The First-Quarter GDP Report Is Lousy. Now Can We Stop Talking About the Trump Bump?
The first-quarter GDP report, which came out this morning, landed like a wet blanket on the eve of Donald Trump’s 100th day in office. The economy expanded at an anemic .7 percent rate in the first quarter, sharply below the 2.1 percent annual rate of the fourth quarter.
Let’s be clear: The lame report isn’t President Trump’s fault, by any stretch of the imagination. As many analysts have noted, the first quarter has been a problematic one for growth for the last several years, likely due to some persistent issues in the way the government measures growth. But it should also give the lie to the sentiment’ broadly held among businesspeople and the right—that Trump’s inauguration would lift the heavy blanket that had been holding down economic growth, unleash animal spirits, and lead to a boom.
That’s been the message that has been pouring forth for months from the usual suspects—many analysts on CNBC, Fox News, the Wall Street Journal editorial page. It’s an article of faith among Republicans that the economy can’t grow when Democrats are in charge and that it automatically shifts into a higher gear when Republicans assume the reins. Given the performance of the markets and the economy over the past 25 years, there’s no reason to think this. Yet it remains remarkably powerful. Earlier this week, Scott McNealy, the former CEO of Sun Microsystems, said the economic “waterboarding” has stopped.
This sense of relief and euphoria over unitary Republican control accounted for the Trump Bump—the surge in the (forward-looking) stock market since inauguration. It was also behind other significant shifts in sentiments. Many of these are the results of Republicans, and Republican-leaning businesspeople who were congenitally dissatisfied while the economy grew and the stock market tripled under Obama, suddenly feeling sunnier.
To wit: The homebuilders sentiment index spiked. Gallup’s measure of economic confidence, in negative territory for much of the past eight years, flipped into positive territory immediately after Election Day. Consumer confidence rose to levels not seen since the height of the dotcom boom. It’s not because things got so much better or the actual circumstances for homebuilders or consumers changed overnight. Rather, it’s because Republicans, who were irrationally pessimistic about the direction of the country and the economy during the Obama years, overnight became irrationally optimistic. And because Democrats and independents haven’t responded by becoming symmetrically negative, the indexes have all shot higher.
The reality, of course, is that this isn’t the way a $19 trillion economy works. It doesn’t change its mind about how fast it wants to grow based on who is sitting in the Oval Office. June will mark the eighth year of this expansion, which has been marked by slow and steady growth. The monthly data that helps guide those who make estimates on broad economic growth—car sales, home sales, job growth, retail spending—didn’t take a collective dose of Viagra in November.
This has opened up a wide gulf between the soft data—sentiment, confidence levels, what people tell you about how the feel about the economy—and the hard data, which shows what actually happened in the economy. In fact, there are signs that just as sentiment was firming up, the actual data was wilting. The Atlanta Federal Reserve maintains GDP Now, a snapshot of how it thinks the economy is doing in the present (or most recent) quarter that is continually updated as new data points come in. In late January, GDP Now was forecasting that the economy would grow at a 2.4 percent annual rate in the first quarter. But over the course of February, March, and April—the first full months of Trump’s term—the hard data that came in was worse than expected.
This doesn’t mean the economy is headed for recession, or that businesses have decided to stop investing because they’re freaked out by the rampant uncertainty, or that consumers have stopped spending as an act of resistance. By many measures, in fact, the economy is doing quite well, chugging along toward its 95th month of expansion. It’s just that the Trump economic boom, like the Trump presidency, is a lot of bluster—with not much action to back it up.
Hundreds of Houston Families Aren't Getting the Housing Vouchers They Expected Because HUD Doesn't Have the Money
On Tuesday, following instructions from the Department of Housing and Urban Development, Houston rescinded housing vouchers from over more than 900 households who that been previously awarded the coveted subsidy.
None of the families currently living in subsidized apartments in Houston lost their vouchers after the cuts, which came after HUD warned the Housing Housing Authority (along with other housing authorities around the country) to plan for a voucher budget shortfall of $9 million.
“Your housing authority is expected to take every possible action to reduce costs,” HUD analyst Karen Schleper wrote to the authority on Friday. The cuts will force those 900-plus low-income families to find new places to move or pay hundreds more in monthly rent.
