Moneybox
A blog about business and economics.

Aug. 31 2017 2:39 PM

Our Corporate Tax System Is a Mess. Republicans Might Just Make It Worse.

At the moment, Republicans still insist that they want to pass a tax reform bill by the end of the year. Not just a tax cut, mind you, but a full-fledged reform package that will clear out the countless deductions, loopholes, and special-interest carve-outs that have turned our corporate tax code into a sieve.

In theory, this is a completely unobjectionable goal. The United States could use a more rational tax system that leaves businesses on more even footing with one another, regardless of how many pricey lawyers and accountants they hire. Unfortunately, it's not clear the GOP's plans will move the country in that direction. In some respects, it could make the problems with our current tax code even worse.

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Republicans often complain that the United States has the rich world's highest corporate tax rate, topping out at 35 percent, which they argue drives business investment and jobs overseas. But that figure is largely an illusion, thanks to the vast array of deductions that companies can claim and the ability of multinationals to shelter their profits offshore. Analysts typically find that, when all is said and done, U.S. corporations pay an average rate somewhere between 22 and 29 percent, which, depending on whose estimates you rely on, may or may not be in line with our peer nations.

The fact that few companies actually pay the top corporate rate isn't something to celebrate, however. It's a sign that our tax code is a bit of a farce. The joke gets worse once you look at how tax rates vary across businesses and industries.

Earlier this year, the left-leaning Institute on Taxation and Economic Policy released a report in which it analyzed the tax rates paid by members of the Fortune 500 between 2008 and 2015. The authors selected the 258 corporations that were profitable in all eight years to avoid dragging down the average with companies that paid no taxes because they lost money. They found 100 different companies that, despite being consistently profitable, paid zero federal taxes in at least one year, and 18 that paid no taxes in any of the years surveyed. Meanwhile, there were vast differences in average rates between industry. Utility companies paid an average rate of just 3.1 percent; tech companies paid about 20 percent; retailers and wholesalers paid more than 30 percent, as did health care providers.

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ITEP

A good tax code doesn't have to treat every single industry identically. Nobody but a lobbyist, however, would purposely design one in which some kinds of businesses consistently hand over a third of their profits to the IRS while others pay next to nothing. And in case you're skeptical about the findings of a liberal think tank, the U.S. Treasury Department found similar, if slightly less pronounced, disparities when it ran its own analysis on the taxes paid by all profitable corporations with more than $10 million in assets.

It can be hard to pinpoint how specific companies minimize their tax bills, because corporations aren't required to disclose the nitty-gritty of their returns. But ITEP notes a few broad issues. Multinationals are able to park profits in offshore tax havens. This disproportionately benefits large tech firms that earn profits from their intellectual property, since it’s relatively easy for them to shift profits overseas. Meanwhile, companies that regularly make large capital investments in machinery and other equipment benefit from rules that let them quickly write off the cost of those purchases. Its not a coincidence that most of the companies ITEP found that paid nothing in federal taxes over all eight years were utilities, which are typically required to make major upgrades each year.

Because Republicans don't have an official tax plan yet, it's impossible to say how many holes in the tax code they'll try to plug. But the indicators so far aren't promising. House Republicans have identified some deductions they want to repeal, which are worth about $171 billion over their first 10 years—not a great deal in the scheme of a corporate tax that's expected to bring in more than $400 billion this year alone. On the big-picture issues, they seem intent on wrenching even bigger gaps in the tax code. Take the issue of tax havens. Right now, the GOP seems intent on moving the U.S. to what's known as a territorial system, where the government wouldn't tax corporations at all on profits earned abroad. This will of course eliminate the need for companies to stash profits in Ireland and the Cayman Islands. But if anything, that will only encourage companies to make like Apple and use accounting gimmicks to shift their U.S. profits overseas. It's like trying to fight shoplifting by making it legal.

Or, consider the advantages those utilities seemingly enjoy. Right now, many Republicans want to make it possible for companies to write off major capital investments even faster by moving to a system of immediate expensing. There may be some economic reasons to favor that idea—it could possibly lead to a bump in corporate investment—but it essentially doubles down on the system that now lets some companies shield their profits from taxes entirely.

