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CBO Wrong: ObamaCare Repeal Would Not Increase Deficits

CBO says so, yet reality paints a different picture.

The federal deficit was a big campaign issue in 2010 for a very good reason: In the past decade, Congress has done little to discourage lawmakers from spending more than Washington takes in. Rules such as Pay-as-you-go (PAYGO) provide a false sense of security and allow new spending and growth in deficits anyhow.

New members of Congress vowed to reduce spending, the cause of long-term budget shortfalls. But with less than a week under their belts, the new House majority is already under attack for supporting increased deficit spending. How? By pushing for repeal of ObamaCare.

The House will soon consider H.R. 2, a measure to fully repeal ObamaCare. According to the Congressional Budget Office (CBO), it would increase the deficit by $145 billion between 2012 and 2019.

This projection is based on CBO’s March 2010 report. But though the March report said the new law would decrease federal deficits, this was never really going to be the case. Repealing the law wouldn’t increase the deficit at all. CBO does respectable work, but their analysts have their hands tied by certain assumptions which significantly change the outlook they provide.

First, CBO is required to assume that current law will be enacted as written, even in cases where this seems improbable at best—as, for instance, in the case of deep cuts to Medicare that could threaten seniors’ access to care. CBO Director Doug Elmendorf writes:

Current law now includes a number of policies that might be difficult to sustain over a long period of time. … If those provisions would have subsequently been modified or implemented incompletely, then the budgetary effects of repealing [the law] and the relevant provisions of the Reconciliation Act could be quite different—but CBO cannot forecast future changes in law or assume such changes in its estimates.

As another example, Congress votes to prevent an automatic cut to physicians’ reimbursement rates every year, adding billions to the deficit. But CBO must assume the “doc fix” won’t occur. Reform efforts first began in the House, where a permanent fix was included—but no such provision can be found in ObamaCare. Congress recently passed a one-year fix and will continue to prevent the cuts, but won’t put a permanent solution on the books. Nevertheless, pretending it will not happen won’t reduce the deficit.

Second, CBO must ignore budget gimmicks written into the legislation, including hundreds of billions in double-counted savings. ObamaCare creates $529 billion in cuts to Medicare and $70 billion in revenue from the new CLASS program, a new long-term care insurance program. CBO must assume these cuts and new revenues will offset the costs of the new law. But Medicare savings are also pledged to extend the program’s solvency. Revenue from CLASS is the result of premiums collected to pay out benefits in later years and won’t pay for new programs, either. Claiming these dollars as offsets to Obamacare is akin to trying to make a mortgage payment and buy a Macbook with the same paycheck: In the real world, you can spend money only once.

ObamaCare also creates a subsidy program for the middle class to purchase insurance. CBO predicts that 19 million Americans will benefit from this generous new entitlement. But it doesn’t take into account Obamacare’s incentives for employers to drop insurance and allow employees to instead purchase the taxpayer-subsidized coverage. Former CBO director Douglas Holtz-Eakin points out that businesses and their employees could benefit from the elimination of employer coverage, resulting in as many as 35 million Americans receiving subsidies. This likely event would cause the health care overhaul to greatly exceed its expected cost.

ObamaCare won’t reduce the deficit, so repeal doesn’t need to be offset. Repeal is in keeping with the spirit of PAYGO, which exists to encourage long-term deficit reduction. Moreover, PAYGO requires deficit neutrality only over a 10-year budget window, so legislation can create savings in one decade but run trillions in deficits the next and still meet PAYGO requirements. The loopholes of 10-year scoring weren’t lost on the 111th Congress — the costliest provisions of Obamacare don’t go into effect until 2014, so the CBO score includes only six years of heavy spending.

If Congress is serious about reducing deficit spending, lawmakers should accept the CBO report for what it is and set aside easy-manipulated rules like PAYGO in favor of real budget process reform. In the meantime, repealing ObamaCare will reduce the deficit and start Congress down the path to getting health care reform right.

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Written By

Kathryn Nix is a research assistant in the Center for Health Policy Studies at The Heritage Foundation.

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