Greg Mankiw Explains the Thinking Behind the Idea that a Massive New Health Program Can Reduce the Budget Deficit

I have a plan to reduce the budget deficit.  The essence of the plan is the federal government writing me a check for $1 billion.  The plan will be financed by $3 billion of tax increases.  According to my back-of-the envelope calculations, giving me that $1 billion will reduce the budget deficit by $2 billion.

Now, you may be tempted to say that giving me that $1 billion will not really reduce the budget deficit.  Rather, you might say, it is the tax increases, which have nothing to do with my handout, that are reducing the budget deficit.  But if you are tempted by that kind of sloppy thinking, you have not been following the debate over healthcare reform.

More from Greg here. Ezra Klein weighs in as well.

Comments (3)

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  1. Devon Herrick says:

    Mankiw makes an interesting point. The ACA exacerbates the deficit by boosting subsidies and entitlements. A massive tax increase on insurers, drug companies, and high-income taxpayers would offset some of the additional spending at the expense of reducing economic activity. The ACA’s huge cuts to Medicare are unworkable and will likely be repealed for political reasons making the ACA even more expensive.

    The CBO scored the ACA as reducing the deficit. But the deficit-reducing argument was primarily designed to convince uninformed, naive voters who don’t know (or don’t care) about the full story. The ACA is pitched to the public in a way that is intellectually dishonest.

  2. Brian Williams. says:

    I have an idea. The federal government could pay Greg $1 billion over 6 years, but collect the $3 billion in revenue over 10 years.

    That’s what they did with PPACA. They paid for 6 years worth of benefits with 10 years worth of revenue.

  3. Bruce says:

    This is obviously tongue-in-cheek. So where is your satire alert button for the humor challenged?