Medicaid for Kids Largely Pays for Itself: Who Thinks the GOP's Magic Math Model Will Count That?

Voodoo economics is back, folks. On their very first day in session, House Republicans voted to change how the Congressional Budget Office (CBO)--the nonpartisan referee that scores the cost of tax and spending measures under consideration by Congress--does its job. The CBO is now charged not only with computing the actual spending or loss in revenue resulting from a bill, but also with estimating how the bill will affect economic growth, job creation, and "other macroeconomic variables." Why is this voodoo economics, as a number of critics have charged?

First, the specific way in which House Republicans have written their new rule on how budget items will be scored ensures that the scoring process will be much more partisan--in their favor--because the House Budget Committee chair will have complete authority to decide which items will receive dynamic scoring. Of course, stimulus spending will, by definition, not receive dynamic scoring.

Second, dynamic scoring itself is simply too subjective and open to manipulation, notes Edward Kleinbard, former chief of staff of the Congressional Joint Committee on Taxation. Nothing close to a consensus exists in the field of economics on just how to estimate the indirect effects of, say, cutting taxes on incomes over $1 million (just reading that makes Republicans salivate), so any projection is based on little more than assumptions built into a given model. Third, the GOP's definition of dynamic scoring has a clear bias toward tax cuts and against domestic spending. As Bruce Bartlett, a former economic policy adviser to Ronald Reagan and George H.W. Bush, explained, this kind of dynamic scoring:

... is not about honest revenue-estimating. It's about using smoke and mirrors to institutionalize Republican ideology into the budget process.

So Republicans are going to change how we count dollars in order to make tax cuts look more fiscally responsible than they actually are. Of course, they could just ask Kansas, where huge tax cuts aimed at the wealthy have blown a dynamically growing hole in the state's budget.

What does this have to do with Medicaid? Glad you asked. Paul Krugman points out that these new Republican rules "won't be applying dynamic scoring to the positive effects of government spending, even though there's a lot of evidence for such effects." And so the fuzziness is thus doubled. As is the stupidity, as Republicans never seem to understand the dynamic effect of gutting the IRS budget, for example, where, the Treasury Department calculates that each dollar spent on the IRS brings in an additional $7 in revenue.

And it's not just the IRS. A new study from the National Bureau for Economic Research on the true budgetary impact of Medicaid makes clear just how much these--and let's call them what they are--numerical lies will hurt Americans. Medicaid costs money up front, something we can measure in direct terms. But spending that money on health care for low-income Americans has an impact on the lives of the people who receive it. It turns out that children whose families receive Medicaid not only get health care, but on average end up more productive citizens, paying more in taxes because they earn higher wages, and receiving fewer dollars in government benefits over the subsequent years compared to their economic peers who didn't receive Medicare. From the report's summary:

Using a simulated instrument that relies on variation in eligibility by cohort and state, we find that children whose eligibility increased paid more in cumulative taxes by age 28. These children collected less in EITC [Earned Income Tax Credit] payments, and the women had higher cumulative wages by age 28....The government spent $872 in 2011 dollars for each additional year of Medicaid eligibility induced by the expansions. Putting this together with the estimated increase in tax payments discounted at a 3% rate, assuming that tax impacts are persistent in percentage terms, the government will recoup 56 cents of each dollar spent on childhood Medicaid by the time these children reach age 60. This return on investment does not take into account other benefits that accrue directly to the children, including estimated decreases in mortality and increases in college attendance. Moreover...we find that each additional year of Medicaid eligibility from birth to age 18 results in approximately 0.58 additional years of Medicaid receipt. Therefore, if we scale our results by the ratio of beneficiaries to eligibles, then all of our results are almost twice as large.

There's more commentary on the study here, as well as a detailed analysis by Eduardo Porter here. Porter lays bare exactly what Republicans are doing, and connects the dots between dynamic scoring, tax policy, and entitlement spending:

Republicans' underlying assumption is that tax cuts amount to a tonic for economic growth, encouraging investment and toil. Many analyses by the budget office, they argue, misjudge the effect of tax cuts on the budget by underestimating their role as economic stimulus.

They are not entirely wrong. Most economists agree that cutting taxes is likely to deliver some increase to growth. But it is substantially weaker than what Republicans often claim.

At the same time, the implicit proposition underlying the Republican case is that public spending amounts at best to money down the drain and, more often, to an albatross around the economy's neck, discouraging work among beneficiaries of government largess.

The evidence for that is even weaker. Under such assumptions, the return to Vermont's additional Medicaid spending would shrivel to nothing. That is, pretty much, how the budget office scores Medicaid spending today. That truly misjudges the role of government in the long-term health of the American economy.

"Of course there are positive returns to spending on health, education, nutrition," said William Gale, a tax expert at the Brookings Institution. "They are saving a lot of money and generating revenues. The macro effects are big relative to the expenditures."

Porter speaks of underestimations and misjudgments. In mathematical terms, he's right. But in terms of values, we're talking about something that requires far harsher condemnation. By lying about the numbers, Republicans are selling policies that take from the most vulnerable and give to the most fortunate. Remember that the American public actually supports policies that do the opposite. But the GOP is going to lie in an attempt to fool us about the actual cost of what they seek to do.

Doing the right thing really is also the more fiscally responsible move. That moral and mathematical truth provides an incredibly powerful argument in favor of our policies. Republicans are using lies to undercut it. Don't let them get away with it.