Bait-and-switch, and then bankrupt

By Rick Berman

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When a company advertises a great product at an unbelievably low price, then tries to sell you a higher-priced alternative because they never had the product in the first place, we call it “bait-and-switch.” It's fraud, and it's illegal.

When the government proposes a law and sells it to the public with unrealistically low cost estimates - knowing full well that we the people will pick up the tab - we call it “business as usual.” And while the costs are worse than commercial fraud, it's plenty legal.

The Affordable Care Act (“Obamacare”) is nothing of the sort: It's a massive new entitlement that will end up costing billions more than we were told. Advertised as a money-saving reform, we were sold another in a long line of money-sucking federal programs that will bankrupt our country.

The Congressional Budget Office (CBO) told us that this new law would lower deficits, but the CBO is limited to working with assumptions about future spending provided by legislators, regardless of how fanciful they are. As former CBO director Douglas Holtz-Eakin put it, “fantasy in, fantasy out.”

Both the CBO and the government's Medicare actuary have expressed deep skepticism that the Medicare cuts used to cover the program cost will actually be passed into law. According to Holtz-Eakin, discounting these fantasy savings increase the cost of the bill by $463 billion. With all gimmicks accounted for, the “Affordable Care Act” adds deficits as high as $562 billion (hello more taxes?) over its first decade.

But that's just the tip of the iceberg: Our government's balance sheet is filled with feel-good programs whose advocates massively underestimated their cost. When the original cost estimates prove unrealistic - as they usually do - taxpayers wind up footing the bill. This isn't a new phenomenon: Medicare was originally projected to cost $12 billion by 1990; in reality it cost $107 billion.

There's the National Flood Insurance Program (NFIP), which was forced to seek a $19 billion bailout in the wake of Hurricane Katrina. The Government Accountability Office warns that the program's current debt and future liabilities create “substantial financial exposure” for U.S. taxpayers. Yet the NFIP continues to write policies for even the most flood-prone areas - an action that no privately owned insurance company could possibly afford (unless they could print money).

And who can forget the takeover of Fannie Mae and Freddie Mac, whose cost to taxpayers will hit $224 billion by the end of 2012. In a well-intentioned attempt to boost homeownership among lower-income Americans, these government-sponsored enterprises backed mortgages for subprime borrowers. Sounds like a great idea, until the bill for taxpayers showed up after the mortgages went bust.

The Pension Benefit Guarantee Corporation is another under-discussed fiscal time bomb. A sop to labor unions, the corporation guarantees pension payouts if a business goes under. Covering almost 34 million employees in some 26,000 pension plans, it's supposed to be funded by premium payments and the value of its investments and assets. Yet the corporation has an official deficit of at least $23 billion, and it could be as high as $170 billion if underfunded pensions are fully accounted for.

We could go on and on but hopefully you get the point: Government programs never cost what politicians promise or predict.

We have to learn from past mistakes and be honest about the tab for providing a benefit like the Affordable Care Act. Such honesty is why Rep. Paul Ryan's blunt talk about the cost of our nation's massive entitlements has created such a stir.

His honesty is bracing, but it's needed. And it beats the government scam of bait-and-switch.

Rick Berman is the executive director of Defeat the Debt, a project of the Employment Policies Institute, a non-profit research organization dedicated to studying public policy issues surrounding employment growth and the economy. Comments: berman@defeatthedebt.com