“I think it’s fair to say that the Trump plan as we understand it would actually increase the gap between the haves and the have-nots,” ITEP's Matthew Gardner told me. “It would accentuate the preferential treatment that certain sectors of the business world and certain high-income Americans get.”

There is at least one way Republicans are trying to even out the corporate tax code. As of now, they're talking about lowering the top rate by 10 or 15 percentage points. That will at least ensure that companies on the high end of the tax spectrum will pay a bit less. But that's not really a tax reform. It's a plain old cut.

Aug. 29 2017 5:50 PM

Harvey Is an Equal-Opportunity Disaster. The Poor Won’t Be Left Behind Until the Recovery.

One of the bewildering things about Hurricane Harvey, for observers and especially for Houstonians themselves, has been the lack of a comprehensive sense of the extent of the flooding. We don’t quite know, quite yet, who has been hit the worst.

Storm surges come from the sea; a swollen river envelops a downtown along a predictable route. But the Houston metro area is nearly the size of Massachusetts. Harris County, which includes most of Houston, has 2,500 miles of channels. Everyone in Houston lives near a bayou; there is no “railroad track” stigma to these waterways. They are simply everywhere. And because the variance in rainfall totals from one part of the region to the next are running in the feet, it’s hard to anticipate which blocks will flood.

There is an assumption, forged by the experience of Hurricane Katrina, that natural disasters will do their worst to low-income neighborhoods of color.

At City Lab, Tanvi Misra writes: "Within cities, poor communities of color often live in segregated neighborhoods that are most vulnerable to flooding, or near petrochemical plants and Superfund sites that can overflow during the storm. This is especially true for Houston.”

But actually, Houston’s floods have proved to be great equalizers. On the one hand, there are very poor neighborhoods in Harris County that have been hit hard, repeatedly, by flooding. Greens Bayou in Greenspoint has overflowed its banks three times in the past two decades, and nearly half the housing there is in the 100-year-flood zone after FEMA revised its Harris County flood maps in September. More than 1 in 3 residents lives below the poverty line. Some of them are among the nearly 1,000 Houston families who live in HUD-subsidized housing in the flood zone. This weekend, Greens Bayou overflowed again, causing mass evacuations and sweeping a family of six downstream as they tried to escape the swirling river.

At the same time, underwater houses in the flood zones adjacent to the two great Houston reservoirs whose dams protect downtown can go for more than $750,000. Some of the worst damage during the 2016 Tax Day floods came in the sliver of high-income neighborhoods south of I-10 on Houston’s west side; among the worst-hit areas were the neighborhoods adjacent to Brays Bayou, where houses routinely sell for more than $1 million.

Aug. 28 2017 6:38 PM

Right Before Harvey, Trump Nixed a Rule Designed to Protect Cities From Flood Risks

Ten days before Hurricane Harvey made landfall on the Texas coast, President Donald Trump signed an executive order to speed up the pipeline for federal infrastructure projects.

One component of that Aug. 15 order? Eliminating an Obama-era rule called the federal flood risk management standard that asked agencies to account for climate change projections when they approved projects.

Aug. 28 2017 4:46 PM

Flashback: 20 Texas GOP Representatives and Both Senators Voted Against the Sandy Relief Act

Hurricane Harvey is on pace to produce the greatest single-storm rainfall in the United States in at least a century and may wind up being one of the costliest natural disasters in U.S. history. To make matters worse, since much of the damage is occurring inland and outside of the 100-year floodplain, insurance coverage will be low.

Naturally, a congressional relief package will be forthcoming. Which means it's time to turn to another round of Southern Republicans Who Voted Against the Hurricane Sandy Relief Package but Will Soon Want Federal Disaster Money for Their Flooded Homes. (Previous contestants included the congressional delegations of Florida and Louisiana.)

