No Paul Ryan, Payroll Taxes Are NOT Going Towards ObamaCare

Paul Ryan has been LYING about Obamacare and payroll taxes.

During a campaign stop at Miami University in Ohio, Paul Ryan made the claim that payroll taxes will now be used to fund the Affordable Care Act:

"Ryan slightly reframed the attack by arguing that Obamacare is effectively taking hundreds of billions from payroll taxes. “Take a look at your paycheck next time. Look at that line on your paycheck that [reads] payroll taxes," Ryan said. "You see our payroll taxes from our paychecks are supposed to go to two programs--Social Security and Medicare period. Now because of Obamacare they’re also going to pay for Obamacare." The crowd booed." (emphasis mine)

One problem with this: It is completely false. And the Romney campaign knows it.

Earlier this week, FactCheck.org released probably the best article on Mediscare claims since they began resurfacing after the Ryan VP pick. This article is an absolute must read for anyone wanting to understand how Medicare works, as well as what Romney, Ryan, and Obama each plan to do about Medicare's fiscal problems. The article begins with explaining the troubles Medicare faces down the road, mainly focusing on insolvency (which is different from bankruptcy). The article then summarizes the history of Medicare, as well as the different "Parts" of Medicare (A,B,C, and D). Understanding this is crucial for understanding the Ryan, Romney, and Obama Medicare plans (Obama has already passed his plan as part of the ACA). Here is a basic summary of what each Part of Medicare covers:

• Medicare Part A: Hospital insurance
• Medicare Part B: Insurance for doctor visits
• Medicare Part C (Medicare Advnatage): Combines both Part A and B but uses a private insurer.
• Medicare Part D: Prescription Drugs

The article also debunks the claims from both the Obama and Romney campaigns about how each candidate plans to cut benefits and push the cost of healthcare further onto seniors. I will not spend any time in this post talking about whether or not either campaign's arguments hold water (See my previous post and Roundup from last week for that). This post will be dedicated to understanding why Paul Ryan is lying about payroll taxes going to fund the Affordable Care Act (Obamacare, PPACA, ACA).

One area where FactCheck's article falls a bit short is on explaining why Paul Ryan's claim mentioned above is wrong. The article is a bit vague and inconclusive. However, a campaign speech by Paul Ryan finally motivated FactCheck to get more detailed and help explain specifically why Paul Ryan's claim is wrong (the article also debunks Medicare bankruptcy claims). This article is another absolute must read. I will summarize and expand here:

Medicare payroll taxes go to pay for Medicare Part A. What revenue is left over goes into the Medicare Hospital Insurance trust fund. And that fund goes to finance shortfalls in Medicare Part A. As of late, there is not enough revenue coming from payroll taxes to cover hospital insurance for medicare beneficiaries. As a result, the trust fund is being drained and will eventually be empty, meaning Medicare Part A will become insolvent. To help mitigate the problem, the Affordable Coverage Act slows the amount of money coming out of the trust fund via reduced payments to hospitals. Obama can get away with those reduced payments to hospitals largely without causing them to drop out of the program because of a deal he stuck with hospitals, promising new patients through the ACA, more than making up for the lost revenue. This saved money stays in the trust fund (although it can be loaned out, more on that later).³ It does not go to cover the uninsured not currently in Medicare. In addition, Obama increases the revenue coming into the trust fund via a 0.9 percent tax "on earnings above $200,000 for single taxpayers or $250,000 for married couples."

The savings from Medicare that actually go into Obamacare come from Medicare Parts B, C, and D, and only from funds that come from congress (income taxes, corporate taxes, etc...) to cover outlays. This accounts for approximately 2/3 of $716 Billion in slowed medicare growth. Obama decreases the growth of money congress spends on Medicare from general revenue using the Independent Payment Advisory Board, which is incredibly limited¹ in what it can target.

So it should be pretty clear Paul Ryan's claim is false. But remember I accused Ryan of more than just telling him a falsehood. I accused him of lying, meaning he knew what he was saying was false. What is my evidence? Besides Ryan's work on the medicare program (meaning he should know this Medicare 101 knowledge) and acceptance of Obama's ACA Medicare savings (he should know what he is accepting), when FactCheck asked Romney's campaign about their claims, the campaign responded this way:

"When we asked the campaign how it could argue that Obama’s spending reductions didn’t extend the life of the trust fund, a spokesman replied that it didn’t extend the fund “unless the administration is ready to admit their law blows a huge hole in our deficit.”"

