. Altogether, the SBC Republican staff analysis finds that after taking these significant changes since 2012 into account, the Democrats’ health care law will increase the budget deficit by $131 billion over the current 10-year budget window (FY 2015–2024). This estimate is arrived at by taking the $180 billion in projected deficit reduction from the CBO 2012 extrapolation and then accounting for the lower net cost of the coverage provisions ($83 billion), the lower estimated federal health care savings under the plan ($132 billion), as well as the lower projected revenue levels when including the labor market effects of the legislation ($262 billion). The difference between the 2012 extrapolation and the current estimate of the cost of the Democrats’ health law amounts to a $311 billion change in its net deficit impact.

Before a joint session of Congress the President unequivocally stated, “I will not sign a plan that adds one dime to our deficits, either now or in the future.” He repeated: “I will not sign it if it adds one dime to the deficit, now or in the future, period.” At the signing ceremony for the legislation President Obama asserted that the plan would “lower costs for families and for businesses and for the federal government.” The President also insisted, “It is paid for. It is fiscally responsible. And it will help lift a decades-long drag on our economy.” But contrary to those assertions, the health care law has had a devastating impact on workers, the economy, and the federal budget.

Obamacare is the not only time the cost of a federal undertaking was underestimated.  Perhaps an even greater example of why we should never trust the government's cost estimates is the Iraq war. Proponents of the war claimed that it would not impose great costs on the US, with many neocons saying that the war would "pay for itself."

Well, the U.S. Government spent $1.7 trillion on the Iraq war as of 2013. That figure does not count the over $490 billion cost of caring for Iraq veterans.

Obama's military actions against ISIS have so far cost taxpayers over $1 billion, and the Pentagon is currently spending $10 million a day. Some estimate that the ISIS operations could end up costing as much as $22 billion, depending on whether or not we end up putting "boots on the ground."

Linda J. Bilmes, who along with Joseph Stiglitz, produced one of the most accurate estimates of the true cost of the Iraq war, has a very interesting article on the cost of the ISIS action, including how ISIS is going to affect efforts to reduce the Pentagon's budget, linked here and excerpted below:

The experience of Iraq and Afghanistan proves that the price tag may be steep. In addition to the bill for military operations, there are costs associated with veterans’ benefits, depreciation of equipment, humanitarian aid, covert action, and paying (as the US frequently does) for the military efforts of our coalition “partners.”

Caring for veterans is a major expense, even in a short conflict. In the 1991 Gulf War, Kuwait and Saudi Arabia paid for most of the upfront US military operations — but today the Department of Veterans Affairs pays $4 billion per year in compensation to US veterans of that conflict. For Iraq and Afghanistan, the veterans’ costs will be much higher. Fifty percent of the troops who served to date will receive medical and disability benefits for the rest of their lives — amounting to some $1 trillion that the United States owes but has not yet paid.

Even bigger than the direct costs of the new campaign against the Islamic State is the dramatic U-turn in the political mood toward military spending. Twelve months ago, the wartime culture of “endless money,” as former Defense Secretary Robert Gates dubbed it, with its endless “emergency” funding from Congress (nearly $2 trillion in more than 30 special funding bills) — was finally coming to an end. The Beltway was filled with talk of belt-tightening at the Department of Defense, including a 10-year $497-billion cut imposed by the so-called sequester. The Pentagon was proposing to shrink the size of the armed forces, trim military compensation and benefits, and mothball expensive weapons and military installations left over from the Cold War.

But now that’s all so-last-fiscal-year. The new trend is ramping up Pentagon spending. At their press conference last week, Defense Secretary Chuck Hagel and Martin Dempsey, the Chairman of the Joint Chiefs of Staff, declared that they don’t have enough funding to conduct the operation against the Islamic State.

In addition, Congress is refusing to let the Pentagon make even modest changes to its current base benefit plan. This will surely encourage the department to ask for another blank check to pay for new operations. Requests are already mounting.

The combined cost of abandoning planned cutbacks at the Defense Department, new spending to combat the Islamic State, and extra foreign military assistance means that America will wind up spending up to $100 billion more on military activities than we had expected this year alone.

Also make sure to read Daniel McAdams, Executive Director of the Ron Paul Institute for Peace and Prosperity, on the costs of ISIS actions.

The costs of ISIS action is one more reason why Congress should have stayed in DC to fully debate, and vote on, Obama's military action against ISIS .

Campaign for Liberty continues to work to repeal Obamacare, oppose all unconstitutional wars, and work for Real Cuts, Right Now in all areas of government spending.

Print Friendly Version of this pagePrint Get a PDF version of this webpagePDF

Tags: , , ,