In a post today, the Committee for a Responsible Federal Budget reiterated its position that it is double-counting to argue that the Affordable Care Act both reduces the deficit and extends the life of the Medicare trust fund. Chuck Blahous, the Medicare actuary who started this mess, and Peter Suderman over at Reason agree.
Their position is wrong, wrong, wrong. First, let’s clarify the baseline. CRFB points out, correctly, that there are two baselines to choose from. The Trust Fund Baseline, which is used by Blahous, assumes that a program’s spending is constrained by the resources in its trust fund. If the trust fund is gone, the spending will automatically be cut. The Unified Budget Baseline, on the other hand, assumes that spending on programs will continue as scheduled, and the federal government will simply borrow money to ensure that benefits are not cut.
As many pointed out, the Blahous baseline is ridiculous. If spending is constrained by the trust fund, then we don’t have a problem. But the main purpose of the Affordable Care Act—heck, why we’re talking about deficit reduction in the first place!—is the assumption that we do have a problem. And even if—as CRFB states—both baselines are equally valid, it’s clear from the administration’s rhetoric that it is using the latter.
So, how can it be that a dollar can both be used to reduce the deficit and extend the trust fund? Well remember that under the baseline we’re using, program outlays aren’t constricted by the trust fund. Outlays have nothing to do with the trust fund. So therefore, extending the trust fund doesn’t cost anything, because it’s an accounting identity with no programmatic relevance.
Now, you might say that the Obama administration is being misleading, talking about extending the life of a trust fund, when under its own assumptions, the trust fund doesn’t matter. But while it may not have any impact on spending levels, it does matter for other reasons. While the size of the trust fund doesn’t determine how much spending can be done, it does potentially impact how the spending is financed. In the case of Social Security, for example, the trust fund commits income taxes (a more progressive revenue stream) in the future to redeem past surpluses financed by payroll taxes (a less progressive revenue stream); so declaring the trust fund meaningless in this case would profoundly affect the distribution of Social Security’s costs.
Trust funds also have political relevance. Even if you assume that Medicare outlays will be unaffected by the trust fund, having an insolvent trust fund opens a program up to political attacks. We’re seeing that right now with Social Security. So even if the trust fund doesn’t matter to the program’s operation, it still matters to shore of the program’s political strength. That’s something that seniors—and really anyone fond of Medicare—should care about.