Donald Trump’s Tax Plan Would Turn the Whole U.S. Into Kansas
It is hard to think of a more obvious recent public-policy failure than the tax cuts that Kansas Gov. Sam Brownback championed in 2012. The state has been mired in a perpetual budget crisis ever since the package passed, forcing its residents to swallow painful spending cuts in essential areas like education. Kansas' credit rating has been downgraded, as well. The financial wreckage has been so severe that Brownback's fellow Republicans are now staging a rebellion; in February, the GOP–run legislature voted to undo the cuts, and came close to overruling the governor's veto.
Somehow, the sharpest minds in the Trump administration have gazed upon the smoldering ashes of this misbegotten experiment and decided that they should imitate it. On Wednesday, Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn unveiled the skimpy outline of the White House's current tax plan. While the one-page document lacked much in the way of detail, it confirmed that the president wanted to cut the tax rate on so-called “pass-through” businesses to 15 percent—which would amount to a bigger, potentially more disastrous version of Brownback's ill-fated cuts.
“This would be Kansas on steroids,” Eric Toder, co-director of the Tax Policy Center, told me.
Pass-through entities are by far the most common type of business in the U.S., encompassing about 94 percent of firms as of 2011. Instead of paying corporate taxes, they simply distribute profits among their owners, who then have those profits taxed as normal income. Obviously, many small businesses are organized this way, but so are major law firms, hedge funds, real estate developers, and plenty of other extremely profitable enterprises. The Trump Organization? It's a pass-through.
This raises the obvious concern that the White House is simply planning a massive, backdoor tax cut for the rich. The current top individual income tax rate is 39.6 percent. Trump would bump it down to 35 percent. Letting law-firm and private-equity partners pay a 15 percent rate on their profits, which often make up the vast majority of their pay, would significantly lower their IRS bills. Trump's team insists that this won't happen; today, Mnuchin said Wednesday that the new 15 percent rate will be limited to small and medium-sized businesses. It’s not clear, however, what would count as “medium,” or how Washington would enforce the rule.
The bigger potential problem with slashing taxes on pass-throughs is that many highly paid Americans will probably try to cut their tax bills by pretending to be small business owners. Instead of working as a salaried employee, you could set yourself up with an S corporation that “sells” your freelance services. As Bloomberg's Matt Levine joked:
This thing isn't going to become law so I'm never going to actually tweet this joke. pic.twitter.com/8y0NLgtoEc— Matt Levine (@matt_levine) April 26, 2017
Theoretically, the IRS could try to stop these sorts of shenanigans. But as Uber has taught us oh so well, discerning a contractor from an employee is tricky business. The relatively nonpartisan Tax Policy Center, for its part, assumes that under Trump's plan, half of high-wage workers would turn themselves into pass-through entities.
Actual business owners could get in on the action too. Because of payroll tax issues, people who run their own S-corps—which are an increasingly popular type of pass-through—are required to pay themselves a “reasonable” salary or wage, in addition to whatever profits they earn. The meaning of “reasonable” is, of course, up for interpretation. If Trump slashed the tax on pass-through income to 15 percent, however, it would encourage a lot of business owners to report more profit and less salary.
This is essentially what seems to have happened in Kansas. There, Brownback exempted pass-through profits from the state's income tax entirely. If you had a successful car dealership or farm, Topeka wouldn’t lay a finger on your profits come year's end.* The rationale was that this would energize the state’s economy with a wave of new businesses and hiring.
The wave didn’t materialize. Instead, far more residents filed for the break than expected, and few new jobs seemed to follow. Kansas trailed is next-door neighbors in employment growth in the years immediately after the tax cut; in 2016, it was fifth worst in the nation. A recent economics paper by researchers at the University of South Carolina, Indiana University, and the U.S. Treasury found little to no sign that the cuts had spurred any new economic activity. Instead, their results suggested “that the primary effect of the policy was to induce taxpayers to recharacterize income as pass-through business income, which was tax-preferred after the reform.” In other words, it just encouraged people to play the system.
Trump's proposed tax cut would create far, far greater incentive to game things than Brownback's ever did. Kansans who turned themselves into businesses were spared from a 5 percent top personal income tax rate in the state. In Trump's proposal, a well-paid professional or company owner could potentially shave 20 percentage points from their taxes by claiming their salary as a business profit. The Tax Policy Center thinks such shifting could cost Washington about $650 billion over a decade; in total, by their account, the special pass-through rate would cost $1.5 trillion.