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This time the spotlight is on Texas, where 20 sitting Republican congressmen and both of the state’s senators, John Cornyn and Ted Cruz, voted against the 2013 Sandy Relief Act. (Ironically, in the 2011–2012 fiscal year, Texas received more federal disaster relief money than any other state.)

Republicans hate the comparison, arguing that the Sandy relief package contained spending for unrelated items. (This is true of virtually every single-issue spending bill that passes Congress; even a vice president of Taxpayers for Common Sense said the 2013 package was "better than business as usual.") Cornyn communications director Drew Brandewie essentially argued that Cornyn was for it before he was against it, voting for a pared-down version of the legislation.

At the time, conservatives also insisted on cuts to federal spending elsewhere to justify Sandy expenses, an unusual and onerous requirement for a disaster aid bill. (This was during the pre-"Mexico Will Pay for It" era, when the national debt was still a serious GOP conceit.) “Emergency bills like this should not come to the floor without offsets to pay for it or structural reforms,” Rep. Jeb Hensarling of Texas said.

Rep. Peter King from Long Island, one of the Republicans who voted for the final bill, doesn't buy the argument that his Southern colleagues were making a good-faith effort to help New York and New Jersey recover. But, he said, Texas has nothing to worry about. "I won't abandon Texas the way Ted Cruz did New York," he wrote on Twitter on Sunday.

Aug. 28 2017 2:36 PM

The U.S. Might Not Have Enough Construction Workers to Rebuild Houston After Harvey

The disaster that is Tropical Storm Harvey is still ongoing. It will be some time before the waters recede and the effect on Houston can be fully assessed. But it is already clear the damage to property will be immense. Tens of thousands of structures were impacted by floodwaters. Eventually, Houston will require massive cleanup, demolition, and reconstruction of individual homes, large buildings, and infrastructure.

The first concern will be the financial resources necessary: Will insurance companies cover all the losses, and how much of them? How will the federal government’s heavily indebted flood insurance program come up with the cash to pay claims? And how much additional assistance will the federal government provide?

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There’s another problem: a lack of human resources. It takes a lot of labor to remove debris after a storm and then reinstall Sheetrock and drywall, rebuild floors, and fix electrical and plumbing systems. The work is resistant to automation. And it is but one way in which Houston, which was poorly situated to deal with a hurricane, may also be poorly situated to recover from it.

The issue is that the United States is suffering from a shortage of workers generally, and specifically from a shortage of workers with some of the necessary skills to assist in disaster recovery.

Let’s review. With the U.S. economy having created jobs for a record 82 months, there are 146.6 million people with payroll jobs. The unemployment rate is 4.3 percent. At the end of June, the Labor Department reports, there were a record 6.16 million jobs open in the U.S. (That compares with about 4 million in August 2005, when Katrina hit.) Put another way, it’s harder to find labor in the U.S. right now than at any point in recent history.

But that’s not the whole story. There are particular shortages in the types of trades that get called into action after a disaster. America’s construction labor force has undergone a sea change in the past decade. When the housing bust came, hundreds of thousands of roofers and other skilled and unskilled tradespeople were laid off. Because the recovery was remarkably slow, many went on to find work in different industries. Many construction workers had come to the United States (legally and illegally) from Mexico and Central America to work in the boom years, and in the bust years some of them went home. Others were deported. And in recent years, the flow of new potential workers has slowed down significantly. The result: As the U.S. housing and construction recovery has chugged on, it has become more difficult to hire construction workers. In June, there were some 225,000 open construction jobs in the U.S., up 31 percent from June 2016.

All over the United States, in Colorado, in Nebraska, and elsewhere, construction companies have been complaining that they can’t find enough labor to do their job. The National Association of Home Builders reports that 77 percent of builders are facing a shortage of framing crews while 61 percent are grappling with a shortage of drywall installation workers and 45 percent report a shortage of weatherization workers. The problem is particularly acute in Texas, where the housing industry has been powered by consistent population and job growth and whose service industries are disproportionately reliant on immigrant labor. Last fall, as the Wall Street Journal reported, “In Dallas, the King of Texas Roofing Co. says it has turned down $20 million worth of projects in the past two years because it doesn’t have enough workers.”

