Trump May Try to Deal a Death Blow to Obamacare This Week
With Obamacare repeal dead in Congress for the time being, the White House is signaling that it may step up efforts to sabotage the law this week—and possibly throw insurance markets into chaos in the process.
The rumblings began with a Saturday afternoon tweet from President Trump, in which he suggested that, after months of toying with the idea, he might finally follow through on a threat to end crucial subsidies to insurers, known as cost-sharing reduction payments. Of course, he didn't use that exact language.
If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!— Donald J. Trump (@realDonaldTrump) July 29, 2017
While wildly misleading—the cost-sharing subsidies are in no way an insurer “bailout”—the tweet left little doubt about what Trump was thinking. Then on Sunday, adviser Kellyanne Conway told Fox News that the president would make a final call on the issue this week. “That's a decision that only he can make,” she said, somewhat tautologically.
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The subsidies don't appear to be the only part of Obamacare in danger. Asked by ABC's Martha Raddatz on Sunday whether the administration might stop enforcing the law's individual mandate requiring Americans to buy insurance coverage, Health and Human Services Secretary Tom Price suggested it was an option.
“The individual mandate is one of those things that actually is driving up the cost for the American people in terms of coverage,” he said, inaccurately. “So what we’re trying to do is make sure that Obamacare is no longer harming the patients of this land. No longer driving up costs. No longer making it so that they’ve got coverage and no care. And the individual mandate is one of those things.
“All things are on the table to try and help patients,” Price added.
Neither of these announcements comes as much of a surprise—insurers across the country have requested large rate hikes for 2018 to protect themselves in case Trump cuts off the cost-sharing subsidies or relaxes enforcement of the mandate. But even if the president won't catch the industry off guard, he can still do immense damage to the insurance markets.
Turning off the cost-sharing subsidies has often been referred to as Trump's nuclear option on Obamacare. Under the law, insurers are required to reduce out-of-pocket expenses like co-pays and deductibles for poorer customers. In return, Washington is supposed to pay the carriers directly in order to cover the expense. But several years ago, the House of Representatives sued to halt the payments, arguing they'd never been appropriated correctly. A federal trial court agreed, and Trump needs to decide whether to keep appealing the case.
If Trump hits the kill button, insurers will lose billions. Seven million Americans, or 58 percent of all marketplace enrollees, qualified for the cost-sharing reductions in 2017, and carriers will legally have to continue offering the reduced-cost plans whether or not the subsidy money keeps flowing from Washington. To make up for it, health plans would have to raise their premiums by 19 percent, according to the Kaiser Family Foundation. If that's the extent of the damage, then the nuclear option will have turned out to be a bit less than atomic. However, there's also a worst-case scenario in which many insurers would simply choose to leave the exchanges rather than stick with a line of business the White House would clearly be trying to napalm.
Scaling back the individual mandate would also roil the market, though how much would depend on precisely what Secretary Price chose to do and how insurers coped. The Congressional Budget Office believes that killing off the tax penalty for those who don't buy insurance outright would drive premiums up 20 percent as younger, healthier individuals dropped their coverage, leaving behind a sicker customer base with higher medical expenses. But marginally widening the mandate's exemptions might not have the same dramatic impact on costs. The big question, again, is whether insurers would simply get sick of the campaign to undermine the exchanges and drop out.
It is unclear exactly what Trump and his team thinks they will achieve by waging an all-out war against Obamacare using executive authority. Trump has at times suggested that the best thing Republicans can do would be to let Obamacare “implode” on its own, then clean up the damage with an all-the-more-urgent repeal bill. Perhaps he still thinks the party would more readily pass a replacement if the market is in ruins. But that's a dicey political calculation. First, Obamacare is not collapsing due to its own structural flaws; Trump is trying to tip it over, and much of the media will cover that. Moreover, voters get angry when their insurance premiums rise. Even if they don't realize that the president has taken the unprecedented step of trying to undercut the country's health coverage system for political gain, there's a strong chance they'll blame the party in power, which they've just watched spend six months bumbling in its attempt to pass health care legislation. What seems less likely is that they’ll blame the Democrats who passed the law, as Trump has suggested voters would do.
It's also worth keeping in mind that, if Trump kills the cost-sharing subsidies and the insurance markets don't crumble outright, the Americans poised to experience the brunt of the pain are basically middle-class voters. Insurers will still be required to keep a lid on out-of-pocket costs for low-income customers, and Americans who make less than 400 percent of the poverty line would still get tax credits that cap their health premiums as a percentage of their income, meaning they won't feel any pinch from rising prices. It's households that earn too much to receive subsides that'd end up paying more for their coverage. That group is incredibly vocal, and—being higher income—they tend to vote.
One sign that the administration knows it’s on shaky political ground is its obviously misleading rhetoric on both the cost-sharing subsidies and mandate. Calling the former a bailout makes absolutely no sense—it's not as if insurers accidentally underpriced their health plans in this case and now need financial help. Rather, they were required to offer low-income Americans discounted coverage, which the government promised—by statute—to subsidize.
