Politics

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Healthcare: One More Thing …

Given the almost universally negative criticism being heaped upon the latest version of Trumpcare and the likely blow-back it will unleash on GOP members of Congress in the 2018 election, it is reasonable to question why Republican leadership was so enthusiastic to legislate it into being. It certainly looks like a major policy disaster, and it looks even more like a political anchor around their necks.

Well, rest easy. It isn’t too difficult to figure out.

Begin with this axiom: the Republican party has one policy  — only one. And that isn’t anything to do with healthcare which, for average Republican party members isn’t something they think much about at all. That one policy goal is to reduce taxes. Especially taxes on the rich. This is all the modern GOP wants to do in its post-Reagan guise. They are convinced it worked for Reagan and that it produced the years of decent economic growth they fondly remember when they look back on his reign.

Next, recall that tax “reform” is high on the Republican party agenda now that it controls the entire legislative machinery in Washington.

Now, put the two together.

Tax reform in GOP-speak really means tax cutting. Given their thrall to Reagan, they have no other economic strategy. Tax cuts on the rich, they argue, increases economics growth by stimulating investment. That investment produces lost of jobs. So even the plebes whose taxes don’t get cut much get a few crumbs from the deal: they get a job. So skewed is Republican economic thinking that the obsession with cutting taxes for the rich doesn’t stop there. It also includes giving them special privileges like having their income, which is usually more from capital and rents than it is from work, taxed at lower rates. So, in this period of low economic growth the Republicans have just one idea. Cut taxes. No amount of evidence can persuade them that there may be other economic strategies.

What’s all this to do with healthcare reform?

Easy.

Part of the Republican healthcare reform, indeed the biggest part, is a massive tax cut on the rich. Remember: Obamacare had raised taxes on the rich to fund aspects of its support for low income people who couldn’t afford insurance and so on. Reversing that tax cut a key to the Republican plan. When Obamacare is repealed the Federal deficit won’t budge much because the cut in taxes would be offset by a cut in services, but the cut in taxes reduces the projected “baseline” Federal revenues against which future tax laws would be measured. This is the critical part of healthcare reform for the Republicans.

Why?

Back to tax reform: the current Republican tax reform plan will blow a huge hole in the budget Federal budget. It is, after all, designed to get all that lovely investment stimulated. The deficit would consequently sky-rocket. And this could be a deal killer.

This is the point at which Senate rules come into play. Tax and other legislation having an impact on the Federal budget can bypass the normal need to get 60 votes — and thus avoid the risk of filibuster — by going through a special “budget reconciliation” process. Budget reconciliation allows legislation to be passed by a simple majority. Since the Republicans only have 52 votes in the Senate they would prefer to use budget reconciliation for both healthcare and tax reform. However, to pass muster and qualify for this special treatment legislation has to be “revenue neutral”. In commonplace parlance this means that it must not increase the budget deficit. If it does it must remain “temporary” and be stricken from the books within ten years. If some aspects of the law do increase the deficit beyond that ten year horizon, its effects must be balanced by offsetting cost elsewhere so that the budget remains unaffected, hence the supposed “neutrality”.

One of the qualifications tests is that the legislation is limited to budget items. Parts of the current healthcare legislation fail to pass this test, so it is problematic whether the GOP repeal and replace plan qualifies for budget reconciliation.

Setting that aside, what if the baseline against which a tax reform bill was being measured had revenue projections that were already much lower than they are today? That would ease the pressure on the tax reformers to contain the damage. They could do more cutting and still hew close to the neutrality goal.

Now you see why healthcare reform is simply a segue into tax reform.

By eliminating the revenue Obamacare raised from the current projections the Republicans can lower the bar against which their tax cutting will be measured.