In the aftermath of natural disasters, first responders and recovery crews flood the zone on a temporary basis. But reconstruction, cleanup, and recovery requires many thousands of workers who can stay for many months or more. FEMA Administrator Brock Long told CNN that “FEMA is going to be there for years.” Houston will require a surge of employment—tens of thousands of people. It will have to find places for them to live, since so much of the housing stock is damaged. And it will likely have to pay them above-market wages, because it will need to lure them away from existing jobs.

And given the Trump administration’s hostility to Latinos and desire to ramp up deportations, it’s unlikely that what worked in previous disasters will work again. Back in 2007, the Washington Post reported on a Tulane and University of California, Berkeley, study that found some 100,000 Hispanic workers thronged into the Gulf Coast region in the wake of Katrina, many of them undocumented.

Houston will need a similar migration for it to recover. In 2017, from where will those workers come?

Aug. 28 2017 2:25 PM

What Happened to the Two Reservoirs That Were Supposed to Protect Downtown Houston?

If you look at a satellite image of Harris County, Texas, where subdivisions cascading west into the Katy Prairie have helped make the Houston area the country’s fastest growing metropolitan region since 1980, you can see two large green splotches on either side of the Katy Freeway. These are the Addicks and Barker reservoirs, evidence of how Houston’s planning has been overwhelmed by unregulated urban growth and a storm no one thought possible.

On Sunday night, as Houston sank beneath record rainfall, the Army Corps of Engineers, which runs the reservoirs, announced it would begin releasing water from the dams. That means more water heading into Buffalo Bayou, the river that drains much of the Harris County watershed into the sea.

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You may have seen photos of Buffalo Bayou: Normally it’s a small creek that winds through a lovely park in central Houston, running toward the Houston Ship Channel on the city’s eastern edge. On Sunday it was a sprawling mass of brown water, swallowing highways and neighborhoods in its tide. The bayou was expected to crest at 14 feet above its previous record high.

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Colored bands correspond to water levels the reservoir is rapidly surpassing, even as engineers let more water flow downtown.

Army Corps of Engineers

Addicks and Barker were built to protect downtown Houston and keep water out of Buffalo Bayou. So why in the world is the Army Corps opening the gates?

In part because even as Buffalo Bayou surges downtown, the back ends of the reservoirs have begun to push into residential neighborhoods upstream. The reservoirs are filling faster than they can empty, so despite the Corps releasing more water downstream, the pool is expanding upstream. The flooding is increasing on either side of the dams. There are three places for the water to go: through the dam gates, down the emergency spillways along the sides of the dams, and upstream into the neighborhoods. Officials think the water will likely go in all three directions, though ultimately it all ends up in Buffalo Bayou. It’s a balancing act to make sure this happens in the most controlled way possible.

When Addicks and Barker were completed, just after the second world war, Houston had recently endured two cataclysmic downtown floods, in 1929 and 1935. The reservoirs—mostly dry, wooded areas with creeks running through them—could be plugged up to stall whole swaths of the watershed from reaching Buffalo Bayou.

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This was the plan ...

Army Corps of Engineers

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... when Houston looked like this.

Army Corps of Engineers

But as development has sprawled west along the Katy Freeway, more and more water is being funneled into the region’s creeks, filling the reservoirs faster. "Of the 10 largest pools that have accumulated in the reservoirs, nine have occurred since 1990 and six of those were since 2000,” ProPublica wrote last year.

Meanwhile, developers swooped in and built tract houses up to the very brink of the reservoirs, which appear in dry times to be forests. It’s probably a very pleasant place to live, except when it isn’t. During last year’s Tax Day floods, those subdivisions on the reservoirs’ western edges flooded. Now they are flooding again. None are in the 100-year floodplain. Most are in the 500-year floodplain, areas that FEMA predicts will flood once every 500 years. They are not obligated to have flood insurance. They have flooded two years in a row.

