Purity and deficit reduction plans

Matt Yglesias has an interesting post on the various deficit reduction plans from progressive/liberal groups that were a part of the Peterson foundation’s recent deficit reduction conference. Some progressive/liberal groups think engaging the discussion in this way is a sell out of some sort. Yglesias notes that the end policy result is the true outcome of interest, not participation in a conference. His bottom line seems to be:

It sounds to me like progressives ideas have real merit, and that the main thing we learned from this exercise is that progressive policy prescriptions will have to be a major part of any realistic long-term fiscal solution.

The 6 participating groups that offered plans had broad ideological span, yet produced four areas of agreement across plans:

  • current policy is unsustainable, so changes are inevitable
  • maintain government as a key part of the health and retirement safety net
  • subsidy of the well off is now overly generous and should be reduced
  • tax expenditures, or the aspects of the tax code that incentivize, provide tax credits, or exclude income from taxation should be reformed (and their aggregate cost is $1 Trillion annually)

This points out the possible availability of a next step in the health care realm that could increase the cost saving ability of the ACA, and which would likely serve to address costs in any imaginable reform that might later emerge: capping the tax exclusion of employer paid health insurance. My experience in giving talks on health care reform to community groups shows that while they can easily be whipped into a frenzy about the ‘need to control health care costs’ once you begin to offer solutions like capping or ending the tax preference for employer paid insurance they change their tune. Not that change, we work hard for our benefits!

There is no easy way out of the cost problem we face, however, so perhaps this politically difficult choice can emerge from the current deficit/debt limit talks. The Bowles/Simpson commission suggested it. It is an obvious next step to take to address health care cost inflation among health policy wonks, and it would serve to address costs in the private part of the system instead of only focusing these efforts on Medicare. It is a reform of tax expenditures that seems to grow in popularity as a way to increase federal revenue while either leaving marginal tax rates steady or even dropping them. Further, it should pass any sort of progressive litmus test since the current policy disproportionately benefits higher income workers. This is what addressing health care costs will look like.

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