Of course this isn’t the whole story: the Republicans will insist that the scorekeepers use so-called “dynamic scoring” to measure neutrality as well. This is, essentially, a fudge. Dynamic scoring means that the scorekeepers have to make up some numbers like what the impact of a tax cut will have on economic growth. When you add these kinds of made-up numbers into the mix the tax cuts don’t blow much of a hole in the budget at all. The more conservative you are the more liberal you are with your guess as to the growth impact. So conservative projections always argue that tax cuts boost growth sufficiently for tax revenues [the thing that has to be neutral in the legislation] are unaffected.

Having invested all this effort into understanding why the Republicans rammed through their healthcare plan even before anyone knew what was in it or how it would impact anyone — the details will emerge in the next week or two — I doubt you want me to end with this:

The House plan will go nowhere.

There are more than a few Republican senators who are on record as opposing various parts of, if not all, the House plan. So the Senate will have to cobble together its own plan. That will take time. It will also mean that the two versions of repeal and replace will then have to be reconciled, with each side having to give something up to arrive at a consensus plan that both the House and the Senate can then vote on.

That’s where it may all fall apart. The House plan was a precarious mixture of bits and pieces thrown together to win votes from sundry factions within the party. If any of those bits and pieces has to be given upon as part of reconciliation with the Senate, those votes may evaporate also. Given that the vote was as close as it was, any negotiation imperils the majority need to pass the revise plan.

And if that happens, tax reform may fall with it.

Stay tuned. Getting rid of Obamacare is complicated. Who knew?

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Trumpcare

Just a quick note on yesterday’s vote in the House to repeal and replace Obamacare:

  • It won’t pass the Senate
  • That means another version will emerge from the Senate
  • The two versions will then have to be “reconciled” and voted on again
  • The current House version will eliminate coverage for about 20 million people
  • It will eviscerate Medicaid
  • It will increase costs for the elderly and the sick
  • It tries to offset this by including subsidies that introduces significant issues of moral hazard into the system
  • It will allow insurance companies to offer less comprehensive plans [which is how it aims to reduce premiums prices]
  • It eliminates the “mandate” and thus increases the risk of adverse selection
  • It thus destabilizes the market
  • It was voted on without any serious debate — many Republicans voting in support haven’t yet read what they voted for

All in all this was purely a symbolic vote so that the Republicans can say they followed through on their promise to repeal Obamacare. This is significant because it has been a seven year gripe of the Republicans that Obamacare wasn’t sufficiently discussed. Hypocrisy, apparently, has no end in Ryan’s world. It is shockingly bad as piece of public policy — it is cavalier with the sick and elderly. It fails to meet even the lowest of goals Trump campaigned on.

I continue to believe that America will stumble towards its own version of universal healthcare — the logic and economics of health care demands that it does. This awful bill, for instance, doesn’t re-set the system back to what it was before Obamacare. So it is a stutter along the way.

The Republicans are losing the moral and ideological argument, but the American political system, designed as it is to slow down change, and riddled as it is with moneyed interests, makes it difficult to get anywhere in a straight line.

In any case: Trumpcare is a colossal electoral gift to the Democrats in 2018. Already the pundits have moved a large number of the vulnerable Republican seats in the House into the win column for the Democrats. And that is why Trumpcare is a long way from becoming law. The symbolic vote is over. Now the hard part of legislating begins. It is by no means clear that the reconciliation process can produce a bill enough people agree on.

So repeal and replace might well die yet.

 

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Channelling Galbraith

Jamie Galbraith’s conclusion in his essay at Dissent magazine:

“The progressive alternative to an economic program of reckless stimulus and real-estate capital gains is a program of full employment, fair wages, and broad investment in social, cultural, and environmental needs, backed by taxes that fall directly on rents, monopoly profits, and on inheritances, thus directly dismantling the dynastic oligarchy that has been running the United States, through both parties, since 1981. How precisely progressive action along these lines can be made to work is a matter for study and argument. But this needs to begin now. Intellectually and politically, the Democratic Party is in ruins. It cannot be rebuilt solely from a defense of past achievements, nor by reacting to disasters that lie just ahead, nor from simple economic models or fragments of a half-baked agenda. It is time, in short, for a left program at least as radical as that about to be enacted by the right.”

