The President’s Budget

2014

DOA? Going nowhere? Who knows? The proposed budget does provide insight into the thinking of this administration. It may also portend the direction that will be necessary no matter whose budget we are considering.

Here are two examples from the President’s budget:

Reducing the Value of Itemized Deductions and Other Tax Preferences to 28 Percent for the Wealthiest Americans.

Currently, a millionaire who contributes to charity or deducts a dollar of mortgage interest enjoys a deduction that is more than twice as generous as that for a middle class family. The Budget would limit the tax rate at which high income taxpayers can reduce their tax liability to a maximum of 28 percent, a limitation that would affect only the top three percent of families in 2014. This limit would apply to all itemized deductions, as well as other tax benefits such as tax-exempt interest and tax exclusions for retirement contributions and employer sponsored health insurance. The proposed limitation would restore the deduction rate to the level it was at the end of the Reagan Administration.

A deduction twice as generous? Only because the tax rate is twice as high as for a middle class family. But that’s not the real point. What you should be focused on is tax exclusions for retirement contributions and employer sponsored health insurance. These exclusions are the largest revenue losers for the federal government and not for millionaires, but for 140 million Americans with employer-provided benefits. Sooner or later far more than millionaires will be the target for additional taxes. Remember, the value of employer contributions for health insurance now appear on your W-2 “for information purposes.”

The Budget includes several modifications for new beneficiaries starting in 2018, such as a modified Part B deductible and a modest copayment for certain home health episodes. Research indicates that beneficiaries with Medigap plans that provide first or near first dollar coverage have less incentive to consider the costs of health care services, thus raising Medicare costs and Part B premiums for all beneficiaries. The Budget applies a premium surcharge for new beneficiaries beginning in 2018 if they choose such Medigap coverage. In addition, the Budget modifies incentives in the Medicare prescription drug program to encourage utilization of generic drugs by low-income beneficiaries. Together, these proposals would save approximately $68 billion over 10 years.

Plus the policy experts are convinced that if you pay more, you will spend less on health care. See the article below.

March 7, 2014 1:32 PM
Inside the Making of Obamacare
A key former White House adviser on the internal struggles to craft the Affordable Care Act.

As a White House special adviser on health policy, Ezekiel Emanuel had a ringside seat for the sometimes tortured process that produced the Affordable Care Act. He explains why it was so difficult to pull the law together.

Here is a relevant excerpt:

Economists—liberal and conservative alike—overwhelmingly denounce the tax exclusion. It drives costs higher while keeping wages down, it is regressive, and it is a major drag on the federal budget—lowering revenue by a whopping $250 billion a year.

During the 2008 presidential campaign, Senator John McCain proposed eliminating the exclusion and replacing it with a $5,000 tax credit to help families buy health insurance. The Obama campaign ran more than $100 million worth of ads pounding McCain, accusing the GOP nominee of “taxing health benefits for the first time ever.”

Once Obama was in office, his advisers split on the issue. The economists wanted to limit the exclusion, but the political team didn’t want to touch it. David Axelrod, the president’s political guru, even showed us a montage of Obama’s campaign commercials to remind the economic team of his stated position. The president himself repeatedly insisted on the principle of fidelity: Campaign promises weren’t to be contravened without a very good policy rationale.

One Friday in July 2009, the president made a surprise appearance at a meeting of key health-care advisers. When the discussion moved from pleasantries to substance, I argued for limiting the tax exclusion. Obama already understood that this would raise revenue to fund the expanded coverage, but that wasn’t reason enough to change his position. So I tried a different argument. If reform was to succeed, it had to control rising health-care costs, which threatened to overwhelm the economy. Limiting the tax exclusion, I argued, was the most powerful lever the president had to control costs on the private side.

Ultimately, Obama authorized a new tax-exclusion policy despite the heartburn he knew it would cause his political base—particularly labor unions. We proposed a tax on high-cost “Cadillac plans,” which will begin in 2018. Reversing a campaign position took a lot of guts, but this was good policy, and the president showed leadership in endorsing it.