Those homes should probably never have been built. Now they’ll be flooded for quite some time: “Homes upstream will be impacted for an extended period of time while water is released from the reservoirs,” the Corps wrote in a press release. The reservoirs will take between one to three months to drain.

Aug. 25 2017 8:49 AM

The Housing Industry Still Hasn’t Realized It’s Building Too Many Homes for Rich People

It's possible to get rich if your business only caters to rich people. But it's hard to have a massive and really successful industry in the United States today if you only cater to rich people. There are only so many people in the country with good credit and lots of cash sitting around. And this week, we got evidence that one of America’s largest industries may be running into trouble because its products appeal only to the upper crust. I’m not talking about jewelry or apparel. I’m talking about housing.

On Tuesday, luxury homebuilder Toll Brothers reported a blow-out quarter, noting that contracts and sales were up 20 percent from the year before, and said it might sell more than 2,500 homes in the upcoming quarter.

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On Wednesday, the Census Bureau announced that new home sales in July were down 9.4 percent from June, and down 8.9 percent from July 2016.

On Thursday, the National Association of Realtors reported that existing home sales in July fell 1.3 percent in July from June—to an annual rate of 5.44 million. While the rate of sales in July was still up 2.1 percent from July 2016, this was the lowest reading of 2017 to date.

It amounts to a fairly neat summation of the American economy right now. Toll Brothers builds McMansions and expensive condos in and around wealthy urban areas. It caters to a distinctly high-end crowd, and would be psyched if it could sell 10,000 homes in a year. At the company’s Pierhouse at Brooklyn Bridge Park building in New York, condos start at $1.5 million. In the most recent quarter, the average price for a Toll Brothers home that went into contract was $837,300. But yuppies, foreigners, millennials with cash, and baby boomers are lining up. In the first nine months of this fiscal year, Toll Brothers sold 22 percent more homes than it did the in the first nine months of the previous fiscal year.

Toll Brothers may not be a typical new homebuilder, but it is clear that the building industry writ large is aiming to pitch its product toward more affluent buyers. Look at the Census’ new home sales release. The median sales price of a newly constructed home sold in July was $313,700, up 7 percent from July 2016. That may not sound like much, especially if you live in an expensive coastal region. But that’s 21 percent higher than the typical price of an existing home. And over the past several years, the building industry has raised prices on its offerings at a pace that has exceeded both the rate of inflation and income growth. In July 2012, the median price of a new home sold was just $232,600. In five years, the price of a median new home has risen by 35 percent. All of which is to say that, with each passing month, the homebuilding industry is pitching its products at a smaller, wealthier demographic slice.

There’s also evidence that existing homes (about 10 times more existing homes are sold each year than new homes) are getting too expensive for buyers. For 65 straight months, the National Association of Realtors notes, the price of existing homes has notched year-over-year gains. In July, the median existing-home price for all housing types, the group says, was $258,300, up 6.2 percent from $243,200 in July 2016. Four years ago, the median existing home price was a mere $213,000. Which means that prices of existing homes have risen 21 percent in the past four years. Because income growth for typical Americans—the type of people who buy typical homes—has been stagnant, this means that as the market continues to rise, fewer and fewer people can afford to bid on and purchase existing homes.

To their credit, in this expansion, the mortgage industry has not responded to the rising challenge of affordability by massively lowering its standards or by offering no-money down mortgages and other exotic lending instruments. By and large, if you want to buy a house today, you’ve got to come up with a meaningful down payment and show good credit. Of course, there are a limited number of people in the U.S. who have $40,000 or $50,000 in cash lying around to make a down payment.

Clearly, there is something of a housing shortage in the United States. One of the reasons that the price of existing homes is rising so rapidly is that there isn’t much supply. The number of existing homes for sale fell 9 percent from July 2016 to July 2017, and, at 1.92 million, represents a meager 4.2 months of supply.

