Traverse City Record-Eagle

Opinion

April 23, 2011

Analysis: Obama went too far in critique

by FactCheck.org

President Barack Obama misrepresented the House Republicans' budget plan at times and exaggerated its impact on U.S. residents during an April 13 speech on deficit reduction.

-  Obama claimed the Republicans' "Path to Prosperity" plan would cause "up to 50 million Americans "¦ to lose their health insurance." But that worst-case figure is based in part on speculation and assumptions.

-  He said the GOP plan would replace Medicare with "a voucher program that leaves seniors at the mercy of the insurance industry." That's an exaggeration. Nothing would change for those 55 and older. Those younger would get federal subsidies to buy private insurance from a Medicare exchange set up by the government.

-  He said "poor children," "children with autism" and "kids with disabilities" would be left "to fend for themselves." That, too, is an exaggeration. The GOP says states would have "freedom and flexibility to tailor a Medicaid program that fits the needs of their unique populations." It doesn't bar states from covering those children.

-  He repeated a deceptive talking point that the new health care law will reduce the deficit by $1 trillion. That's the Democrats' own estimate over a 20-year period. The Congressional Budget Office pegged the deficit savings at $210 billion over 10 years and warned that estimates beyond a decade are "more and more uncertain."

-  He falsely claimed that making the Bush tax cuts permanent would give away "$1 trillion worth of tax cuts for every millionaire and billionaire." That figure — which is actually $807 billion over 10 years — refers to tax cuts for individuals earning more than $200,000 and couples earning more than $250,000, not just millionaires and billionaires.

-  He said the tax burden on the wealthy is the lowest it has been in 50 years. But the most recent nonpartisan congressional analysis showed that the average federal tax rate for high-income taxpayers was lower in 1986.

This week, President Barack Obama laid out his ideas on how to curb the growing deficit over the next decade and more — and he spent much of the afternoon speech at George Washington University criticizing a deficit-reduction plan, called "Path to Prosperity," released by House Budget Committee Chairman Paul Ryan of Wisconsin. But his critique strayed at times from the facts.

Medicaid assumptions

The president made several claims about the Republicans' proposal for Medicare, Medicaid and the health care law. Obama claimed that the plan would cause "up to 50 million Americans "¦ to lose their health insurance." But that figure is partly based on speculation and assumptions.

Obama, April 13: "It's a vision that says up to 50 million Americans have to lose their health insurance in order for us to reduce the deficit. Who are these 50 million Americans? Many are somebody's grandparents — maybe one of yours — who wouldn't be able to afford nursing home care without Medicaid. Many are poor children. Some are middle-class families who have children with autism or Down's syndrome. Some of these kids with disabilities are — the disabilities are so severe that they require 24-hour care. These are the Americans we'd be telling to fend for themselves."

The White House told us that 34 million of the 50 million people the president referenced would be covered under the new health care law, but Ryan's proposal largely repeals the legislation. That means those persons wouldn't be covered. Technically, those currently uninsured individuals don't have insurance to lose, but certainly the Republican plan would be expected to cover tens of millions fewer than current law. What about the other 16 million?

To come up with that, the administration speculated on what states might do when faced with fewer federal Medicaid funds, as the Republican proposal stipulates. Under the Ryan plan, the federal government would spend an estimated $150 billion less on Medicaid in 2021. The administration figures that's a 19 percent reduction in Medicaid spending, which, the administration assumes, would lead the states to spend less on Medicaid. It then assumes that there would be a corresponding 19 percent reduction in enrollment in 2021, which it says would be 15 million people.

That's a whole lot of assuming.

The Ryan proposal would give states block grants — in lieu of the current federal matching funds — which would go up each year based on population and the consumer price index for urban consumers. It also eliminates money for acute care services for elderly Medicaid recipients. States would get less money than they are expected to under current law, and the nonpartisan Congressional Budget Office says they'll have to make tough budgeting decisions. But that's a far cry from saying 15 million Medicaid enrollees won't be covered.

