Obama grasps healthcare reform
Financial Times Editorial February 26 2009 19:30
The budget that Barack Obama’s administration released on Thursday is not settled policy. A multi-volume request to Congress comes in April and then Capitol Hill will go to work. This week’s blueprint matters, though, because it is a more detailed plan of the new president’s aims than we have so far seen. In a firmly left-leaning proposal, two things stand out.
First, Mr Obama is serious about comprehensive healthcare reform and hopes to make high-income households pay for it. This would be a bold project at any time, let alone when the public purse must contend with the demands of stimulus spending and financial stabilisation. Allowing for new bank bail-out money, the current year’s deficit is expected to be $1,750bn, more than 12 per cent of GDP. Undaunted, Mr Obama wants to set aside more than $600bn in tax increases and spending cuts over 10 years as a down payment on healthcare reform.
Second, revenues from a cap-and-trade system of carbon mitigation make their debut. The proceeds would be spent partly on making the tax credits in the fiscal stimulus, strongly tilted towards low-income households, permanent.
The US healthcare system is inequitable and inefficient: the need for reform is plain. Even so one must wonder at both the timing and the method of financing. Mr Obama’s plan to raise taxes on households earning more than $250,000 comes on top of the reversal of the Bush tax cuts after 2010. The savings of these households have already been destroyed by plunging share and house prices. Yet another income tax increase, with intimations of more to come – since the down payment covers less than half of the likely cost of healthcare reform – is not calculated to spur confidence.
The budget is questionable in other ways too. It aims to cut the deficit sharply by 2013. If the economy recovers briskly, that will happen by itself. If it does not, aiming to meet this target could be a mistake. Whether the budget is quite the promised benchmark of fiscal honesty is also doubtful. Some of the old trickery has gone, but these traditions die hard. Mr Obama raised eyebrows earlier by promising $2,000bn of budget “savings”. These turn out to be mainly tax increases, plus spending cuts against a bogus baseline of huge outlays in Iraq for all time.
Mainly, Mr Obama has served notice to those who thought he would slide away from the healthcare challenge. He judges this reform to be as important to his legacy as his management of the recession – and he is right. If he fails, it will not be out of timidity.
Copyright The Financial Times Limited 2009
