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A Project of The Annenberg Public Policy Center

Romney’s ‘Gross’ Exaggeration on ‘Obamacare’

Mitt Romney falsely claims government will “constitute … almost 50 percent” of the U.S. economy when the new federal health care law takes full effect. But Romney gets to 50 percent by erroneously counting all health care spending — private and public — as “effectively under government control once Obamacare is fully implemented,” as his spokesman put it.

That’s nonsense — just as it was two years ago, when Rep. Michele Bachmann made a similar bogus claim. The fact is that the nation’s health care system will be no more under federal control than Massachusetts’ fell under state control after Romney signed a similar health care law as governor. Both Obama and Romney expanded the private insurance market by mandating that individuals purchase health care coverage.

Besides, contrary to years of constantly repeated Republican rhetoric, the health care law (if allowed to stand) will constitute a relatively minor expansion of the government’s share of health care spending, which was already large and rising due to the aging population.

All government spending on health care amounted to 43.6 percent of total spending on health care in 2009, before the new law was enacted in March 2010. And by 2020, after several years of full implementation, it will still account for just 49.2 percent — according to the most recent annual projections by the acknowledged authority on the subject, the Office of Actuary in the Centers for Medicare and Medicaid Services. (See table 16.) Furthermore, much of that 5.6 percentage point increase will happen with or without the new law as the post World War II Baby Boom generation reaches age 65 and goes onto Medicare.

Romney’s health care claim was one of a few questionable statements he made during a speech in Lansing, Mich., on May 8. Reiterating claims we have debunked before, Romney also overstated the impact of Obama’s tax plans on small businesses, misrepresented the Independent Payment Advisory Board to be created under the health care law, and falsely accused the administration of refusing to allow Boeing to build in a right-to-work state.

Cost of ‘Obamacare’

In Michigan, Romney said local, state and federal governments consume 38 percent of GDP now and “if Obamacare is installed, it will reach almost 50 percent.” Romney has made such claims on at least three occasions in recent weeks:

Romney, May 8: Government at all levels now constitutes 38 percent of the economy, and if Obamacare is installed, it will reach almost 50 percent.

Romney, April 24: Government is at the center of his vision. It dispenses the benefits, borrows what it cannot take, and consumes a greater and greater share of the economy. With Obamacare fully installed, government will come to control half the economy, and we will have effectively ceased to be a free enterprise society.

Romney, March 30: Today, government at all levels consumes 38 percent of the total economy or G.D.P. If Obamacare is allowed to stand, government will directly control almost half of the American economy.

Strictly speaking, government at all levels last year accounted directly for only 20.1 percent of all the spending for goods, services and investments that are included in the GDP. The Bureau of Economic Analysis measures government spending three different ways. The most expansive measurement is “total government expenditures,” which is what Romney used. But that includes government transfer payments, such as Social Security checks and interest payments, which aren’t counted as part of GDP until they are spent by those who receive them. Total government expenditures in the first quarter of 2012, when adjusted at annual rates, were estimated at $5.6 trillion — or about 36 percent of the $15.5 trillion economy, according to Bureau of Economic Analysis figures (tables 1.1.5 and 3.1).

But that’s just a quibble, and there are respectable arguments for using a 36 percent figure. Where Romney launches into pure partisan fantasy is with his prediction that government spending will reach nearly 50 percent.

Romney’s audience may get the false impression that he is saying Obama’s health care law alone will consume 12 percent of GDP — that government spending will rise from 38 percent to 50 percent, when the new federal law is fully implemented. But that’s not possible. The law will constitute a fraction of GDP, even when fully implemented in 2015. Currently, 12 percent of GDP is equal to $1.9 trillion. But the total cost of the health care law to state and federal governments is estimated at $1.8 trillion over 11 years, from 2012 to 2022. During that time, costs would average $167 billion a year — a fraction of the current $15.5 trillion annual GDP.

So, obviously, the cost of the federal health care law alone cannot account for 12 percent of GDP.

We asked Romney spokesman Eric Fehrnstrom how his boss arrives at 50 percent. In an email, Fehrnstrom said: “The 50% includes total health care expenditures, which will be effectively under government control once Obamacare is fully implemented.”

That’s patently false and misleading. Total health care expenditures include public and private costs — everything from Medicare and Medicaid to private insurance and out-of-pocket expenses for copayments and deductibles. The Centers for Medicare and Medicaid Services says national health expenditures in 2009 reached $2.5 trillion — or 17.6 percent of GDP. About 43 percent of that was local, state and government spending. The rest was private.