Exactly.

It is time for the entire neoliberal era to be drawn to a close. Or torn down, whichever is easier. Average people everywhere are being oppressed by the combination of plutocratic corporatism and liberal intellectual indifference. Four decades of this is enough. Surely Trump’s election ought to be sufficient warning that something has to give.

A word of caution: the tired and outmoded nostrums of twentieth century progressive thought are not up to the task. Nor are those of the nineteenth century. We might agree that the pace of change over the past century has done much to create a distance from tradition and the older more pastoral worlds that so many progressive analysts seem to yearn for, but industrialization has come and gone, we are no well into digitalization. A new world is being shaped. That requires new ideas not a revamping of old ideas.

Economics has failed to keep up with this change. It is stuck firmly in the past. It is bereft of relevance in an increasingly complex world where simple models and axiomatic reasoning are inappropriate tools. Humanity creates complexity by virtue of every decision it makes. Each decision becomes a fact of the environment that the next decision has to take into account. The implied explosion in interconnectedness devastates the methods of neoclassical economics. For that matter it undermines the methods of all economics hitherto: heterodox as well as mainstream.

Our economies now rely more and more on intangible products and services, they are saturated with information, and are ever more opaque as a consequence. Imagining that theories or methods built on foundations laid down in the late-1800’s, even if updated in the mid-1900’s, are still useful is a dangerous illusion. Economics is contextual. It is a narrative. It needs re-inventing as such. Its methods are as old and rusty as the factories whose loss we decry. Neither have much value going forward other than to prompt nostalgia and to occupy historians.

Galbraith hits home: if progressive economists are to contribute to a revival of the fortunes of ordinary people, rather than continue to be part of the intellectual elite whose ineffectual opposition to plutocracy is scarcely different from abject co-option by it, they have to step forward with new ideas and not retreat to the old. Discussing twenty-first century capitalism using the vocabulary of 1848, of 1935, or of 1980 for that matter, renders the discussion obsolete before we begin. The progressive tradition needs to modernize itself. It needs to find language appropriate for our digital age where a century of rising prosperity and education have produced a more sophisticated and nuanced society albeit one riddled through with shattering inequality.

People are hurting. But they are hurting in a wildly different context and with wildly different aspirations to those that dominated progressive thought even as recently as half a century ago. To fall back into the comfortable cliches of a bygone age is to commit the very error we accuse neoclassical economics of: namely pursuing an otherworldly and utopian agenda divorced from the grittiness of reality. The grand structures of the old ideas, with all their arrogant presumption of certainty, and constructed in the heady days of early modern rationalism, need to be replaced. The new ideas will be more modest and pragmatic. They will recognize the radical uncertainty of reality and they will take into account the foibles of ordinary people. They will live, in other words, in recognition, rather than in defiance, of our limited ability to penetrate the irreducible complexity that is society.

This may sound less ambitious than the older project. Perhaps it is. But at least it has a shot of being useful. Which is more than we can say for economics as it now exists.

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That’s a Tax Plan?

Well, no, it isn’t. It’s a draft of a sketch of an outline of a synopsis of what a tax plan might look like were it designed exclusively to serve the interests of the drafter/sketcher/outliner.

With great fanfare and pomp the White House rolled out its “huge”tax plan. As predicted it is not a plan, it is a tax cut for the wealthy.  And, also as predicted, it is more ghost than real. The entire thing fits onto one side of a piece of paper. It is a typically bureaucratic bullet-point presentation of suggestions that Congress might, or might not, want to take into consideration as it works on its own tax plan.

The entire thing is a farce. It is yet further confirmation that Trump has no clue about governance, or about legislation, or about anything much to do with being president. Oh well, he’s what we’re stuck with.

But, what the piece of paper tells us is interesting. It gives us insight into the minds of the plutocrats that now control the country. Let’s be honest: neither Gary Cohn nor Steve Mnuchin, the two ex-Goldman Sachs financiers who make up Trump’s economic team, are so stupid as to believe that massive tax cuts will lead to extraordinary economic growth. They know better. It’s just that after four decades of selling tax cuts to voters the Republicans have discovered that most people are sufficiently blinded by the prospect of a sliver of gain for themselves that they will happily ignore the torrent of gold that floods into the coffers of the wealthy.

