Budget negotiations… let me get this straight…

At present, according to news reports, the only sticking point is what to do about the medical devices tax (2.3%) which is estimated to raise about $3 b a year, how long the deal should be for (Jan? Feb?), and whether 600 people in Congress/Executive should get employer match (OK that is just grandstanding, because Darrel Issa said he would match everyone out of his personal fortune, natch.)  So, the whole negotiation is over $3b a year.

Since government shutdown is paying workers anyway, the value of services lost over two weeks probably exceeds 10 years of the medical devices tax.  So this is all pure loss, with nothing except political posturing at stake.  Let me say that again: neither side actually gets anything really valuable (in terms of a policy change) for all the drama of these negotiations.  I could see negotiating to the brink over a $400 billion reduction in defense spending, or a major revision of Affordable Care Act… but $3 b a year?  Really?

Will be interesting to see how share prices of medical device makers move when final deal announced.

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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2 Responses to Budget negotiations… let me get this straight…

  1. John says:

    Now that the government is back in business, we now see that the negotiations didn’t even lead to an agreement on the $3 billion medical device tax. Standard and Poor’s claimed yesterday that the shutdown took $24 billion out of the US economy and will cut its forecast on GDP for the fourth quarter by 0.6%. The Fed’s Beige Book report, also released yesterday, claimed that the economic activity, for the period of September to October 7th, continued expanding at a “modest to moderate pace”. Knowing these figures makes me curious to see if we might see another government shut down in January or see a compromise between the President and Congress.

  2. mkevane says:

    Yes I agree… if it turns out macro costs were not so large, shutdown might become a standard operating procedure… which would not be horrible, since the costs wouldn’t be large! There will be lots of debate over costs, because depends on a counterfactual: what would have happened without shutdown. Even a small change in growth, compounded over a reasonable time horizon, is very large compared with the stakes.

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