Where Did the Administration Assume Declining Health Care Spending?

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Tuesday, 22 June 2010 07:03

That is the question that readers of the WSJ are asking. The Journal told readers that:

"The deficit is lingering at nearly 10% of the gross domestic product. Even under the president's assumptions on declining health-care spending and a freeze on non-security domestic spending, the deficit would not drop to what Mr. Orszag has called sustainable levels over the next decade without a sharper policy response."

Of course the reason that the deficit is lingering at near 10 percent of GDP is that the unemployment rate is lingering at near 10 percent of the labor force. This has depressed tax collections and increased payouts for unemployment insurance and other benefits.

Deficits are projected to rise relative to the size of the economy precisely because the budgets do not assume that health care costs decline. Rather, the projections assume that cost growth will continue to outstrip the growth of the economy. If health care costs were contained then the projected shortfalls would be easily manageable.