Tax Analysts Blog

Healthcare First, Deficit Second

Posted on Jul 6, 2009

The healthcare reform coaster is clacking to the top before its first big drop. Here we go for five weeks until the August congressional recess. It's an ego-trip for Democratic leaders who have dreams of making history. It's a gravy-train joy ride for lobbyists cashing in on old friendships. It's a mission for liberals who want to get as close to universal healthcare as possible. It's a rallying point for flagging Republicans to begin their counteroffensive against a popular president. But don't be deceived by all the Beltway-centric hoopla. And don't depend on flow-through, press-release news reporting for your information.

The first myth to dispel is that something big must happen in the next five weeks. The President and congressional leaders have conjured up an artificial timetable where House and Senate bills are completed by early August and a final compromise is signed by the President in September. Talk about the audacity of hope! They can and they probably will go right until Christmas -- unless the whole thing blows up sooner.

The second myth is that this is the biggest issue facing the nation and deserves all the attention it can be given. Not true. It is in fact the top priority of the President and most congressional leaders. But it is their decision based on political calculus. It is increasingly divorced from economic reality. In normal times -- like 1993 -- healthcare reform deserved center stage. Well, hello, these are not normal times.The possibility of double dip recession and the financial crisis facing the U.S.and California governments are much larger issues. The recession is bigger than the administration originally forecast. And there is serious debate for and against a second stimulus package among experts -- but not in the halls of Congress.

Even though delaying action on the deficit means more economic hardship and less attractive political solutions, consideration of our money problems are put on hold. Two columns in today's Washington Post tell us the Obama Administration's plan is to delay work on the deficit. According to E.J. Dionne:

The obvious path for Obama -- the one he is likely to take -- is first to achieve his reforms, particularly in health care, and later to pivot to dealing with the deficit, once the economy starts improving.

And Fred Hiatt writes:

It would be foolishly counterproductive to begin closing the [budget] gap in the midst of recession. But you could be setting long-term changes in motion -- adjusting rules for people who will retire five or 10 years from now, for example. Obama and his economic team understand all this, and maybe they have a plan to get from here to there. Maybe they'll do the popular stuff first, and then next year, or next term -- as global investors become alarmed at the U.S. fiscal outlook and begin driving our interest rates higher -- persuade Congress to take its medicine and get the fiscal house in order.

It has been unseasonably cool in Washington over the last month. It could get very hot around Labor Day when the Congressional Budget Office releases its annual mid-session update of its estimates for the government deficit. It will be interesting to see how this likely bad news affects the delicate negotiations on healthcare.

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