The moral bankruptcy of the sales pitch is breathtaking. It ignores the recent example of the state of Kansas under the leadership of Governor Brownback. Kansas became a test bed for the more virulent form of conservative tax theory that Trump’s erstwhile plan embodies. And the Kansas experiment has been an unmitigated disaster.

Not only did Kansas not benefit from a surge in employment when it slashed taxes — it has seen weaker employment growth than most other states — but its budget was thrown into chaos. The state’s credit rating has been cut. It has had to undergo crisis financial management that includes cuts to popular services like education. And it still is in fiscal turmoil. None of the promised benefits from the tax cuts turned up. On the contrary: Kansas has become a fiscal basket case and a premier example of why far right tax plans are to be avoided at all costs.

Yet here we are with Trump trying to turn the entire US into Kansas.

Why?

It isn’t because he is clueless. Nor is it because he is ill-informed. Cohn and Mnuchin are too smart for that. It is because he is a plutocrat. It’s as simple as that. Trump himself will get a tax cut of around $30 million a year from his own plan. On any other planet that would smell of corruption, but in planet-USA it is positioned as a pro-growth strategy to generate jobs for the plebes.

Now, I could support a thorough revision of the US tax code. It is so ridiculous and riddled through with special interest driven exceptions that it needs tossing out and totally re-inventing. At one point in his presentation Cohn mentioned that the intention was to produce a radically reduced and simplified tax code. Great, but the one page we were given didn’t get us there. Instead it featured a breathtaking giveaway to the wealthy and to business.

Republicans are always telling us that the US tax rate for corporations is the highest in the western world. That’s true, it is. But corporations don’t pay the nominal rate, they pay a much lower rate after taking all sorts of deductions that lobbyists have managed to insert into the tax code. That’s why the code is so complicated. Most large companies pay a very low actual rate of tax. Many pay nothing at all, even after making enormous profits. The same is true of wealthy taxpayers who can exploit all sorts of loopholes to minimize their tax rates.

Most people know this. Yet the Republicans keep up with the special pleading anyway.

Trump’s suggestions do include a few things for the average voter: the old seven tax brackets are condensed into three, although we have no idea at what income levels these brackets kick in; and the standard deduction would be doubled, meaning there would be virtually no tax below an income of $24,000. The plan is decidedly partisan in one way at the individual level: it would do away with a whole host of popular deductions that have particular impact in typically Democratic states like California and New York. Those states tend to have higher local taxes to pay for their higher quality education systems and public services. Eliminating the ability to use those local taxes as a Federal deduction would put huge pressure in those states to cut services like education. The Republicans apparently want to turn the entire country into Alabama or Mississippi. The want to initiate a race to the bottom in public service. Right now low quality service tastes benefit from an inflow of residents who have been educated in higher quality service states. Their workforces do not reflect their own service levels but those elsewhere. Once we have squeezed quality down everywhere, those inflows will cease.

Worse: since the higher quality service states are typically those where the economy is strongest, they have sent to Washington tax revenues far in excess of any subsidies they receive back. In effect the blue states pay into and the red states draw out from the Federal Budget. Trump’s tax plan will exaggerate the subsidy the blue states pump into the red states. At some point this will have to become an explosive political issue. Right now most taxpayers are blissfully unaware of it.

Fortunately, none of this matters much.

This meager beginning is just a start in what will be a long and drawn out battle. Most of what we saw yesterday will not make it into the final package that emerges from the arcane processes of Congress.