The idea that the individual mandate drives up costs is even more absurd. Yes, people who have to buy insurance who otherwise wouldn't end up spending money they'd prefer not to. But by drawing healthy people into the market, the rule brings down the average cost of coverage. Floating these ridiculous rhetorical trial balloons suggests the administration lacks a stronger argument and knows it.
Or maybe not. Maybe this whole thing is just irrational. Maybe like Samson chained to the pillars, Trump just wants to bring Obamacare's whole structure tumbling down, even if it might kill his presidency, too. With this White House, you never know.
Tobacco Investors Just Learned That Trump Isn’t the Salvation of Every Odious Industry
The tendency to lean on political beliefs is one of the most powerful forces in investing and financial media, and one of the most dangerous. There’s a general sense that Republicans are good for business (lower taxes, fewer regulations, an overall permisiveness) and therefore good for the stock market. And there’s a sense that Democrats are bad for business (higher taxes, more regs, a skepticism toward industry’s prerogatives) and therefore bad for the stock market. The lived experienced of the markets over the past 25 years—booming under Clinton and Obama, tanking under Bush—should give the lie to this feeling. But it endures. And it has become particularly powerful under Trump, who regards the stock market as a kind of real-time approval gauge.
But doing so is precarious. And it can be continually confounding at the macro level and at the level of sectors and individual companies. That’s a lesson that investors who held stocks in tobacco companies—in particular the biggest one, Altria (formerly Philip Morris)—learned Friday.
Tobacco companies are in a strange position right now. Smoking is on the decline in the U.S., in part because of government efforts to discourage it via higher taxation, regulation, outright bans, and President Obama’s use of the bully pulpit and the executive pen. Only about 15.1 percent of Americans smoked in 2016, down from about 21 percent in 2005, according to the Centers for Disease Control and Prevention. And yet the profits of tobacco companies, paradoxically, are booming, in part because sales overseas are growing and in part because tobacco companies have the ability to raise prices. (That’s one of the advantages of making a product that is addictive.) Altria’s profit margins on tobacco products are remarkably high. Between 2001 and 2016, as the chart on Page 11 of Altria’s annual report shows, Altria’s stock nearly tripled, while the S&P 500 merely doubled.
Altria’s stock, like many others, continued to soar after Trump’s election—up about 10 percent in the first half of the year. It’s not hard to see why. Aside from benefiting from the general pro-business agenda of Trump—cutting corporate taxes, reducing the capital gains tax, and so on—Altria would seem to have far less to fear from a Trump administration than from an Obama or Clinton administration. While he doesn’t drink or smoke, Trump isn’t a particularly healthy person: He doesn’t work out or exercise or maintain a healthy diet. His administration has backed measures that would cut health care spending by hundreds of billions of dollars, some of which is now spent on smoking cessation. The Trump administration is full of lobbyists and corporate types eager to do the bidding of companies. The likelihood of the first family engaging in aggressive anti-smoking campaigns is laughable. Altria kicked in $500,000 to fund the Trump inauguration.
And the person Trump named to be the head of the Food and Drug Administration, which regulates tobacco, doesn’t have a history of anti-smoking activism. Scott Gottlieb is a physician, biotech investor, and former resident fellow at the American Enterprise Institute who also served in the Bush administration. What’s more, Gottlieb has been strongly in favor of deregulating pharmaceuticals and medical devices, as part of an effort to bring innovations to market more quickly and reduce costs.
And yet Friday morning, with little apparent warning, Gottlieb announced a new comprehensive plan to regulate nicotine. In an aggressive speech that spoke about cigarettes and nicotine in harsh terms, Gottlieb said “we need to envision a world where cigarettes lose their addictive potential through reduced nicotine levels.” For this reason, Gottlieb said, “I’m directing our Center for Tobacco Products to develop a comprehensive nicotine regulatory plan premised on the need to confront and alter cigarette addiction.” With a “balanced regulatory approach,” he noted, “we may be able to reach a day when the most harmful products are no longer capable of addicting our kids.”
This clearly came as a surprise to the companies and to their investors. Stocks reacted violently. In about 30 minutes, Altria’s stock fell 15 percent, sawing nearly $21 billion in market capitalization off the company. By later in the afternoon, the stock had stabilized, though it was still off by about 10 percent, or about $14 billion.
Clearly, investors and the tobacco companies believed that the Trump FDA would take a more hands-off approach to regulating tobacco. After all, we’ve seen sharp pullbacks from regulation of toxic emissions and substances at the Environmental Protection Agency and a general desire to rip up consumer protections. But just because there’s a general air of deregulation, and just because people now in positions of responsibility are hostile to scientific consensus (hello, EPA and Interior), doesn’t mean that all important executive-branch appointees do so.
That’s the mistake tobacco investors made. Gottlieb, after all, is a physician, and a cancer survivor to boot. The science and medicine surrounding tobacco is long since settled, and the consensus is broad. The product has been regulated, without much controversy, for several decades. Everybody involved in health care really hates tobacco, an addictive product that has a host of really bad, expensive, and predictable effects on people’s health. “As a physician who cared for hospitalized cancer patients, and as a cancer survivor myself, I saw first-hand the impact of tobacco,” Gottlieb said in a speech Friday. “And I know all too well that it’s cigarettes that are the primary cause of tobacco-related disease and death. What’s now clear is that FDA is at a unique moment in history, with profound new tools to address this devastating impact.”