Brownback cooked up Kansas' tax cuts with the help of anti-tax hacks like Club for Growth founder Stephen Moore and Art Laffer, who still insist against all available evidence that they will be a success. But even some supply-side–friendly conservatives have criticized the policy. The Tax Foundation, for instance, warned Kansas legislators against the tax cuts and later said that the fallout from them was “doing damage to the state tax reform conversation nationally.”
For fun, I called up Alan Cole, one of the Tax Foundation’s staff economists, to see what he thought about the new Trump proposal. He was not especially upbeat.
“Pass-through taxes are decently well-structured as they are, and it’s probably best to leave them alone,” Cole said. He told me that, according to the foundation's model, it would add about 0.12 percent to the country’s annual growth rate, but again, at a cost of about $1.5 trillion. “As far as tax reform trades go, really? Is this the one that you want?”
Apparently so, if you're Donald Trump.
*Correction, April 27: This post originally referred to Wichita as the capital of Kansas. The capital is Topeka.
Only a Misunderstanding of What College Really Costs Could Have Produced New York’s Flawed Plan for Free Tuition
My father, a child of the Great Depression, used to say, “for free, take.” But sometimes free isn’t always a good deal. “Free college tuition” is an example of that. New York State’s recently passed Excelsior Scholarship, for instance, provides free tuition for all students whose family income is below $125,000. It is a well-intentioned but flawed policy that is born from misunderstanding college costs and the desire to simply do something. A better understanding of those costs would lead to a better solution.
Let’s consider a specific example. Suppose a student from Syracuse is interested in attending the State University of New York at Binghamton University and Vassar College, a private, liberal arts college not too far away in Poughkeepsie, N.Y. These schools list their costs at $25,000 (in-state) and $68,000, respectively. Binghamton’s stated price is expensive. Vassar’s is exorbitant—only the privileged few can afford that.
How does “free tuition” help at Binghamton? Consider a family at the national median of $55,000; tuition for that student would be free. But of the $25,000 cost, only $6,500 is tuition. The rest represents room and board along with other fees and expenses. That still leaves $18,500. And “free tuition,” under the Excelsior plan, displaces other forms of financial aid, so this family is likely to be stuck with a bill that is not much different than what it would have been otherwise.
What about Vassar? Despite the $68,000 price tag, it may be much less expensive for this family even after “free tuition” at Binghamton. To demonstrate, let’s use MyinTuition, the simple financial aid calculator I created and recently released for Vassar and 14 other schools with similar financial-aid systems. MyinTuition’s mission is to make college costs more transparent so that lower- and middle-income families can make more informed educational decisions. Users provide just six basic financial characteristics to obtain an estimate; it takes them an average of three minutes to complete.
Using this tool, that same family with limited asset holdings would be estimated to pay $8,600 at Vassar, less than half the price it would pay for SUNY-Binghamton. That amount would be similar at any of the other institutions that currently use MyinTuition and many others like them. Is free really better? This comparison is not meant to say that private, liberal arts colleges are a better choice than state schools. But it is useful because it shows that generous financial aid may be better, in many cases, than the lauded “free tuition” plan concocted by New York State.
Misperceptions like this about cost are pervasive and they matter. Surveys of students show that the majority only know the “sticker price” and, indeed, $25,000 is a lot less than $68,000. But what matters isn’t the maximum amount you could pay, but the actual amount you have to pay.
Who does “free tuition” help? Consider a family that makes $125,000. It will qualify and be expected to pay the same $18,500, down from the $25,000 it would otherwise be expected to pay. At Vassar, for that same family with $200,000 in assets (a typical amount for families with that level of income), the cost would rise to around $35,000. So this family benefits from “free tuition.”
The biggest beneficiaries of state support, though, make even more than that. Families at $250,000 or higher would not qualify for free tuition at Binghamton; they would owe the full $25,000. At Vassar, with typical asset holdings, they would likely owe the full amount, $68,000. So the savings of attending Binghamton compared to Vassar is greatest for this family. Therefore, even under the Excelsior plan, these families get the greatest benefit from the system.