Oh, and we will now see just how committed the Republicans are to their fiscal conservatism. After years of bleating about the deficit during the Obama years will they simply “do a Cheney” and suddenly argue that deficits don’t matter? The Trump plan would blow hole of up to  $7 trillion in the budget over the next ten years. Either the Republicans have to let that happen or they need to find ways to cover the gap. Current Senate rules forces any tax legislation with a life beyond ten years to be “revenue neutral” — they must not add to the deficit —  this is why the Bush tax cuts were phased out after ten years, or they would have been had they not been re-upped. So do the Republicans go for another ten year deal? Or do they tackle the tax code once and for all?

The Trump plan gives us no insight. It isn’t worth the paper it is written on. So it’s a good job there wasn’t much paper involved.

One last thing, for all of you who thought a vote for Trump was a vote for fair trade: the Trump tax plan has abandoned his much ballyhooed tax on importers. He caved to pressure from the retailing industry.

What a negotiator!

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Tax Reform, Relief, Whatever

Moving on, White House style, we are now confronting the prospect of tax reform. I suppose that those of us who cringe whenever we hear a Republican use the phrase “tax reform” ought take some comfort from the obvious disarray in right wing policy circles. Tax reform is already looking like a re-run of health care reform. We all know that Republicans never actually mean “reform” they always mean “cut”, but there are hopeful signs this time through the process. Perhaps reform is a possibility.

Maybe not.

The problem with being an utter incompetent when it comes to sophisticated governance is that complicated stuff is, well, complicated. You can’t just go and bully a few people and get what you want. Tax reform is a complicated problem, especially so in America’s antiquated legislative milieu. There are so many opportunities for well-healed interest groups to twist legislation into the kind of contorted, incomprehensible, and special interest pandering mess that is our current tax system. Untwisting the tax pretzel will require deft, well informed, and strategically driven legislative leadership. Which is not, I think, a key asset of Trump. He is more of an ill informed, inept, elephant of a negotiator whose primary skill is to threaten or cajole, and who then quits abruptly if he can’t get his own way quickly.

Such was his approach on health care. And so far such is his approach on tax reform.

What do we know about the great Trump tax cut?

Not much.

As usual is seems to be a made-for-headlines artifact rather than an actual policy. We don’t know who is working on it, although this weekend our Treasury Secretary appeared to know something about the plan because he told an IMF conference that the plan would involve some short term budget busting. That’s alright though because he assured everyone that in the long term the tax cuts would pay for themselves.

What’s the correct way to react to this absurdity?

OMG!?

Apparently there are no grown ups in the modern Republican party. They keep trotting out the drivel that tax cuts “pay for themselves”. Which they do only in right wing fantasy land. Here on earth: not so much. This is not even controversial. Look at the Reagan and Bush tax cuts and then take a look at the [modest] Clinton tax increase. Investment failed to budge after the tax decreases, economic growth didn’t get a jolt, and the tax cuts simply piled up Federal deficits. Conversely, or perversely depending on your point of view, everything perked up nicely after the tax increases. So we have actual, real-life evidence: tax cuts do not pay for themselves. The fact that we have to to say this is depressing. Facts matter.

But it does give us insight into Trump world.

He, and his key advisors, seem to live in a fact fchallenged time warp where current or contemporary is defined as anything in vogue in Reagan era Republican thinking. Subsequent history and evidence is simply either ignored or never taken on board to begin with.

Its all very old fashioned and increasingly irrelevant in our new economy.

Trump is fighting a modern policy war with the equivalent, not of the old Maginot line, but with something much earlier. He seems to live in a different era and is remarkably ill-informed about the modern economy. His tax plan, what we know of it, reflects his obsolescence.

Do we need to worry?

Of course. Trump is a Clouseau clown bumbling about but with a difference: he might actually break something important. Worse: he doesn’t know enough to know if he’s breaking something.

Then again, maybe we don’t need to worry: Trump hasn’t — still — filled any of the key tax policy positions in the Treasury Department. Presumably this is because he thinks it isn’t complicated and so he doesn’t need thoughtful advice or analysis.

Or maybe he simply doesn’t know those positions exist.

Or something.

You can get quite a headache trying to explain Trump. It’s probably safer not to try.

 

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