Not all of Trump’s appointees will be pro-corporate stooges at all times. And investing as if they are can be remarkably expensive.
The Latest Version of “Skinny Repeal” Might Give States a Chance to Wreck Obamacare
Republicans have finally unveiled the “skinny” Obamacare repeal bill they plan to vote on this evening. Like everybody expected, it’s an atrocious bit of policy—a piece of legislation that, as many GOP senators have already admitted, would destabilize the insurance markets by killing off the individual mandate while leaving the Affordable Care Act’s other regulations in place.
Somewhat surprisingly, the bill also still aims to make it easier for states to dismantle Obamacare on their own—though just how much easier is a bit of an open question, which of course won’t be resolved because Senate procedure is now a farce and Republicans are voting on this thing tonight.
As you may recall, the original Better Care Reconciliation Act made it extremely easy for conservative states to opt out of Obamacare’s rules and regulations by expanding the so-called 1332 “state innovation waivers” contained in the law. This provision was designed to let states experiment with alternative health care systems—like, say, single-payer—so long as officials could show that whatever setup they came up with would cover as many people as comprehensively as Obamacare, and without raising the federal deficit. The Republican bill would have nixed most those conditions, save the deficit bit, forcing the secretary of health and human services to approve pretty much any waiver request that came his way. Worse yet, once waivers were in place, the federal government would not be allowed to revoke it, no matter how states mismanaged their funding.
As Michigan Law Professor Nicholas Bagley wrote back in June, “If state officials blow the Obamacare money on cocaine and hookers, there’s apparently nothing the federal government can do about it.”
Earlier on Thursday, however, it seemed like those waivers-on-steroids might have be removed from the GOP’s bill. The Senate parliamentarian ruled that they were not eligible for a vote under the reconciliation process GOP leaders are relying on to pass their bill, and so would need 60 votes to break a filibuster.
But it turns out a somewhat-less-expansive version of the waivers made it into the skinny bill after all. To get them, states will still have to show that their proposals will cover as many people as thoroughly as Obamacare—those guardrails have been left in place. But once a waiver is approved, they can’t be canceled for eight years, which may effectively give states room to do whatever the heck they want. Or so writes Bagley late Thursday at The Incidental Economist: “So while the ACA’s guardrails are still in place, states can ignore them once a waiver has been granted. And there’s not a thing the federal government can do about it.”
Personally, I’m not so sure these waivers are really a free hall pass for states to revoke insurance from their residents. Presumably, if a state doesn’t abide by the terms of its own waiver, individuals who lost their coverage or premium subsidies could bring a lawsuit. (Likewise, if the administration tried to approve a waiver that clearly doesn’t meet all of Obamacare’s standards, someone would almost surely drag it into court). Would that work? I can’t say. There was some debate about it tonight on Twitter.
And that’s the problem (or, one of the problems, anyway). There hasn’t been nearly enough time to judge how this bill could affect health care for millions. And no matter what Mitch McConnell says, there’s a strong chance it could become law.
Trump’s Best Plan to Save the Rust Belt Is Telling Upstate New Yorkers to Move
Donald Trump won the presidency in part on the promise of reviving the Rust Belt, ending job loss and population stagnation, and bringing back the halcyon days of meaningful factory work.
But if that doesn’t work, the president conceded in an interview with the Wall Street Journal on Tuesday, you should probably just move:
I’m going to start explaining to people: When you have an area that just isn’t working like upper New York state, where people are getting very badly hurt, and then you’ll have another area 500 miles away where you can’t get people, I’m going to explain, you can leave.
With that, Trump appeared to acknowledge—to the chagrin of whoever penned his inevitably ignored talking points—what most economists believe about migration and job growth, but that his campaign was premised on denying: It’s easier to move people to jobs than to move jobs to people. For politicians in Upstate New York, including some Republicans who have supported the president, it was a disheartening comment to read. Even the president who promised to resurrect American manufacturing had given up on them, not to mention his own quest to implement or advance any kind of national policy to back his “Made in America” campaign.
The occasion was an otherwise celebratory announcement that Foxconn, the Taiwan-based manufacturer that builds iPhones and other electronics, would be (maybe) building a massive plant in Southeastern Wisconsin, between Milwaukee and Chicago. Wisconsin beat out New York with an offer of subsidies that ranks among the largest in U.S. history—$3 billion for 13,000 jobs on the high end ($231,000 per job) or something closer to $2 billion for 3,000 jobs on the low end ($666,000 per job).
Wisconsin claims it’s the largest “corporate attraction project” in U.S. history, measured by jobs. Gov. Scott Walker said the development would be called “Wisconn Valley”—the Silicon Valley of Wisconsin. (And an extra “n” for the “conn” in Foxconn.)