To be sure, all of these costs are still high. The family with $55,000 in income will still struggle to come up with $8,000 per year—loans will almost certainly be necessary. Families making $125,000 still need help paying for college. And, in general, only more highly ranked colleges offer as much financial aid as Vassar, although a student applying to Binghamton University would likely be a contender at one of those schools.
But the lesson that state support should better target those with greatest need still stands. It certainly is becoming more true that attaining a middle-class or higher lifestyle requires a college degree. As a society, we do not appear willing to devote the extensive resources necessary to make college truly free for all students. The money that we are going to spend should be devoted to the places where it can make the biggest difference. Enabling as many students as possible from all economic backgrounds to achieve a college education is imperative.
One reason why that simple principle is a difficult one to implement is because our understanding of the true cost of attending college is so limited. Sticker prices are easy to understand. Free tuition is easy to understand. But at the end of the day what matters is what people truly have to pay. That is much harder to understand.
To better assist the families making college decisions and the policymakers trying to make higher education more affordable, we need to do a better job communicating the true cost of attending college. Simple calculators of these costs need to be more pervasive, and the financial aid system itself needs to be simplified to improve everyone’s understanding of college costs. Otherwise, we may be stuck with more plans for “free tuition” that simply aren’t free.
Trump’s Spat With Canada Is Bad News for Yet Another U.S. Industry That Supported Trump
The great thing about crony capitalism—if you’re a crony—is that once your guy is in charge, he may well enact policies that benefit you directly. That’s one of the reasons homebuilders were so giddy about the election of condo-builder Donald Trump. The National Association of Home Builders sentiment index rocketed from 59 in August 2016 to 71 in March 2017—a high note not heard since 2005, the height of the housing bubble.
Of course, homebuilders already had plenty to be happy about. Since construction fell off so sharply after the bubble burst, there is now something of a housing shortage in the U.S. New home sales rose 12 percent in 2016, to 561,000, while the median sales price of a new home rose 6.7 percent to $316,200. In March, new home sales were up 15.5 percent from the year before.
But while Trump talks a good game about being pro-business in general, many of his actions and policies are in fact bad for individual businesses. And homebuilding is no different—as became clear this week when the Trump administration said it would levy a tariff on some lumber from Canada.
One of the open secrets of home construction is that the people who do the framing, roofing, and fitting out of America’s McMansions, townhomes, and free-standing ranches are disproportionately immigrants. Many of them are undocumented. According to the Pew Research Center, in 2015 unauthorized immigrants accounted for 13 percent of the construction workforce. In Texas, where the population is booming (and homebuilding with it), it is estimated that about half the home-construction workforce is unauthorized.
Competition for labor in the housing market has been intense for some time, in part because the flow of immigrants from Latin America has decreased and in part because many people who worked in housing during the boom found other work during the bust. But with the government now openly hostile to the presence of these workers, and starting to deport some of them, it is becoming that much harder.
Labor markets are not particularly efficient. Former factory workers in Ohio won’t magically flock to Texas to build roofs just because the jobs are open and the wages are somewhat higher. And so rather than being sorted out quickly, persistent labor shortages often lead to significant wage inflation. As the Dallas Morning News notes, between 2012 and 2016, wages for Texas construction workers rose 21.2 percent, compared with 12 percent for all construction jobs in the U.S., and 2.2 percent for all jobs in the state. In Collin County, home to Plano and McKinney, construction workers make $98,000. And that was before the new administration began its immigration crackdown. The Dallas-Plano-Irving metropolitan area is short about 18,000 construction workers—about 20 percent of the total. Which means that many homebuilders literally can’t find people to do the job, and the rest must attempt to pass on higher costs to their customers.
Aside from labor, materials like cement, drywall, and wood are major cost items for homebuilders. And on Monday, as Commerce Secretary Wilbur Ross dolefully announced the tariffs of 20 percent on Canadian soft lumber, homebuilders were hit with another price increase. Ross noted that the tariff would lead to a “small increase” that would be nowhere near 20 percent. The National Association of Home Builders said that Canadian wood prices could rise 6.4 percent as a result, thus boosting the price of the typical new home by $1,236.
