Teetering on the Fiscal Cliff
In the countdown to the fiscal cliff, David Mayhew, Jacob Hacker and Zack Cooper held a panel at the Yale Law School, “The Fiscal Cliff and What’s at Stake?” on December 4.
Their discussion focused on:
1) how the new administration would try to raise the revenue needed over the next 10 years, with the Republicans generally wanting to close tax loopholes and lower tax rates, and the Democrats basically wanting to raise tax rates on the top 2% income earners;
2) what programs were on the chopping block within the discretionary funds (i.e. science funding and anti-poverty programs), and the mandatory funds, such as Medicare, Medicaid, and Social Security,;
3) what chance the administration had of settling before the deadline.
Mayhew began the conversation pointing to historical comparisons with other administrations. “There have been big money showdowns before,” he said, “Hoover in 1932, Bush 41 in 1990, Clinton in 1995 and in 2008 TARP.” He noted that “some presidents have been more concerned about debt management than others,” ranking Obama’s first term as one of the “least concerned” along with Reagan and Bush 43. “Austerity, tax hikes and spending cuts are not popular for presidents.” He also noted that now augurs well for a settlement because it’s similar in some ways to 1996, and because neither party’s base has a consensus, some Democrats want spending cuts and some Republicans want to raise taxes on millionaires.”
Zack Cooper laid out the rising cost of government medical programs, noting that the main drivers of spending are medical technology and unproductive spending. For example, Avastin costs $90,000 per therapy and only extends life three months. He pointed out the ways in which we have to slow spending down—either by premium support where we leave the medical choices up to the individual patient (essentially the Paul Ryan plan), or by getting a governing board together that will decide what should be funded based on cost effectiveness. He noted the difference between the debt and the debt talk: “Right now, the government is projected to spend about $14.5 trillion on Medicare and Medicaid through 2020 and what we’re arguing about is roughly $200 billion, about 1% of the money. It’s really a false debate”.
Jacob Hacker presented the rising growth of inequality, showing how while income for the richest .01% has skyrocketed, even breaking away from the ordinary 1% rich, their taxes have been plummeting. He attributed it to American politics and policymaking in the last generation, in particular the persuasiveness of businesses to lobby lawmakers. Hacker also agreed he was a “budget hawk” when it comes to health care costs. “We need to get a governing board together to decide.”