Trump may have felt free to lob an insult at the one depressed Rust Belt area that had responded enthusiastically to his campaign trail talk but doesn’t sit in a politically competitive state like Pennsylvania, Ohio, Michigan, or Wisconsin. In 2016, he visited Syracuse and other hard-hit upstate cities, promising the return of factory work. He called the area a “ghost town,” but claimed he could win the state on the backs of its voters, for whom, he told CNN, "I'm like the most popular person that has ever lived, virtually.”
Slightly less popular now. Anthony Picente, a Republican and Oneida County executive who had tried to lure Foxconn to an industrial park near Utica, said he was “disappointed in Trump.”
Rep. Claudia Tenney, a Republican congresswoman and early Trump supporter who stood by the president during his recent “Made in America” showcase at the White House, said she hoped the president’s comments had been taken out of context.
"It’s OK,” the president told Tenney’s constituents, in urging them to decamp for the Milwaukee suburbs. "Don’t worry about your house.”
It’s true that Upstate New York has been battered by deindustrialization, and has tried to swim against the tide. Since 2000, New York State leads the nation in the value of “megadeal” corporate subsidies, defined by Good Jobs First, a tax break watchdog, as projects involving more than $50 million in subsidies. New York made 24 such deals, worth $11.8 billion. Only a quarter of those were in the New York City area, which accounts for more than two thirds the state’s GDP and nearly two thirds of its population. The rest were upstate, including the six biggest deals.
It hasn’t been enough to spur a general recovery, as Jim Heaney and Charlotte Keith showed in an Investigative Post investigation in March. During Gov. Andrew Cuomo’s tenure, upstate job growth is at 2.7 percent, compared to 16 percent in New York City, 7.4 percent in its suburbs, and 11 percent nationally, despite the governor’s efforts to redirect downstate productivity north.
So in a funny way, Wisconsin is actually taking a page from New York here in giving Foxconn a pass on future state income tax, capital investment tax, and sales tax exemptions on construction materials. The largest state subsidy ever awarded in Wisconsin had been about $65 million, to Mercury Marine in 2009, not all of which has been claimed.
At any rate, Trump is wrong that New Yorkers should move to Wisconsin to get a job, which isn’t exactly thriving either. (They’d be better off moving to New York City.) But the real lesson in the Foxconn deal is that Trump has conceded that his “Made in America” policy, such as it exists, consists of the usual political horse-trading and subsidies that prop up isolated, negotiated investments in American manufacturing.
If the president had made a concerted policy push to revive Rust Belt factories, or was planning on it, Upstate New York and Wisconsin might both stand to benefit. Instead, they’re where U.S. states have been for decades: In competition to dismantle tax and regulatory systems to appease flighty corporate bosses.
Would the GOP’s “Skinny Repeal” Bill Really Wreck the Insurance Market?
At some point in the next day or so, Senate Republicans are expected to vote on their Plan C for killing Obamacare—“skinny repeal.” Nobody knows exactly what is in the bill yet, because it was still being written Thursday afternoon. But the rough idea is to wrap a handful of ideas the entire GOP can support into a piece of bare-bones legislation that avoids controversial issues like cuts to Medicaid that have split the party's moderates and conservatives. Above all, it would end the Affordable Care Act's requirement that all Americans buy insurance lest they pay a tax penalty—aka the individual mandate. It would also “partially” repeal the employer mandate requiring businesses to offer their workers coverage. Beyond that, it would make changes around the ACA’s edges.
In theory, this splinter of a bill is not supposed to reach Donald Trump's desk. Republicans are being asked to vote for it merely to keep the repeal process alive, allowing the House and Senate to meet in a conference committee to craft a final, more robust piece of legislation. But at this point, it's not clear that Republicans are actually capable of coming up with anything better. The Senate GOP has been unable to muster 50 votes for any kind of comprehensive plan to replace Obamacare. And even if those votes existed, it's becoming increasingly clear that procedural hurdles would get in the way. If Republicans are determined to notch a win—loosely defined—on health care, Congress may have to pass skinny repeal and call it a day.
What would that mean for health insurance in this country? Nothing good. The individual mandate, while politically loathed, is still the keystone that makes Obamcare's extremely popular consumer protections hold together. Republicans would remove it while leaving in place the regulations that bar insurers from rejecting or charging more to customers with pre-existing conditions. The Congressional Budget Office has estimated that such a plan could cause insurance premiums to rise by an additional 20 percent within a year, as young and healthy Americans dropped their coverage, leaving behind a pool of sicker enrollees with higher medical costs. Eventually, the CBO believes 16 million more Americans would be left uninsured—some by choice, and others because they were priced out of the market.
To be clear, that 16 million figure shouldn't be taken as gospel. According to a chart the CBO provided congressional Democrats, the office thinks that by 2021, 5 million fewer Americans would have individual coverage, 4 million fewer would have insurance through their employer, and 6 million fewer would have it through Medicaid. (Presumably, there are unseen decimal points in there that round up the total to 16 million.) The Medicaid number is probably the most controversial part of that prediction, since it doesn't make a ton of intuitive sense that killing a mandate to buy insurance would drive people off a government safety net program. But Medicaid has a lot of turnover each year; people sign up for it and drop off when they find work or other insurance options. And it's entirely possible that without the mandate, some people would never discover they were eligible for Medicaid in the first place, because they would never go looking to find a health plan. Whether it would actually cause the program to shrink by 6 million heads is hard to say.