But markets in materials are somewhat more efficient than labor markets, and so they will adjust quickly to meet the higher price. As CNBC’s Diana Olick noted, “just the anticipation of it [the higher tariff] has pushed lumber prices higher by about 22 percent since the start of this year.”
Homebuilders are already facing significant challenges. They have been protecting their profit margins by passing on higher labor, land, and material costs onto homebuyers in the form of higher home prices. But that means first-time buyers, many of whom don’t have much in savings, have to come up with higher down payments. And if new home prices rise by a significantly higher rate than incomes do, it shuts out a lot of first-time buyers from the market. Meanwhile, mortgage rates are rising, which only exacerbates the challenges facing buyers.
Homebuilders’ sentiment fell in April from its high in March. If the government takes unilateral action to increase their costs more—a tax on sod? a government mandate to increase realtors’ commissions? a tariff on imported marble?—it wil become just the latest industry to feel disenchanted with our businessman-in-chief.
Donald Trump’s Massive Corporate Tax Cut Literally Cannot Pass Congress
Donald Trump hasn’t even finished writing his tax plan yet, and yet it already looks poised to meet a humiliating death on Capitol Hill.
Like most things our Cheeto-in-chief touches, the package of tax cuts that the White House is preparing to unveil on Wednesday is shaping up to be a gaudy money-loser. According to the Wall Street Journal, Trump has told his staff to work up a scheme that would cut the top corporate tax rate by more than half, from 35 percent to just 15 percent, without worrying too much about how to pay for it. “During a meeting in the Oval Office last week, Mr. Trump told staff he wants a massive tax cut to sell to the American public,” the Journal reports. “He told aides it was less important to him that such a plan could add to the federal budget deficit.”
Would such plan waste trillions of dollars padding the pockets of Walmart and Exxon’s shareholders? Absolutely! Would that stop Republicans from supporting it? Probably not! But unfortunately for Trump, his plan to slash corporate tax bills has a fatal flaw: It’s probably forbidden under the Senate’s rules, and thus entirely incapable of passing Congress.
At least, so suggest some recent comments by George Callas, who serves as senior tax counsel to House Speaker Paul Ryan. Speaking at a panel event in Washington last week, which was previously reported on by the New Republic’s Brian Beutler, Callas dismissed the idea of passing a corporate tax cut without paying for it in pretty much the harshest terms a tax wonk can muster, calling it a “magic unicorn” at one point. Feisty!
“A plan of business tax cuts that has no offsets, to use some very esoteric language, is not a thing,” Callas said. “It’s not a real thing. And people can come up with whatever plans they want. Not only can that not pass Congress, it cannot even begin to move through Congress day one. And there are political reasons for that. No. 1, members wouldn’t vote for it. But there are also procedural, statutory procedural, legal reasons why that can’t happen.”
Those reasons have to do with the Senate’s budget reconciliation process, which Republicans will have to rely on in order to move any tax bill into law, assuming Democrats won’t sign on. The procedure prevents filibusters on legislation related to taxes and spending, allowing them to pass on a bare majority vote. But it comes with a catch: Any legislation passed through reconciliation can’t increase the deficit outside of the 10-year budget window. This restriction, known as the Byrd rule, is actually written into federal statute.
One way to get around the Byrd rule is to make tax cuts temporary. The budget-busting Bush tax cuts were set to expire after 10 years for precisely that purpose, and as it has become increasingly obvious that Republicans won’t be able to agree on a plan to reform the tax code without increasing the deficit, many have assumed they’d borrow from that old playbook.
But that only really works for individual tax cuts. During his appearance, a very exasperated Callas explained that, in order to satisfy the Byrd rule, corporate tax cuts would probably have to sunset after just two years, making them utterly pointless. Here’s how he put it:
Here is a data point for folks. A corporate rate cut that is sunset after three years will increase the deficit in the second decade. We know this. Not 10 years. Three years. You could not do a straight-up, unoffset, three-year corporate rate cut in reconciliation. The rules prohibit it. You might be able to do two years. A two-year corporate rate cut—I’ll defer to the economists on the panel—would have virtually no economic effect. It would not alter business decisions. It would not cause anyone to build a factory. It would not stop any inversions or acquisitions of U.S. companies by foreign companies. It would just be dropping cash out of helicopters onto corporate headquarters.