The solution to the problem is for developers to increase the supply of affordable homes, and to bring large numbers of homes to the market that are closer in price to existing homes. But there’s no evidence that is happening. In July, 9,000 new homes worth more than $500,000 were sold in the U.S.—only 8,000 homes worth less than $200,000 were.

Aug. 24 2017 12:27 PM

The Last Place in America Without an Obamacare Insurer Lined Up for Next Year Just Got One

As of now, every county in the United States now has at least one health insurer lined up to offer coverage on its Affordable Care Act exchange next year.

CareSource, a nonprofit health insurer, announced Thursday morning that it would offer Obamacare coverage in Ohio's Paulding County, the last remaining market that lacked a carrier for the 2018 open enrollment season. CareSource has previously said it would step in to provide insurance options for 20 other counties within Ohio that were at risk of being left bare.

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At various points this year, more than 90 counties across the country have faced a serious chance of ending up stranded without any insurers offering marketplace coverage for 2018. While those communities represented a relatively a small number of enrollees—there are more than 3,000 counties in the United States—their problems were a potent political symbol and have often been cited by Republicans as evidence that Obamacare was either facing an imminent crisis or failing outright.

It is still technically possible that insurers will decide to pull out of some markets before late September, when they must sign contracts with the federal government to offer coverage on the exchanges. Many will almost certainly run for the exits if President Trump follows through on his threat to cut off important subsidies to insurance companies, known as cost-sharing reduction payments, that have been challenged in court (which is why it'd be nice if that bipartisan stabilization bill a few senators are working on actually comes to fruition). Moreover, it's still unclear how sustainable the Obamacare markets are long term in the small, rural counties that have had the most trouble securing insurers.

But for now, Obamacare's most immediate problem seems to have been solved. Take victories where you can, I guess.

Aug. 23 2017 3:17 PM

Letting People Buy In to Medicaid Is the Hot New Democratic Health Care Idea

With Obamacare repeal defeated for the time being, Democrats have begun looking ahead and crafting plans to expand health coverage to the millions of Americans who still remain uninsured. On Tuesday, Vox previewed one such proposal from Sen. Brian Schatz of Hawaii, which would let middle- and upper-income Americans buy into Medicaid through the Affordable Care Act's exchanges. “Exclusive: Sen. Schatz’s New Health Care Idea Could Be the Democratic Party’s Future,” declared the somewhat breathless, if technically accurate, headline. (I mean, Dwayne Johnson could be the Democratic Party's future, too.)

When I asked Schatz's office for more details, I was told the bill is still a work in progress with some pieces subject to change. But after reading a draft summary of the plan that's been making the rounds in health-policy circles, it strikes me more like an old idea with some important new twists: Schatz wants to bring back the concept of a strong public option on the Affordable Care Act's exchanges. Medicaid just happens to be the vehicle to do it.

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As you no doubt recall, Democrats spent much of the 2009 Obamacare wars arguing over whether to create a government-run health plan to compete with private insurers. But even among public-option advocates, there were two camps. On one side, you had progressives, including Sen. Bernie Sanders, advocating a “strong” public option that would save costs by using the same doctor payment rates as Medicare. Moderate and conservative Dems saw this as a step too close to socialized medicine and preferred a weaker public option that would have to negotiate rates with providers just like Aetna or Humana.

In the end, both ideas proved objectionable to industry-friendly centrists like Connecticut's Joe Lieberman. The public option died.

Eight years later, liberals are now seriously debating the merits of full-on Medicare-for-all. In this new, lefty0friendly milieu, Schatz is more or less resuscitating the strong public option and serving it up as a political half-measure, just in case Congress can't muster the votes for single payer whenever Democrats next regain power.

As I said, though, it's not quite the same idea as before.

Instead of creating a federally run insurance plan, Schatz would give states the option to offer Medicaid coverage for purchase through their Obamacare exchanges. The plans would be open to all residents who were not otherwise insured and, according to the outline, would be modeled on the sort of insurance offered through Obamacare's Medicaid expansion—which, among other things, means it would cover the ACA's 10 essential health benefits. Crucially, premiums would be capped at no more than 9.5 percent of a family's income. Customers could also use their Obamacare tax credits toward the cost.