The bigger question is whether the insurance markets in some parts of the country would collapse entirely. We know that forcing insurers to cover the sick without making everybody buy coverage works poorly because several states tried it prior to Obamacare. Premiums skyrocketed as enrollment in the individual market shrank. But the difference today is that Obamacare provides insurance subsidies that cap premiums as a percentage of a household's income. As a result, there will almost always be some people ready to buy insurance no matter how high premiums shoot up, since the government will pay most of their tab. It seems very unlikely the insurance market would plunge into a full-fledged, nationwide death spiral, where rising premiums drive out the vast majority of healthy customers, and insurers are forced to abandon the market or charge unaffordable prices.
Even so, killing the individual mandate would be sure to rock the insurance market (which is why insurers are shouting apocalyptically about it). First, Obamacare's subsidies cut off for families that make more than 400 percent of the poverty line, or about $82,000 for a family of three; the millions of Americans currently paying full price for their insurance would get gouged. Second, even with subsidies around to act as a cushion, insurers might decide to abandon some parts of the country anyway. Remember, there are already some counties that could end up with zero carriers offering health plans on their exchanges next year. If skinny repeal passes, it wouldn't be surprising if that pain spreads further. We wouldn't see a coast-to-coast death spiral, but we might witness a few localized ones.
That sort of dysfunction might still be preferable to the House or Senate plans to replace Obamacare, which would have dealt a generational blow to the safety net by slashing hundreds of billions of dollars from Medicaid. But skinny repeal is still bad policy. It's a slight piece of legislation that could deal some heavy damage.
The Senate Parliamentarian Is Throwing a Wrench Into the GOP’s Ultimate Health Care Plan
Right now, Senate Republicans are desperately attempting to pass something—anything—that can plausibly be called Obamacare repeal so they can then sit down with their colleagues in the House and craft a piece of compromise legislation both chambers will vote on. The plan is to keep making forward progress and hope that sheer momentum carries this whole shambolic legislative effort over the goal line.
There are many reasons why this strategy could fail. But one of the most important, and perhaps most underappreciated, is that it seems unlikely any bill capable of passing the House right now will also be able to pass the Senate purely due to procedural reasons.
For this we can thank Senate Parliamentarian Elizabeth MacDonough, who since last week has ruled that several key pieces of the GOP's plan to replace Obamacare would not be eligible for a vote using the budget reconciliation process, which Republicans are banking on to pass their bill. Reconciliation is designed to pre-empt filibusters on tax and spending matters, allowing them to be enacted with a bare 51-vote majority (the GOP has 52 seats in the Senate, plus Vice President Mike Pence to break ties). But it is not supposed to be used for purely regulatory changes. MacDonough has advised lawmakers that many of their proposals don't pass muster under the procedure, including provisions that would defund Planned Parenthood and bar Americans from using government subsidies to buy insurance that covers abortion. The rule that would make people wait six months to purchase a health plan if they have a lapse in coverage—Republicans' proposed replacement for the Obamacare's individual mandate—is also a no-go, as is a change allowing insurance carriers to charge older customers up to five times what younger enrollees pay.
A repeal bill could conceivably survive Congress without these pieces. The broader problem is that the parliamentarian appears to be interpreting the reconciliation rules strictly, which means she may force the Senate to strip other key conservative regulatory demands, such as Sen. Ted Cruz's amendment allowing insurers to sell bare-bones health plans or waivers giving states the right to opt out of Obamacare's market rules.
Losing the waivers, especially, would be an enormous, possibly insurmountable obstacle for Republicans. Right now, the Senate is expected to try to pass a stripped-down “skinny repeal” bill that would kill off Obamacare's tax penalties for Americans who don't buy insurance, the requirement that employers offer their workers insurance, and the tax on medical devices. The idea is to advance a piece of legislation that almost everyone in the Senate can agree on—there's been a lot of talk about settling on the “lowest common denominator,” which, yeesh—and then go into a conference committee with the House to negotiate a final compromise. Already, House conservatives are telling the media that they won't simply accept the skinny repeal option and move on. “You’ve got to give freedom to the states at a minimum,” Rep. Raul Labrador told the Daily Beast. “In my opinion, we should get rid of the entire bill—the entire Obamacare—but that’s not going to happen. ... This is our one chance to repeal Obamacare and to give the states flexibility.”
But what if the parliamentarian decides that “state flexibility” is a no-can-do under reconciliation? At that point, Republicans have two options.
On the one hand, hard-liners could choke back their frustrations and just vote on whatever milquetoast piece of legislation the Senate is capable of producing.
On the other, Republicans could choose to overrule the parliamentarian, and thus more or less end the Senate as we know it. Technically, MacDonough's rulings are only advisory. Vice President Pence gets the actual final word on whether a bill meets the requirements for reconciliation, and he could choose to simply greenlight any bill Congress produces, allowing it to pass with 51 votes. But this would be a tectonic rupture in Senate history. No vice president has overruled the parliamentarian since Nelson Rockefeller in 1976, and choosing to do so in today's political climate would amount to gutting the filibuster, since pretty much any legislation could pass with 51 votes so long as it had the veep's blessing.