It’s true that Obama’s health care law will increase the number of people covered by Medicaid, and it will set a minimum benefit standard for health care plans. But that’s exactly what Massachusetts did under the health care law that Romney signed as governor. Both laws created insurance exchanges and expanded Medicaid eligibility. But both laws also mandated individuals to purchase private health insurance and provided subsidies to help people buy private insurance — expanding the private market. Insurance will still be provided by private companies, and care will still be provided by private doctors.

Romney’s claim is similar to one made on a Sunday talk show in 2010 by Bachmann, one of his former rivals for the Republican presidential nomination. The Minnesota congresswoman claimed “now we have the federal government … taking over ownership or control of 51 percent of the American economy.” She counted 18 percent of the economy from health care, and the rest from “direct ownership or control of banks, the largest insurance company in the United States, AIG, Freddie and Fannie,” plus direct student loans, Chrysler and GM. But as we said then — and as we’ve said time and again — the federal government isn’t taking “control” of health care.

Taxing the Truth about Small Businesses

In his speech, Romney also restated the misleading Republican claim that taxes on the wealthy are taxes on small businesses.

Romney: President Obama proposes to raise the tax on small business. He wants to increase the marginal tax rate that the most successful small businesses pay from 35 percent to 40 percent. It’s a throwback to the discredited policies of the past, and it’ll kill jobs.

Romney misleads when he says Obama would raise taxes on “small businesses.” It’s true that Obama wants to allow the Bush tax cuts to expire for the top two brackets for individual taxpayers, eliminating the current 33 percent and 35 percent tax rates and restoring the 36 percent and 39.6 percent rates. And some of those individuals own small businesses. But the truth is that the vast majority of small-business owners wouldn’t be affected.

According to the Joint Committee on Taxation, only 3 percent of individual taxpayers with any net business income fall into the top two tax brackets, which are the ones that would increase. It’s true that about half the business income that flows through to individual tax returns is taxed at those top two rates. But an awful lot of those “businesses” are hardly “small.” Many are huge. The JCT said that nearly 20,000 partnerships and so-called “S” corporations — taxed as personal income — had receipts of more than $50 million in 2005.

We’ve talked about this familiar Republican trope on many occasions.

The Boeing Case, Revisited

Romney also attacks the president for taking “marching orders” from unions. But Romney gets his facts wrong with regard to one example: the case of Boeing in South Carolina.

Romney: But like many politicians of the past, the president  takes his marching orders from union bosses and rails against the right to work states, fights to win union elections by eliminating the right to vote by secret ballot, and even denies an American company the right to build a factory in the American state of its choice.

Romney is referring to a complaint issued by the National Labor Relations Board against the airplane manufacturer Boeing in April 2011. The complaint alleged that Boeing violated federal labor law by transferring the manufacture of certain airliners to a non-union South Carolina facility from union facilities in Washington state.

But as we’ve written before, Boeing and the union came to an agreement, and the complaint was dropped. Boeing is currently operating a non-union factory in North Charleston, S.C. In fact, the first completed jetliner rolled out of the facility at the end of April.

Boeing was not prevented from either building or operating its South Carolina factory.

The Facts on the ‘Unelected Board’

Romney also recycles an old claim when attacking Obama’s health care law for creating “an unelected board [that] will tell seniors what treatments Medicare’s gonna cover.” The reference is to the Independent Payment Advisory Board, a 15-member panel of doctors and medical professionals, economists and health care management experts, and representatives for consumers and seniors established under the Patient Protection and Affordable Care Act. Its purpose is to find ways to slow the growth in Medicare spending.

Though it feels like we are beating a dead horse with this one, we will continue to reiterate that IPAB is not going to “tell seniors what treatments Medicare’s gonna cover.” The health care law explicitly states that IPAB “shall not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums … increase Medicare beneficiary cost sharing (including deductibles, coinsurance, and copayments), or otherwise restrict benefits or modify eligibility criteria.” (See page 490.) The board’s recommendations, furthermore, will go before Congress, where they can be replaced with alternative cuts or rejected outright by a three-fifths majority.

And while the panel is unelected, the law says the president will appoint the members in consultation with Congress and with consent of the Senate. All three elected bodies of government will have a say in who is on the board.

— Eugene Kiely and Scott Blackburn