Tell us how you really feel, George.
Now, perhaps this is just the disaffected ranting of a tax-policy professional who doesn’t want the rest of the GOP to abandon his boss’s own tax reform plan. Maybe Mitch McConnell could come up with some kind of parliamentary maneuver to make Trump mega–corporate cuts a reality. But it’s awfully strong language, and signals that Trump’s 15 percent corporate tax rate may even be DOA in Paul Ryan’s House if he can’t find a way to pay for it.
As usual, the White House is doing a bang-up job.
* * *
For those interested, here's a full transcript of Callas’ remarks. They're pretty delightful.
I want to pick up on what Doug has said a couple of times talking both about the constraints of reconciliation rules as well as, Mark, you mentioning whether the White House might come out with a plan that has no offsets. It’s a very, very important point here. A plan of business tax cuts that has no offsets, to use some very esoteric language, is not a thing. It’s not a real thing. And people can come up with whatever plans they want. Not only can that not pass Congress, it cannot even begin to move through congress day one. And there are political reasons for that. Number one, members wouldn’t vote for it. But there are also procedural, statutory procedural, legal reasons why that can’t happen. Doug and Mark were both talking about reconciliation. I want to pick up on that and flesh that out a little bit because it’s very, very important.
There is, I call it a magic unicorn running around, and I think one of the biggest threats to the timeline on tax reform is the continued survival of magic unicorns. People saying “Well why don’t we do this instead?” when this is actually something that cannot be done. As long as that exists , it’s hard to move forward by getting people to go through with what the speaker refers to as the stages of grief of tax reform where you have to come to the realization that there are tough choices that have to be made and you cannot escape those tough choices.
What the reconciliation rules say—they don’t say that tax cuts have to sunset in ten years. They say that you cannot have a deficit increase beyond the 10-year window. Now, as Doug explained, if you have permanent tax reform that is fully offset with base broadening forever, you’re are fine. You don’t have to to have anything sunset under the reconciliation rules. You can have permanent tax cuts that are paid for in the out years. If you have legislation that has no offsets, no base broadening, so it’s just tax cuts, you either have to get Democrats to support it, which they will not, or you have to do it through reconciliation so that you can do it on a partisan basis with only Republican votes. Again, reconciliation says you cannot increase the deficit after 10 years. Here is a data point for folks. A corporate rate cut that is sunset after three years will increase the deficit in the second decade. We know this. Not 10 years. Three years. You could not do a straight up, unoffset, three-year corporate rate cut in reconciliation. The rules prohibit it. You might be able to do two years. A two year corporate rate cut—I’ll defer to the economists on the panel—would have virtually no economic effect. It would not alter business decisions. It would not cause anyone to build a factory. It would not stop any inversions or acquisitions of U.S. companies by foreign companies. It would not cause anyone to restructure their supply chain. It would just be dropping cash out of helicopters onto corporate headquarters.
Federal Judge Halts Trump's "Toothless" Plan to Punish Sanctuary Cities
First came the law professors, saying President Trump could not strip sanctuary jurisdictions of federal funding.
Then came lawyers from the president's own Department of Justice, saying Trump could not strip sanctuary jurisdictions of federal funding.
Finally, on Tuesday, came the injunction from a federal judge sitting on a peninsula in the Pacific Ocean, saying Trump could not strip sanctuary jurisdictions of federal funding.
Pew Survey: Americans Suddenly Like Big Government Again
Nothing changes American minds like an election.
The percentage of Democrats who felt the economy was getting better dropped from 61 to 46 after November 8th, according to Gallup. For Republicans, it was the reverse: the percentage of Republicans with a positive assessment tripled from 16 percent to 49 percent.
More interestingly, Americans' view of government seems to have rapidly shifted since last September, according to Pew. As many Americans would rather have a bigger government providing more services as at any point in the past couple decades. Support for big government is up to 48 percent, up from 41 percent in September, while the percent of Americans favoring a smaller government providing fewer services has fallen from 50 to 45 in that time. It's the first time since the beginning of the Obama administration, Pew says, that Americans have been so divided on the subject.
People Are Ordering Books on Twitter to Save a Piers Morgan–Trolling Indie Bookstore
In February, in a small shop with bright green walls in North London, a local bookstore proprietor started tweeting the full text of the first Harry Potter book at Piers Morgan.