Would Republicans actually go this route? It's hard to say. Sen. Mitch McConnell, who would almost certainly make the final call on this issue, has resisted the idea of ending the legislative filibuster out of concern that, one day, a President Bernie Sanders might be able to pass single-payer or nationalize Trump Tower with fewer than 60 Senate votes. But despite his reputation as an “institutionalist,” the majority leader has shown himself more than willing to obliterate the Senate's procedural precedent during this year's secretive and rushed health care push. If he has to choose between fulfilling a seven-year pledge to blot out Barack Obama's legacy and preserving Senate traditions, it's not at all clear to me which McConnell would pick.
The One Thing Trump Got Right in His Rant Against the “Amazon Washington Post”
Once again, President Donald Trump is slamming his perceived enemies on Twitter, this week returning to an old favorite: the Washington Post, whose owner is Amazon CEO Jeff Bezos. Though the Post is a separate company from Amazon, Trump tried to smear both by referring to the paper as the “Amazon Washington Post” and asking whether it was a “Lobbyist for Amazon and taxes?” In Trump’s rhetoric, Amazon is a “no tax monopoly”—an echo of an earlier tweet in which he accused Amazon of failing to pay “internet taxes.”
Is Fake News Washington Post being used as a lobbyist weapon against Congress to keep Politicians from looking into Amazon no-tax monopoly?— Donald J. Trump (@realDonaldTrump) July 25, 2017
The #AmazonWashingtonPost, sometimes referred to as the guardian of Amazon not paying internet taxes (which they should) is FAKE NEWS!— Donald J. Trump (@realDonaldTrump) June 28, 2017
Trump is clearly trying to discredit one of his most dogged chroniclers in the press by claiming that its owner is somehow disreputable because he takes advantage of the tax laws to avoid taxes others are required to pay. Not only is that desperate, but it is also hypocritical, coming from someone who bragged during the campaign that he’s fought like hell to pay as little in taxes as he could and whose advisers claimed that his ability to avoid taxes was a sign of his genius.
Despite all that, sometimes even a blind pig finds a truffle, and it appears that, in his rage, our blind pig in chief may have actually stumbled onto a good tax idea.
It is not entirely clear what Trump is accusing Amazon of—there are no “internet taxes” and Amazon does not have a monopoly. But it appears he is referring to the rules that prevent states from requiring out-of-state retailers from collecting and remitting use taxes on items bought by state residents, often over the internet. Put differently, he appears to be advocating for a law that would require all internet companies to collect such taxes and remit them to the states. Ironically, Amazon supports such a law. Instead, members of Trump’s own party have effectively blocked all efforts to address this problem.
States that have sales taxes require in-state retailers to collect and remit those taxes. Generally, sales taxes are due only on items purchased and used within a state. Thus, taxpayers quickly figured out they could escape sales tax by living in one state, buying things from a retailer in another state, and having them shipped to where they lived. This practice would give out-of-state retailers a significant advantage because their sales would not be subject to tax. To combat this, states adopted “use” taxes at rates equal to the sales tax rate, which applied to items purchased out of state but used in state. Thus, an Arizona taxpayer might avoid both California and Arizona sales tax by buying something in California and having it shipped to Arizona. However, he would owe Arizona use tax, thus eliminating any advantage of shopping out of state.
Taxpayers are supposed to report their purchases to the state government and pay their use taxes, but, as you can imagine, this seldom, if ever, happens. The result is that states are deprived of significant amounts of tax revenues. Some estimates suggest the number is more than $23 billion per year and growing. Several states have attempted to remedy this problem by forcing out-of-state retailers to collect and remit use taxes, but they’ve run into a number of problems. The first is jurisdiction. How is Arizona supposed to exercise power over out-of-state retailers? The second stems from the Constitution’s commerce clause, which limits the states’ abilities to interfere with interstate commerce. In a famous case (at least among tax nerds) called Quill Corp. v. North Dakota, the Supreme Court held that states lacked the authority to require out-of-state retailers to collect and remit use taxes but that Congress could grant them that power. The court all but invited Congress to act, but it has not yet done so.
Democrats have made a number of attempts in Congress to give states the power to require out-of-state retailers to collect and remit use taxes, or at the very least to report how much residents have purchased. For instance, they have introduced various versions of the Main Street Fairness Act over the years. Other efforts include the Marketplace Fairness Act. However, Republicans have largely blocked such efforts. Critics of the act have argued that a tax holiday for internet sales was important to help the nascent internet take root. Such concerns are clearly no longer relevant. They have also argued that requiring retailers to collect use tax would require them to know the different use tax rates for every state, county, and other municipality, thus imposing a significant burden. However, technology is quickly rendering such concerns obsolete.
