This is Misleading CNN--and CBO
By David Henderson
On the way home from work this evening, I heard an incorrect statement of the latest CBO report’s findings on the Republican-proposed health care bill. (I’ll have more to say about the bill in a future post; I’m still digesting the opinions of others who seem to have looked at it more closely than I have.)
The CNN news report stated that the CBO estimated that the bill would save $337 billion over the 2017-2026 period. A quick check of the CBO report shows that the CBO was as misleading as CNN. Here’s the CBO:
CBO and JCT [Joint Committee on Taxation] estimate that enacting the legislation would reduce federal deficits by $337 billion over the 2017-2026 period. That total consists of $323 billion in on-budget savings and $13 billion in off-budget savings. Outlays would be reduced by $1.2 trillion over the period, and revenues would be reduced by $0.9 trillion.
Notice that the CBO, like CNN, counts $337 billion, not only as a cumulative deficit reduction, which it is, but also as a “savings.”
But then the CBO goes on to say:
The largest savings would come from reductions in outlays for Medicaid and from the elimination of the Affordable Care Act’s (ACA’s) subsidies for nongroup health insurance. The largest costs would come from repealing many of the changes the ACA made to the Internal Revenue Code–including an increase in the Hospital Insurance payroll tax rate for high-income taxpayers, a surtax on those taxpayers’ net investment income, and annual fees imposed on health insurers–and from the establishment of a new tax credit for health insurance.
So the largest “costs” come from a reduction in taxes. Admittedly, $361 billion of this tax cut is a new tax credit. Tax credits are, in many ways, like subsidies. So the actual tax cut is not as big as it looks.
Let’s assume the CBO’s numbers are correct. Then the saving is not $337 billion, but, rather, $1.2 trillion. (I’m accepting, which I really shouldn’t, the bad CBO habit of treating a dollar in 2017 the same as a dollar in 2026. For this to be true, nominal interest rates would have to be zero. They aren’t. They’re low, but they’re not that low.)
So what’s true is that the proposal would save $1.2 trillion, that $0.9 trillion of this saving would go to a tax cut, and that $0.3 trillion of this saving would go to reduce the cumulative deficit. A $0.9 trillion tax cut is not a cost, although, as noted above, one could count $361 billion of this tax cut as a cost because a tax credit is like a subsidy.