MEDICARE FINANCES

The problems with the future financing of Medicare are well advertised and have been known for decades.  I do not support the proposal to do away with Medicare entirely and replace it with a "voucher" system.  Instead we must reduce the costs of Medicare.  One component of the $716 billion in expenses "removed" by Obama from Medicare, the so-called "Doc Fix," of reducing the payments to physicians was always unlikely and is now gone.  Hospitals, however, had agreed to cutting their costs because of increased patient "flow" from Obamacare.  There has been resistance to other cuts which were called by insulting names like "death panels" and "rationing."*  About the only cut in Medicare services proposed likely to pass is raising the age of eligibility from 65 to 67, but this could be self defeating by leaving a large group of people without health care and pushing them into emergency rooms, the highest medical cost option.  At times there is mention of tort reform to cut the costs of "defensive medicine," but this proposal never seems to gain traction.  I would hope this would get done.

More than a decade ago, a writer's group of which I was a member was nearly entirely composed of seniors.  Once we had a discussion concerning what cuts in Medicare did we think we could live with.  The unanimous choice was "rationing" of major operations, say a limit of one each of heart, liver, lung or kidney transplants and two hip or knee replacements per patient.  So far as I know, no politician has proposed such a limit.  Yes, this is rationing, but Medicare is full of rationing already as I have discussed before.**  More recently, I recently got a shot for shingles.  These are not covered by Medicare and cost me $225, but I know of five people who have had shingles, including my wife, and it is serious business.  One friend lost an eye to it, and another was on heavy doses of pain killers for a year.  I think that ultimately more rationing is inevitable.

I don't know how we get to this point, but "fixing" Medicare is going to require a stop to trying to gain political points through unpleasant names and false accusations*** and both political parties are going to have to jump off the "cliff" together.****

* http://stopcontinentaldrift.blogspot.com/2012/12/death-panels-715-billion-from-medicare.html
** http://stopcontinentaldrift.blogspot.com/2011/05/medicare-rationing.html
***  http://stopcontinentaldrift.blogspot.com/2012/10/dr.html, http://stopcontinentaldrift.blogspot.com/2012/10/the-obamacare-committee.html
**** http://stopcontinentaldrift.blogspot.com/2011/02/after-you-alphonse.html

NEVER SATISFIED

The news is full of statements of how the Republicans were taken by the President.  If they regret there were no big budget cuts, I can understand, but the tax situation seemed to fulfill all they wanted.  The $5 million estate tax was retained (but at 40% rather than 35% for excess over that) when the president wanted $3.5 million and 35%.  Everyone gets a tax cut on the first $400,000 ($450,000 for couples) of income with the wealthiest paying what they did in the nifty nineties at 39.6%.  Except for the wealthiest 1% of Americans, the Bush tax cuts were made permanent.  I thought the Republicans were angling to make the Bush tax cuts permanent for this for years.  Because Obama campaigned on making the level $200,000 (and $250,00 for couples), it would seem he lost this battle and Republicans won.

Individual tax extenders for individuals, business, and energy also add to the deficit.  This may be a draw as I believe both sides wanted at least parts of this.  Republicans may not have wanted to extend the unemployment insurance so count this as an Obama win.  The "doc fix" also was included and costs an amazing $25 billion over the 10 years.  I think this was also a draw.

Were Republicans really against restoring the 2% cut in payroll tax?  I would count this as a Republican win though there is a tendency to call it a tax increase.  Is no temporary tax cut temporary?  I thought Republicans feel that Social Security is in trouble.  Oh, they want to do away with it entirely and make it a 401-k.  Still I think Republicans won this.

Now there is a lot of brave talk about how much making the Bush tax cuts permanent will contribute to the deficit, but it turns out that all depends on how you start.  If you assume that the Bush tax cuts would be fully suspended, there would be close to $4 trillion added to the deficit, but if you count where the budget was in 2012, there is actually a decrease in the deficit by, I think, something like $760 billion.

Unfortunately the Sequester was kicked down the road, but it seems to me that both sides don't like it.  The Republicans don't like the cut in defense and the Democrats don't like the cuts in non-defense.  The Republicans can never seem to spend too much on defense, even though we spend more than the next 10 largest defense spending countries combined.  So both sides have oxen that they don't want gored.  That is why we have a deficit problem.

Over all, it seems to me that the Republicans won on the tax compromises.  They just never seem satisfied.