Again, Amazon supports this law. It has expanded its physical presence into a number of states, thus coming under more states’ jurisdiction. As a result, Amazon actually does collect sales or use taxes for most of the states in which it does business. It’s smaller internet businesses, with a physical presence in but one or a few states, that are able to avoid the obligation, giving them a competitive advantage and depriving states of much-needed revenue.
President Trump campaigned in part as a populist, railing against the forces that have hollowed out the middle class and brought ruin to Main Street. One of those forces has been the significant tax advantage online retailers have had over small retailers because they often do not have to collect use taxes. If Trump really cares about the states and mom-and-pop businesses that sell locally, supporting the Main Street Fairness Act or one of the other similar proposals would be a great first step toward fulfilling that element of his campaign.
Obviously, all of that is less important to Trump than undermining the Washington Post, the source of a significant number of his headaches. At the same time, good tax ideas coming out of this administration are few and far between. Let’s take them where we can find them.
Advertising CEO Blames “Gridlock” for Disappointing Quarter. Huh?
Patriotism may be the last refuge of scoundrels. And politics may be the last refuge of CEOs whose companies miss their earnings. In a call Tuesday, Michael Roth, CEO of the giant advertising agency Interpublic, blamed the firm’s disappointing earnings—which sent the shares down 12 percent—on nonexistent political happenings. “Our results in the quarter reflect the fact that macro uncertainty and political gridlock are affecting spending, particularly in the U.S., with clients demonstrating caution in terms of releasing budgets,” Roth said during the company’s earnings call.
By blaming Washington, Roth misdiagnoses both the impact of macroeconomic uncertainty and political gridlock.
Life and the economy are always uncertain. That’s why businesspeople like Roth get paid lots of money to navigate their large firms—Interpublic is one of the four giant global ad agencies—through the choppy waters. Sure, there is lots of uncertainty about policy. What will happen with health care? The debt ceiling? Brexit? And, yes, that has the capacity to affect some advertising campaigns. But overall the climate for marketing firms is quite benign. The U.S. economy is entering its ninth year of expansion. Employment is at record levels, as are the stock market and corporate profits. Retail sales continue to rise. Sure, some significant sectors that are big advertising and marketing spenders are suffering—i.e., department stores, automakers, and apparel makers. But many others are chugging along quite nicely, including travel, leisure, restaurants, technology, home improvement, and housing.
What’s more, the U.S. is definitively not suffering from gridlock—at least as typically defined. Usually, gridlock happens when one party controls the White House and the other party controls one or more houses of Congress. When this occurs, partisan rancor and continual positioning—the constant desire to deny the other team a win—tends to bring progress to a halt on major initiatives and leads to legislative hostage-taking, threats, and crisis. That is emphatically not what is happening in Washington. One party controls the White House, the Senate, and the House of Representatives. It’s just that the party, the GOP, is unable to govern, debate issues rationally, develop plans, or conduct even the most basic components of legislating like passing a budget, raising the debt ceiling, or passing an infrastructure bill. (In 2009, the scenario was reversed, with Democrats controlling the White House and both houses of Congress, and there was a flurry of important activity that helped the economy, most notably a huge and far-reaching stimulus package.)
Roth is simply taking the type of shorthand CEOs often use when talking about politics to the next level. CEOs of large, highly visible companies often try to avoid blaming particular players in politics by name, or by party. Doing so makes it harder to lobby in the future and, in the current environment, could invite a nasty tweetstorm. And so you generally hear them blame “Washington,” or “politics,” or “partisan politics.”
But of course, today blaming Washington or politics would, in effect, mean calling out Republicans and President Trump by name, since they control the levers of power. (Yes, I know Democrats can filibuster legislation in the Senate. But until now, there has been virtually no legislation for them to filibuster.) So the next logical step, when casting about for an excuse, is to invoke gridlock, which, by definition, is a naturally bipartisan phenomenon.
The real problem for Interpublic isn’t gridlock or macroeconomic uncertainty. The company’s revenue fell $32 million in the most recent quarter compared with last year in part because its pipeline of big projects wasn’t quite as robust as it had been. “In the second quarter, we were missing some of these larger projects to replace the ones that have run off,” Roth said.
Got that? Giant ad agencies depend on selling big clients on big projects or big ad campaigns. And in the most recent quarter, Interpublic’s Don Draperses were marginally less successful than they were in the year before in sealing major deals.
That’s not gridlock. That’s just a marginal loss in market share.
The Senate’s Desperate New Plan to End Obamacare: “Skinny Repeal”
With just hours to go before they are expected to start voting on health care despite there being no actual legislation in sight, desperate Senate Republicans are reportedly considering a last-resort, stripped-down bill that would end Obamacare's individual mandate, along with some of its taxes, while leaving the rest of the law untouched.
Here is how the four-step “skinny repeal” plan would work, as outlined by NBC's Leigh Ann Caldwell:
1) First, Mitch McConnell would have to wrangle 50 votes on the motion to proceed. That isn't guaranteed. But the conventional wisdom right now says Republicans will play along, basically as a courtesy to Sen. John McCain, who is hauling himself to Washington from Arizona despite his brain cancer diagnosis. (Update, 4 p.m.: The motion to proceed has passed! Afterward, McCain gave a long, rousing speech about how the Senate should return to normal order, even though he had just cast a vote allowing it to continue ignoring those very procedures.)