The shopkeeper, Simon Key, had been inspired by a Twitter feud between J.K. Rowling and the British T.V. personality/internet blowhard. Morgan, responding to Rowling’s expressing delight at him being told to “fuck off” on Real Time with Bill Maher, wrote, “This is why I’ve never read a single word of Harry Potter.” The next day, the Big Green Bookshop’s co-owner started tweeting. He tweeted hundreds of times and was blocked, others carried on his work and his hashtag, and the book store became momentarily Twitter-famous.
Trump to Democrats: Pay for My Wall, or Obamacare Gets It!
President Trump is apparently trying to add another item to his resume of bumbled hostage-taking efforts this week, by threatening to sabotage the Affordable Care Act unless Democrats vote to fund a border wall with Mexico.
Sound familiar? It was just about two weeks ago that our president was busy threatening to sabotage Obamacare unless Democrats agreed to negotiate a plan to repeal and replace it. Having gotten nowhere with that bit of bluster, it seems Trump has moved on to the wall, which he's trying to secure funding for in the appropriations bill Congress must pass next week to avoid a government shutdown. Democrats have previously threatened to filibuster any legislation that included money for Trump's metastasized stump-speech applause line, so the White House is attempting to play hardball. As budget chief Mick Mulvaney explained in an interview with Bloomberg Friday, the administration is offering $1 of funding for Obamacare's crucial cost-sharing reduction subsidies for every $1 of money Democrats pony up for the wall. Here's the full quote:
We’ve finally boiled this negotiation down to something that we want very badly, that the Democrats really don’t like, and that’s the border wall. At the same time there’s something they want very badly that we don’t like very much, which are these cost sharing reductions, the Obamacare payments. Ordinarily, in a properly functioning Washington, D.C., as in any business, this would be the basis upon which a negotiated resolution could be achieved. The question is how much of our stuff do we have to get, how much of their stuff are they willing to take, and that’s the way it should work. That’s the way that we hope that it works. We offer them $1 of CSR payments for $1 of wall payments. Right now, that’s the offer that we’ve given to our Democratic colleagues. That should form the fundamental understading that gets us to a bipartisan agreement.
The implicit threat here is that, if Democrats reject this deal, the White House will cease making the subsidy payments, and likely bring Obamacare crashing down. It is not especially credible. Democratic leaders are already responding with snark: Before, Mexico was supposed to pay for the border wall. Now, Trump's threatening the health care of millions to get taxpayers to cover it.
Senate Dem response to Mulvaney: "according to the President, Mexico is supposed to pay for the wall." pic.twitter.com/H2JTCRlKae— Rebecca Berg (@rebeccagberg) April 21, 2017
For a full rundown of the CSR drama, see my piece on it from last month. But briefly: Trump is currently deciding whether to continue appealing a federal court decision in which a judge ruled that the Obama administration did not have the right to continue making subsidy payments to insurers that were required under Obamacare, because Republicans in the House never appropriated money for them. If the White House decided to drop the case and cut off the flow of subsidies, insurance carriers would likely flee the Affordable Care Act's exchanges, leaving the individual market in rubble.
While this would no doubt be satisfying to some Republicans, it would almost certainly be a disaster for Trump's approval rating. Voters tend to blame the party in power for their personal misery—and in this case, they'd have every right to do so, since the administration would be taking active steps to burn down the health insurance market. Trump has tried to deny this, insisting that Obamacare is failing already and that Democrats “own” its impending collapse. But if he really believed that, he'd probably still be using the subsidies as a bargaining chip to get his own health care bill passed, instead of repurposing them to enact one of his other gold-plated pipe dreams.
Democrats, for their part, have very little incentive to negotiate here, since they'd be trading a temporary reprieve for Obamacare for a permanent border wall. The Trump administration says its precious barrier should cost up to $21 billion. That would pay for less than three years of the cost-sharing reduction subsidies, according to the Congressional Budget Office's projections, and giving Trump his wall now would almost certainly encourage him to make more extreme demands the next time the subsidies need more funding.
Trump has made the Democratic party an offer it will most certainly refuse. Maybe one day he'll figure out this whole negotiation thing.