Letting middle-class families buy into Medicaid this way would fix two of the Affordable Care Act's fundamental flaws. First, it would create a health plan of last resort in places where private carriers decided not to do business. That seems more necessary than ever now that dozens of rural counties have just narrowly avoided being left without insurance options for next year. Second, it would create a new guarantee of affordable coverage for upper-middle-class families. Today, households that make more than 400 percent of the poverty line aren't eligible for Obamacare's tax credits. That's created millions of disgruntled Americans, who've been left exposed to rising premiums on the individual market. Opening up Medicaid to everyone, and putting a ceiling on its cost, would give that group some protection.1

It's not clear that either of these moves would vastly expand the number of Americans with health coverage. But they would sure up Obamacare's promises. Every family would have access to coverage on the individual market, and it would cost less than a tenth of their income, no exceptions.

Schatz's plan has one other important plank. It would increase Medicaid's payment rates to doctors and hospitals so that they matched Medicare's, with Washington picking up the full cost of the change. This move would be expensive—Medicaid pinches its pennies today, paying providers 72 percent of what Medicare offers, on average. But it would likely go a long way toward fixing what many people consider Medicaid's biggest flaw: the fact that many doctors simply won't accept the program's patients because it pays too little. Hiking the pay rates would give Medicaid enrollees access to wider networks of care and make the program more appealing to middle-class customers.

One quirk of using Medicaid to create a public option is that it might not really be public, strictly speaking. While Medicaid is funded by states and the feds, most of its enrollees today actually receive their insurance through private managed-care organizations that contract with the government. Judging from Schatz's outline, a state could lean on the same companies to offer buy-in plans. Some of these carriers, like Centene and Molina, already sell coverage on Obamacare's insurance exchanges; in places where they do, Schatz's plan might simply serve as a way to extend ACA-like subsidies to more upper-middle-class families.

That might make the Medicaid buy-in a bit more palatable to the insurance industry, which came out hard against the public option in 2009. Instead of putting them out of business, it could pad their profits. Of course, that might also be a turn-off to the left-wing activists who've been driving the Democrats' health-care debate, many of whom want to drive the private sector out of the health insurance business entirely.

There's at least one other obvious downside to using Medicaid as a public insurance backstop: States might simply choose not to expand it, just like many chose not to expand the program under the ACA. For that reason, some Democrats might still prefer to let Americans buy in to Medicare, since it's available everywhere.2 The upside of using Medicaid, so far as the left might be concerned, is that it would give states flexibility to make their buy-in's more generous. A state like California might even use it as a vehicle to pursue single payer, with federal funding.

Potential qualms aside, Schatz's plan says something interesting about the changing politics of health care. Once maligned as a poor program for poor people, Democrats are now treating Medicaid as a viable option for ensuring the middle class. For that, we can thank its successful expansion under Obamacare, as well as the Republican Party's failed attempts to slash its budget, which helped rally liberals in support of Medicaid.

Schatz's plan has also shown how far the Overton window has shifted on health care. Less than a decade ago, the public option was a bridge too far Democrats. Now, it's being treated as a modest step toward something bigger. “If there’s ever a vote for single-payer, I’m a ‘yes,’ ” Schatz told Vox. “But there are lots of things we can do in the meantime.”

1For families that earn 300 to 400 percent of the poverty line, Obamacare's subsidies cap premiums at about 9.6 percent of income. So you could argue that Schatz's plan is effectively expanding Obamacare-like subsidies to everyone.

2 I suppose Congress could also let people buy into both, and see which gets more traction.

Aug. 23 2017 11:20 AM

Amazon’s Hit Clothing Brand for Kids Is a Crime Against Taste and Childhood

In the past year, Amazon has quietly slipped into the apparel-manufacturing business, with goods ranging from lingerie to men’s dress shoes. These private-label brands have innocuous names like Paris Sunday and Goodthreads, and they haven’t made huge splashes in their respective markets—except for one. Scout + Ro, Amazon’s children’s brand, has exploded, according to a recent report from analytics firm 1010data. The brand has increased its offerings five times over and achieved a 542 percent increase in overall growth year over year. The kids are wearing Amazon.