So essentially they are accusing Obama of double counting the savings from hospital insurance. If that money has to be put into the trust fund, it can't also cover the non-Medicare related Obamacare expenses. Fact Check explains (from their original article):

"The fact is that CBO and the guardians of the hospital trust fund say Obama’s health care law does both extend the life of the trust fund and reduce the deficit, but can’t be also counted as paying for the law’s added spending."

This may sound a bit confusing. It essentially comes from the fact that a bill can both reduce the deficit and not be "paid for." This is because some of the revenue that comes in goes "into savings" instead of being used to pay the bills. And just like a bank uses savings accounts to make loans, so too can this Medicare money "in savings" be loaned out to pay for other programs.² FactCheck explains:

"What happens in government accounting is that after Treasury issues a bond that it will have to pay later, it can spend the money it received on other things. And it often does, whether that’s coverage expansion, as called for in the health care law, or any number of things. The Romney spokesman said it was “a shell game.”"

But that doesn’t mean that the Medicare trust fund will be slashed or its “piggy bank” “robbed” or “raided,” or any other claim we’d put firmly in the category of “senior scare.” (emphasis mine)

Romney does have a point in essentially calling this an accounting trick. And he could spend time making that claim instead of a demonstrably false one. You can argue over whether or not the CBO was therefore wrong to say the ACA cuts the deficit (see Update 8/28/12). But you cannot say payroll taxes are going toward the ACA anymore than you can say your personal savings in the bank are going toward someone else's loan. Just like those savings are still legally yours, so are the trust funds still legally Medicare's. Any money that is borrowed from the fund has to be paid back. The Romney campaign knows this and it is reasonable to assume Ryan does as well. So he knows payroll taxes will not fund the ACA, yet he still makes that claim. It is a lie.

¹ Most of what the IPAB targets is the extra money paid into Medicare Advantage (Part C,except for hospital insurance), making costs from the expensive program fall into line with traditional Medicare. You can argue this will indirectly affect benefits, but the program is forbidden from directly cutting benefits. Romney and Ryan, on the other hand, give congress practically unlimited power to save money however they desire, including through benefits (and we all trust congress, don't we). As Ezra Klein and others have repeatedly noted, ObamaCare and Ryan's plan call for approximately the same-sized reductions in future medicare growth. The difference is in how it is implemented. Without a doubt though, Romney's plan to avoid the $716 in slowed growth is the worst. It will actually hasten insolvency.


Update 8/28/12:

For the last few weeks, the Washington Post Fact Checker has been on vacation. So he as not been posting fact checks on this issue since the Ryan VP pick. Today he finally posted a response to readers' questions on Medicare Cuts, bankruptcy, and cost shifting. Overall, the post was not all that impressive compared to FactCheck's posts. However, he did link to an old article talking about the "double counting" issue mentioned above. This article is another absolute must read for anyone interested in this issue. It turns out double counting has been an acceptable practice for both parties for the last few decades. That's right, Republicans use this as well:

"When President Bill Clinton signed the Balanced Budget Act of 1997, then House Speaker Newt Gingrich (R-Ga.) was one of the speakers. “On Medicare, we came together and we saved the system for at least a decade,” he declared. How could he make this claim? Through the same double-counting that Republican now decry. The

Fact Checker especially frowns on hypocrisy, and Republicans should acknowledge that they have gladly played this game before, including under President George W. Bush." (emphasis mine)

However, playing the "you did it too" game is not a good excuse for doing something potentially harmful. But it does turn out this practice isn't really that bad, since it increases gross debt without increasing public debt. The Fact Checker explains:

"Some argue that the increase in the gross debt is evidence of double-counting but the CBO has said that focusing on the health care law’s impact on the gross debt is not very illuminating: “That measure of debt conveys little information about the federal government’s future financial burdens and has little economic meaning.” (emphasis mine)

This may explain why the Romney campaign has avoided this line of argument and instead chosen a demonstrably false line of argument. He would be open to criticisms that both parties do this and could put the reputation Reputation of congressional Republicans in 1997 in jeopardy. It is much easier to tell a simple lie.