I don't see much happening to Medicare unless both sides agree to jump off a cliff together.  After all, Obama has paid politically for every modification he has proposed as things as "Death Panels" and "Rationing."  There is a lot of rationing in Medicare today.  For example, I recently found that Medicare does not cover shots for shingles.  As I know of five people who have had it (one losing and eye and another taking large doses of pain killers for a year), including my wife, I got it and paid the $225 myself.

Some figures in this post are from http://www.outsidethebeltway.com/congress-jumps-off-fiscal-cliff-pulls-parachute-rip-cord/?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+OTB+(Outside+The+Beltway+%7C+OTB)

"FISCAL CLIFF"

I have found the "Fiscal Cliff" (term coined by Ben Bernanke) to be a very confusing concept.  First of all, the "fiscal cliff" includes the sequestration, but it is only a part of it.  Furthermore, even the IMF's Managing  Director Christine Lagarde is concerned about its effect globally and not just on the U.S.*  I have copied the following excerpts  (in italics) from Wikipedia, an article I urge everyone to read: http://en.wikipedia.org/wiki/United_States_fiscal_cliff:**  Note  from September 10, 2012:  Additional details including many not discussed in this piece can be found in a post by Yodaorange at: http://boards.fool.com/investing-for-the-fiscal-cliff-30254941.aspx?sort=whole.

At the end of 2011, the patch to the AMT exemptions expired. Technically, the AMT thresholds immediately reverted to their 2000 tax year levels, a drop of 26% for single people and 40% for married couples. Anyone over these reduced thresholds at the end of 2012 would be subject to the AMT. 
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• Expiration of the two-year extension of the Bush tax cuts provided for in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and
• Expiration of a Social Security payroll tax cut, most recently extended by the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA);
• Across-the-board spending cuts ("sequestration") to most discretionary programs as directed by the Budget Control Act of 2011.
• Expiration of federal unemployment benefits, most recently extended by MCTRJCA;
• New taxes imposed by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010;
• Expiration of measures delaying the Medicare Sustainable Growth Rate from going into effect (the "doc fix"), most recently extended by MCTRJCA and
• Reversion of the Alternative Minimum Tax thresholds to their 2000 tax year levels. 

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Without new legislation, these provisions will automatically go into effect on January 1 or 2, 2013, except for the Alternative Minimum Tax growth, which may be changed retroactively. Some provisions will increase taxes (the expiration of the Bush and FICA payroll tax cuts and the new Affordable Care tax and AMT thresholds) while others will reduce spending (sequestration, expiration of unemployment benefits and implementation of the Medicare SGR).

I thought the sequestration was going to be back loaded i.e. lower in the early years and higher in the later years, but apparently it is to be divided between DoD (budget authority of $712 billion in 2011) and other discretionary programs (budget authority of $556 billion in 2011) equally at $55 billion/yr over five years.  Technically speaking you would think that these cuts would leave the DoD with something like $200 billion/yr and leave the other discretionary spending to $150 billion by the end of the nine years (2022).  Following are some baseline figures:

For example, according to the CBO Historical Tables, defense spending (including overseas contingency operations for the wars in Iraq and Afghanistan) grew from $295 billion in 2000 to $700 billion in 2011, an annual growth rate of 8.2%. Non-defense discretionary spending grew at a 6.6% annual rate during that time, from $320 billion to $646 billion.^[20]

The austerity represented by the sequester is not unprecedented; from 1990–1999, defense spending actually declined by about 1% annually, from $300 billion to $276 billion, although non-defense discretionary spending grew by 4.5% annually, rising from $200 to $297 billion.

Obama signed the Sequestration Transparency Act of 2012 on August 7, 2012 so his administration now has 30 days to provide details on how the sequestration will be implemented; however, I write this on September 10, 2012.  The 30 days are passed, but I can find no details.  There are thoughts that the "fiscal Cliff" will be allowed to take place and then modify it.  The sequestration, however, was meant to be so bad that the "Super Committee" would act, but they didn't.  Will they act to fix the "Fiscal Cliff?"

*   http://www.businessweek.com/news/2012-09-09/u-dot-s-dot-fiscal-cliff-endangers-world-economy-lagarde-tells-apec
** Also see: http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/07/16/everything-you-need-to-know-about-the-fiscal-cliff-in-one-post/