As a faceless corporation begins to dress children, the truly scary prospect is not simply the threat that Scout + Ro poses to precious, local brick-and-mortars. It’s how mind-numbingly dull these Amazon clothes are.

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If you search for Scout + Ro on Google, you’ll find no dedicated online store or URL, just an Amazon landing page that features a small logo and generic campaign image. The store, such as it is, borrows its palette of gray and tangerine straight from the Amazon mothership, and with a half-hearted nod toward whimsy, perches a bird atop the o in Scout.

The brand is generally designed to be as unobtrusive as possible, with just enough creativity to seem relevant. The name itself follows the well-worn millennial tradition of sticking an ampersand or plus sign between two cute, vaguely vintage-sounding words. Scout scores double points, as it’s also part of the somewhat inexplicable To Kill a Mockingbird–inspired baby names trend.

The brand’s message is based around the very simple principle that children’s clothing should be comfortable and designed for play. Beyond that, it’s really more about what the clothes are not than what they are. One of the brand messages is, “Never interrupt a playdate with itchy fabrics or fussy styles.”

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What's shapeless, unflattering, and fuchsia all over?

Amazon

The clothes are all remarkably similar with only slight variations from item to item. You can, for instance, buy almost the same short-sleeve dress in five different, equally safe patterns. This is not to say that children need to be dressed in shoulder pads or asymmetrical hems, just that Scout + Ro’s offerings appear to have been filched from the closet of an extremely unimaginative doll.

While the kids offerings at stores like Target and the Children’s Place try to cater to modern sensibilities with hashtagged catchphrases and destroyed denim, Scout + Ro clothing doesn’t even necessarily look contemporary. Instead, the pieces seem like something any child from a Disney sitcom in the past 30 years could have worn. There are no obnoxious slogans, no overly prissy ruffles or aggressive camouflage. While shirts that say “#1 Princess” or “Future Heartbreaker” won’t get points for panache or creativity, at least they show some character.

If clothes this dull were being sold somewhere other than Amazon, they would likely be left in the remainders basket, but Amazon already has a huge, captive audience and pool of Prime subscribers. A study from last year estimated that Amazon captures 43 cents of every dollar spent online. The site’s shoppers are happy to stock up on a whole variety of basic items with free, two-day shipping, which has led to success with other private label lines, showing that they can dominate categories like batteries and baby wipes. Scout + Ro clothes are simple enough that they can be thrown into the shopping cart with the rest of your Prime order—kids don’t really need to try on clothing in stretchy fabrics and unobjectionable colors.

Retail analysts also note that because Amazon aggregates data on the market, it can use that to inform its own designs and create logical price points. Quickly identifying and manufacturing trends is key to success in a fashion market moving ever more quickly. As Marc Bain at Quartz points out, the speed of production is what has allowed fast-fashion brands to overtake longtime favorites like Gap.

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Florals ... for spring.

Amazon

The clincher is that Amazon’s scale allows it to slightly underprice its competitors. The site encourages shoppers to comparison shop, placing equivalent brands in tabs next to the Scout + Ro items, which are priced just low enough that they seem of similar quality, but clearly the better deal, an average of about 35 percent cheaper.

Scout + Ro clearly has a winning business model, and parents will appreciate the ease of buying their kids’ wardrobe at the same time as their light bulbs and hedge trimmers. But dressing hideously as a child is a rite of passage, one that even the convenience of Amazon shouldn’t force us to ditch. Kids’ clothing should not be data-driven; kids should learn to root through messy piles of sale T-shirts to find one in a heinous shade of neon green printed with a giant cat head. They should have to occasionally wear a fussy velvet dress with an itchy collar or starchy pants. Cheesy, attention-grabbing, even ugly clothing is a key part of childhood. Let’s not one-click it into obsolescence.

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