CBO says the plan would reduce federal Medicaid spending by 35 percent in 2022 and more in future years. It says states "could" limit eligibility, but that measure is among several other possibilities to make up for the loss of federal dollars. And the CBO adds that "to some extent" rising health care costs "would cause states to implement such changes anyway."

CBO, April 5: Because of the magnitude of the reduction in federal Medicaid spending under the proposal, however, states would face significant challenges in achieving sufficient cost savings through efficiencies to mitigate the loss of federal funding.

To maintain current service levels in the Medicaid program, states would probably need to consider additional changes, such as reducing their spending on other programs or raising additional revenues.

Alternatively, states could reduce the size of their Medicaid programs by cutting payment rates for doctors, hospitals, or nursing homes; reducing the scope of benefits covered; or limiting eligibility.

To some extent, under CBO's long-run projections, the rise in health care costs under current law would cause states to implement such changes anyway.

However, given the size of the reduction in federal spending under the proposal, the magnitude of the changes would probably have to be greater.

It's anyone's guess as to how states would react in 10 years to Ryan's proposal.

The same goes for how states will cope with rising health costs.

The administration's 15 million figure is speculation, and so are Obama's claims that "poor children," "children with autism" or "kids with disabilities" would be left "to fend for themselves."

The Ryan plan in no way says that states don't have to cover such individuals. Instead it says that states would have "freedom and flexibility to tailor a Medicaid program that fits the needs of their unique populations."

Medicare exaggerations

Obama also had plenty to say about the GOP plan's impact on Medicare.

He said it "ends Medicare as we know it" and went on to characterize it as "a voucher program that leaves seniors at the mercy of the insurance industry, with a shrinking benefit to pay for rising costs."

Saying the plan throws the elderly to "the mercy of the insurance industry" is an exaggeration and ignores elements of the plan that require insurance companies to cover all seniors and to charge the same rate based on age.

The Ryan plan is a fundamental change in the way Medicare works, however.

Here's what Ryan proposes:

- For those 55 or older by the end of this year, Medicare stays the same. They can remain on the traditional Medicare program as it is.

- Starting in 2022, the system would change. New enrollees would get what Ryan calls "a premium-support payment" to help them purchase private insurance on a new Medicare exchange. Carriers participating in the exchange would have to offer certain standard benefits, cover anyone who applied, and would be required to charge the same rate for those of the same age.

- The average "premium-support payment" would be $8,000 for 65-year-olds in 2022, which is about the same amount CBO projects the government will spend per 65-year-old that year. Upper-income folks won't get the full amount — the top 8 percent in terms of income distribution would have to pay a greater percentage of their premium costs.

- Obama calls this a "shrinking benefit," but Ryan's plan calls for the government payments to increase based on increasing age of the recipient and the CPI-U (consumer price index for all urban consumers). The plan would, however, require beneficiaries to pay more for their health care than under current law.

- The government would also set up medical savings accounts for certain low-income individuals, with the first annual federal contribution at $7,800.

- The Ryan plan also gradually increases eligibility for Medicare to age 67 by 2033.

Obama calls the Medicare payment a "voucher," while Ryan maintains in his proposal that "[t]his is not a voucher program, but rather a premium-support model." We'll steer clear of a semantic debate between politicians. It's accurate to say this is a government subsidy that would be paid directly to the insurance plan that a senior chooses.

Obama went on to say that seniors wouldn't get "guaranteed health care" and if the "voucher isn't worth enough to buy the insurance that's available in the open marketplace, well, tough luck -— you're on your own." It's false to say seniors would be in the "open marketplace." Instead, they would buy coverage through the Medicare exchange Ryan envisions. And as we said, the private insurance companies in the exchange would be required to cover any eligible senior who wanted insurance.