2) Republicans would vote on a bill to repeal Obamacare without immediately replacing it. This will almost certainly fail but will provide a great emotional release for Sen. Rand Paul.
3) The party would then vote on the Better Care Reconciliation Act, its full repeal-and-replace plan, complete with the controversial Cruz amendment, which lets insurers sell unregulated insurance policies as long as they also offer Obamacare-compliant plans. Because that provision hasn't been scored by the Congressional Budget Office, however, it can't pass through the reconciliation process and will need 60 votes to overcome a filibuster. In other words, it's also dead on arrival.
4) Finally, they'll trot out the “skinny repeal,” which would kill the individual mandate requiring Americans to buy health insurance, the rules requiring large employers to offer their workers coverage, and the medical device tax. These are basically the only pieces of health care reform that count as consensus among Senate Republicans.
As a piece of health care policy, the “skinny repeal” bill is a travesty. To repeat what health care writers have written at least a gazillion times now, repealing the individual mandate while leaving the rest of Obamacare unchanged would likely push the individual insurance markets into a death spiral, as young and healthy Americans stopped buying insurance, leaving behind a customer pool full of older patients with extensive medical costs. This is not even really a hypothetical. Prior to 2010, states tried and failed to impose Obamacare-esque rules forcing insurers to cover the sick without requiring everyone to buy coverage. The result: dysfunctional markets and sky-high premiums. Obamacare minus the mandate might be a little less of a train wreck, because it at least offers people subsidies to buy insurance that cap premiums as a percentage of their income. But it wouldn't be a good scene. The CBO, for its part, thinks the BCRA would leave millions more Americans uninsured by 2018 because it eliminates the mandate.
Republicans know this. That is why they have tried to come up with alternatives to the mandate. The latest public version of the Senate bill, for instance, included a rule saying Americans who let their coverage lapse for too long would have to wait at least six months before buying a new health plan. (The Senate parliamentarian recently ruled that piece would violate reconciliation rules, meaning it would also need 60 votes to pass.)
But the skinny bill does not appear to be a real policy compromise. Instead, it seems like a legislative tactic aimed at keeping Obamacare repeal alive by winning 50 votes, then kicking the legislation over to a conference committee, where Republicans in the House and Senate can hash out a final piece of legislation. Of course, if this truncated, nonsensical bill is the only thing upper-chamber Republicans can pass now, it's unclear why anybody thinks they'd be able to strike a workable bargain with the more conservative House—other than the possibility that lawmakers will feel they're too deep in at that point to turn back.
By now, the Republican health care push looks like the slapstick end of a football game, where the losing offense starts blindly tossing laterals in the hope that they'll get lucky and make it to the end zone. It's ugly and silly. But there's always a slim chance it could work.
This Company Gave Up on Its First Smartphone With Replaceable Parts Because It Ran Out of Parts
When the Dutch company Fairphone launched in 2013, it was supposed to be built around two related principles: sustainability, in the sense that it maintained decent working conditions and used entirely sustainable, less-hazardous, or recycled materials; and sustainability in the sense that you wouldn’t have to chuck its phone after two years. Hoping to break the typical life cycle of smartphones, Fairphone designed models whose parts were easily replaceable—an aim it hoped would save its customers a lot of cash over the long term and avoid waste.
The Fairphone 1 launched almost four years ago. Last week, the company announced it had to stop supporting the device, one of two it sells. That means that Fairphone will no longer offer updates to the software or supply any of the parts to repair the phone. Taking away the spare parts for sale on the company’s website, like midframes, speakers, and flashes, renders useless the product’s distinguishing feature—and means that just like the phones it was meant to supplant, Fairphone 1s will soon be heading for the dustbin.
The company first produced the phone in late 2013 with the help of the Chinese manufacturing company Guohong, but in November 2014 it announced the end of that partnership because Guohong wanted to focus on creating its own phone brand. After that it became increasingly difficult to convince other part manufacturers to manufacture extra phone components, and slowly these other companies stopped producing the parts as well. (The second phone is produced by the Chinese company Hi-P International Limited.)
In particular, Fairphone’s website specifies that it is sold out of batteries, and in a blog post explaining the decision to stop supporting its first phone, the company admits that it has become too expensive to order the minimum number of batteries needed to continue supplying the parts. Instead it offers tips on its website for users who want to keep their smartphone running for as long as possible.
In that blog post, Fairphone justified its decision to not provide the parts, writing, “we were moving toward longer-lasting devices, but it wasn’t our primary objective.” You might think otherwise reading Fairphone’s own website, which claims, “We’re fighting against a market trend where the average phone is replaced every 18 months, creating a huge environmental impact,” and, “We design products that last - in both their original design and in designing their repair to be as easy as possible.”
According to a review of the Fairphone 1 in the Guardian, the phone’s performance was decent, but nothing extraordinary, with an average battery and camera and screen quality that was a bit subpar for its price (roughly $616). Even if you can get the parts to keep a phone running forever, they should probably be parts that customers actually want.