Note: Just to head off a potential criticism, Ryan cannot say that he was talking about Medicare funds being loaned Obamacare when he said payroll taxes were being used to fund Obamacare. If he had meant it in this way, he would have to admit payroll taxes also fund national defense, congressional pay, the war on drugs, and most any program funded by congress through general revenue. However, his statement started by claiming that payroll taxes only fund Medicare and Social Security. So either way, he was lying.

² I reworded this to make it clearer. It used to say "However, as with any "savings account", that money is available for other uses when it's not being spent"

³ I added the qualifier in parenthesis to make it clear that this money can still be loaned out, even if it still belongs to the trust fund. It has to be paid back.

The Roundup

Best Thing to Happen to The Internet Since Al Gore! ... Here is a cat singing the theme from Game of Thrones (Thanks to The Washington Post):

Yet another reason to subscribe to Ezra Klein's RSS...

Steven Novella: Nocebo Nonsense

"Chopra’s article was inspired by a New York Times article by researchers into nocebo effects. The researchers, however, make very different points from Chopra. They review the scientific evidence, which is pretty clear. People will report negative side effects even when taking placebos. If they are warned about a particular side effect, they are more likely to report that one. Again – there is no reason to think this is anything other than subjective reporting. Stress is the one factor that can cause real physiological consequences, and therefore illnesses that significantly respond to stress (like heart disease) can be affected by anxiety or hopefulness. This is not true, however, of most diseases." (emhpasis mine)

The Solyndra Standard
A MUST READ on the GOP's hypocrisy in the Solyndra case. Stephen Lacey puts the case in context:

"And here’s the really astonishing disconnect: While supporting tens of thousands of jobs, the loan guarantee program is expected to cost $2 billion less than Congress budgeted for, according to an analysis from Herb Allison, John McCain’s former National Finance Chairman.

Meanwhile, amidst the Solyndra saga, we casually accept a $300 million aircraft failure without batting an eye. No outrage. No sustained political campaign. It’s just another day testing our military toys.

Why? Because we don’t often see programs like this as a “failure” in the political arena. We would never use one failure as an excuse to abandon investment in new technologies. Most politicians accept losses in military R&D expenditures because the long-term gains are potentially so important for national defense and for eventually developing technologies for civilian use.

We should always strive to make programs as efficient and cost-effective as possible. But a few bankrupt clean energy companies representing a fraction of the program’s budgeted cost is no excuse for abandoning federal investments in clean energy — a strategically important sector that is becoming one of the largest drivers of business this century." (emphasis mine)

Will the Fed’s efforts to boost the economy only benefit the wealthiest?
Thanks to the inaction of congress, quantitative easing may be one of the last options to help stimulate the economy. It effectively lowers the value of debt using inflation, which could help tackle the crippling deleveraging that is keeping consumer demand down and slowing the recovery (particularly in the housing market). But there is a price. That price is increased income inequality.

Great hyperinflation episodes in history — and what they tell us about the Fed
A MUST READ:
A look at historical cases of hyperinflation point to why it is absurd to suggest it will happen in the US any time soon:

"none of the most severe instances of hyperinflation appear to be triggered by a central bank simply trying to inject money into a basically intact economy in order to reduce the unemployment rate." (emphasis mine)

Conservative Group Plans to Push Republicans Toward Action on Climate, Cleaner Energy

"Leading members of the Christian Coalition and the Young Republicans on Monday will launch nationwide the Young Conservatives for Energy Reform, a grassroots group aimed at engaging Republicans on the goals of cutting oil use, backing alternative energy and clean-air regulations, and fighting climate change."

Can these groups pull the GOP away from the propaganda of the fossil fuel industry?

The politics and philosophy of racism
Two points:

1. Turns out racists aren't necessarily more likely to be republican than democrat. 
2.  Libertarianism will not sure racism for essentially the same reason free markets work: individual cases of racism are "spontaneous orders—of phenomena that are the product of human action, but not of human design" 

2013 may be the year of Austerity. Isn't that what the GOP wanted so badly back in 2010?

Poll: Republicans Really Aren't Big Fans of Arabs or Muslims

Brutal Attack On Palestinian Met With Near-Universal Rebuke among Israelis

On the Progressive Consumption Tax and What it means for people like Romney.

Very good story about the debate over the minimum wage.

Quote of the Day: Early Voting a Bad Idea Because it Makes it Easier for Blacks to Vote

NPR debunks the myth of the "independent voter".