It is true, according to a CBO analysis, that seniors would pay more under the Ryan plan than under current law. The Ryan plan saves the government money but shifts a greater financial responsibility to Medicare beneficiaries. CBO said:

CBO, April 5: To summarize, a typical beneficiary would spend more for health care under the proposal than under CBO's long-term scenarios for several reasons. First, private plans would cost more than traditional Medicare because of the net effect of differences in payment rates for providers, administrative costs, and utilization of health care services, as described above. Second, the government's contribution would grow more slowly than health care costs, leaving more for beneficiaries to pay.

Obama claimed that 10 years from now, 65-year-olds would "have to pay nearly $6,400 more" for Medicare coverage. That's an accurate reflection of what CBO estimated. (See Figure 1, and calculate the beneficiary's costs based on an $8,000 government contribution in 2022.) The president implied that not everyone would be able to afford insurance under this system, and CBO does say that because of the added costs "some individuals would therefore choose not to purchase insurance." It makes no estimate of how many would forego coverage.

Of course, Obama agrees that the government has to find ways to curb Medicare spending. But it's unclear what exactly those methods would be. He said: "We will slow the growth of Medicare costs by strengthening an independent commission of doctors, nurses, medical experts and consumers who will look at all the evidence and recommend the best ways to reduce unnecessary spending while protecting access to the services that seniors need." He also called for saving money by getting generic drugs on the market more quickly and implementing "new incentives for doctors and hospitals to prevent injuries and improve results." Trillion-dollar Uncertainty Obama also repeated a deceptive talking point about his health care law, saying: "Already, the reforms we passed in the health care law will reduce our deficit by $1 trillion." As we wrote earlier this year, that's a rough calculation based on a 20-year projection from CBO, a projection it says is uncertain. The 10-year deficit reduction figure was $230 billion, updated to $210 billion in February.

We checked this claim when Democratic Rep. Nancy Pelosi used a higher number, saying the health care law will "save taxpayers $1.3 trillion" The Democratic staff of the Ways and Means Committee calculated that long-term figure by combining CBO's 10-year deficit reduction estimate and a much looser estimate for the subsequent decade. CBO said that the law and the reconciliation legislation would lower the deficit in the second 10-year period by "a broad range around one-half percent of gross domestic product." But CBO didn't give a specific figure. Instead, it said the estimate was uncertain.

In March testimony before Congress, CBO Director Douglas Elmendorf said: "CBO does not generally provide cost estimates beyond the 10-year projection period," and noted that the "impact, however, becomes more and more uncertain the farther into the future one projects." He called the second decade estimate "a rough outlook." $1 Trillion in Tax Cuts for 'Millionaires and Billionaires'?

The president also spent time in his speech discussing the need to raise taxes and promised to resist a Republican plan to make the Bush tax cuts permanent. (They're scheduled to expire at the end of 2012.) He said making the Bush tax cuts permanent would provide $1 trillion in tax cuts for "millionaires and billionaires." That's not true. By the president's own figures, the cuts are worth an estimated $807 billion over 10 years for all individual taxpayers earning more than $200,000 a year and couples making more than $250,000 — not just those earning more than $1 million.

Obama: In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans. But we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society. And I refuse to renew them again.

In December, the president and Republican leaders agreed to extend the Bush tax cuts for two years for all taxpayers. But in his fiscal year 2012 budget proposal, Obama calls for allowing those tax cuts to expire at the end of 2012, as scheduled, for individuals making more than $200,000 and couples earning more than $250,000. The budget proposal also would restore the estate and gift taxes to their 2009 levels.

The president's budget (table S-2) says the tax proposals would result in $709 billion in additional income-tax revenue and $98 billion in additional estate and gift taxes from 2012 to 2021. That's a total of $807 billion over 10 years, not $1 trillion, and not all of it would come from "every millionaire and billionaire in our society." How much are the Bush tax cuts worth to millionaires? They're worth an estimated $32.7 billion this year alone, according to an analysis the Joint Committee on Taxation produced during last year's debate. That's a lot of money, for sure, and without exaggeration.

A $200,000 Tax Cut for the President?

Obama underestimated, however, the impact of the Bush tax cuts on his own finances.

