Tax Cuts Don’t Pay For Themselves. A New Paper Says Medicaid Might.

LOADING ERROR LOADING Conservatives have long badgered Congress’ own numbers crunchers, with some success, to say tax cuts aren’t as expensive as they look. But in a turnabout, liberals now have something to cheer for from the nonpartisan Congressional Budget Office. In a paper published last month , the CBO said Medicaid and other programs that provide a long term boost for the recipients’ economic prospects may be far cheaper than their initial price tags , once those long term effects are included in the calculus.

Advertisement The study argues that those higher lifetime earnings would in turn boost economic growth, which would then result in more money sent to federal coffers in taxes in the decades ahead. Gideon Lukens, director of research and data analysis with the liberal Center on Budget and Policy Priorities, told HuffPost the CBO paper was significant because it took something on which there is broad scholarly agreement — programs like Medicaid can have a beneficial effect for enrollees far into the future — and then showed the budget impact.

“I haven’t really seen where other studies have done that, so I think it’s a really useful contribution,” Lukens said. “The CBO analysis is another important contribution to the research literature about the long term benefits of Medicaid coverage during childhood and pregnancy,” wrote Edwin Park, research professor at Georgetown University’s Center for Children and Families, in a blog post .

Advertisement Even Douglas Holtz Eakin, president of the conservative American Action Forum and a former CBO director, said the idea in general was plausible as federal programs can affect conventional and human capital, making them more effective. “The question is how big, how fast and how you finance it, what you have to offset.

So I find this sort of enterprise entirely plausible,” he told HuffPost. To get at those questions, the CBO looked at the impact of a policy called continuous eligibility, which allows children to remain in Medicaid for a year once they qualify, even if a change in family income would make them ineligible.

The paper found the policy’s return on investment over 70 years could be as high as 197% (or bringing in to the government almost twice as much as first spent) to as low as 151% (or costing nearly one and half times more), depending on assumptions about whether it was deficit financed and other factors.

While the paper is not an official statement of CBO policy and won’t change how proposals to boost or cut Medicaid eligibility will be scored, CBO Director Philip Swagel called it another example of how the agency is trying to improve its ability to forecast the impacts of bills beyond the usual 10 or 11 year score they get as lawmakers consider them.

Advertisement “That capacity could be used to supplement the analysis in conventional cost estimates and provide additional information about effects that are more than 10 years in the future and that alter nominal [Gross Domestic Product],” he wrote in a post on the CBO’s blog . While good news for Medicaid advocates, the paper has some caveats.

The wide range of estimates for how much money the government would recoup or lose reflects the importance of the assumptions used in the paper. One variable is whether the program expansion is paid for by redirecting other spending or by borrowing, and a second is how one assesses the value of money spent now versus in the future — the so called discount factor.

Still, the paper gives ammo for liberals to demand at least some proposals be scored by the CBO on a “dynamic” basis. Led by former House Speaker Paul Ryan , Republicans have often wanted a similar feedback effect included in assessments of the upfront costs of tax cuts. While CBO has said tax cuts, depending on how they are structured and paid for, can generate extra economic growth that trims the initial costs, they do not “pay for themselves,” as some conservatives and libertarians often argue.

Holtz Eakin said the paper implicitly raises the question of how far CBO should go in taking a holistic approach to spending programs. Pentagon spending, for example, could look cheaper if the improved job skills and resulting higher wages of veterans were taken into account. Advertisement “Do we want to put the CBO in the position of finding the benefits as well as the costs of everything you debate?” he asked.

Lukens said he did not think dynamic scoring should be extended to social spending proposals, but the approach could be used so lawmakers have additional information about a spending proposal if they want it. He said it also highlights the likely impact of states trimming Medicaid rolls now that early pandemic era eligibility waivers have lapsed.

Those cuts could save much less than estimated or even cost the government money over the long run if the paper is correct. “Unfortunately, it is coming at a time when millions of children are losing Medicaid coverage, especially with many falling through the cracks for procedural reasons as opposed to being ineligible,” Lukens said.

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