The president said the Republicans — by proposing to make the Bush tax cuts permanent for all taxpayers regardless of income — "want to give people like me a $200,000 tax cut." That raised a curious question: How much did the Bush tax cuts save the Obamas? To find the answer, we took the president's 2009 tax returns and plugged his information into the Tax Policy Center's tax calculator, which allows you to compare your federal tax liability with and without the Bush tax cuts.

The Obamas had a 2009 adjusted gross income of $5,505,409, mostly from the sales of his books. They paid nearly $1.8 million in federal taxes. The tax calculator showed the Obamas would have paid about $300,000 more in taxes without the Bush tax cuts. So we'll give a pass to the president on this one — even though it sounds like he already got a big break.

Update, April 18: The White House released the Obamas' 2010 tax returns today. They made substantially less money last year than in 2009, because of fewer book sales. Their 2010 adjusted gross income was $1,728,096, and they paid $453,770 in taxes. The TPC tax calculator shows the Obamas would have paid about $86,000 more without the Bush tax cuts. So, while Obama underestimated the impact of the tax cuts on his 2009 income, he overestimated the impact on what he earned in 2010.

A Taxing Burden Obama also argued that the "wealthy" could afford to pay more in taxes since their "tax burden" is the lowest it has been in 50 years. But it depends what measure one uses. The CBO's most recent analysis showed that the average federal tax rate for high-income taxpayers was its lowest in 1986 during the Reagan administration.

Obama: I say that at a time when the tax burden on the wealthy is at its lowest level in half a century, the most fortunate among us can afford to pay a little more.

The White House based that claim on its own analysis of 2005 tax data for the 2010 Economic Report of the President. It calculated the effective tax rate of individuals making more than $250,000 a year and those making more than $2 million, by dividing the amount of income by the amount paid in federal income and payroll taxes. The figures were also adjusted for wage growth, the report said.

"This analysis suggests that the effective tax rates that applied to high-income taxpayers reached their lowest levels in at least half a century in 2008," the report said.

But the White House's own analysis showed a similar tax burden in the late 1980s. It does show those making more than $250,000 and those earning more than $2 million paying a lower effective tax rate in 2008 than in 1960. The decline was much greater for those making more than $2 million. But both groups of high-income earners were paying just about the same rate in the late 1980s as they were in 2008, according to the White House graph. The rates increased during the 1990s and began to fall again during the early years of the last decade. Update, April 15: We originally said that the rates in the late '80s were "similar or possibly lower" than they are today. The Office of Management and Budget later provided specific figures that show the tax rates in the '80s were similar. The OMB figures show that those earning more than $2 million paid the same rate (25 percent) in 2008 as they did in 1988, 1989 and 1990, and those making more than $250,000 paid 25 percent — the same rate since 2003. The latter group had a rate of 26 percent in the late '80s.

The administration isn't alone in estimating effective tax rates, though. The CBO, in a June 2010 report, provided statistics for average federal taxes paid by income group from 1979 to 2007. The CBO found that high-income taxpayers had the lowest tax burden in 1986. (The CBO analysis included the four largest sources of government revenue — individual income taxes, payroll taxes, corporate income taxes and excise taxes. It calculated the average tax rates by dividing taxes paid by "comprehensive household income," which includes all cash income plus additional sources of income such as Medicare benefits and food stamps.) According to the CBO, the top 1 percent of all households — those making at least $352,900 — paid a total average federal tax rate of 29.5 percent in 2007. But in 1986, they paid a full 4 percentage points less, 25.5 percent. Taxpayers in the top 5 percent (who earn at least $141,900) and 10 percent (at least $102,900) also paid lower rates in 1986.

The top 5 percent had a total average federal tax rate of 27.9 percent in 2007, but just 24.6 percent in 1986. The rates for the top 10 percent: 26.7 percent in 2007 and 24.3 percent in 1986.

— by Lori Robertson, Eugene Kiely and D'Angelo Gore

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