Moneybox
A blog about business and economics.

May 24 2017 8:29 PM

CBO Confirms That the Republican Health Care Bill Is Still a Garbage Dump of Bad Ideas

Meet the new American Health Care Act—it's pretty much just as god-awful as the old American Health Care Act.

The nonpartisan Congressional Budget Office reported Wednesday that the Obamacare repeal bill, which Republican House leaders successfully rushed through a vote earlier this month after several major revisions before the CBO could score their impact, would leave 23 million additional Americans without health insurance by 2026. This is a slight improvement over the previous edition of the legislation, which would have left 24 million more individuals uncovered. The updated legislation would also cut $834 billion from Medicaid and hand out tax cuts worth $661 billion, largely to upper-income households and corporations. If made law, the bill would still be absolute hell for aging, lower-middle-class workers. The report says a 64-year-old earning $26,500 would have to pay $13,600 for a health plan under the AHCA, up from $1,700 under Obamacare.

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On the bright side, some people would get cheaper coverage with fewer benefits—which is great for young, healthy men in particular—and gutting Medicaid and reducing spending on insurance subsidies would cut the deficit by about $119 billion. So there's that.

In retrospect, passing this bill before the CBO could weigh in was a canny move by Speaker Paul Ryan. It's not just that the headline numbers are grisly—though they really, really are. It's that the CBO's analysis also shows how pointless and ill-conceived the conservative- and moderate-appeasing compromises that greased this legislation's path out of the House truly were. Republicans have mostly just rearranged the rusted cans and busted tires in their garbage dump of a law.

Republicans struck two major deals in order to pass the AHCA. First came the so-called MacArthur amendment—which represented the grand bargain between hard-line conservatives, who wanted to scrap all of Obamacare's insurance regulations in order to bring down premium prices, and relative moderates, who were nervous about doing away with popular consumer protections, like rules that bar carriers from discriminating against customers with pre-existing medical conditions. Rather than eliminate many of Obamacare's key pieces entirely, the deal gave states the ability to opt out of them by applying for waivers. In particular, it would let them do away with the law's essential health benefit requirements, which force insurers to cover certain services, and its community rating provisions, which prevent carriers from charging customers more because they're in bad health. Basically, blue states could keep their market regs if they liked.

Then came the Upton amendment, which added $8 billion to the bill to help insulate sick patients in waiver states from potential insurance premium hikes. While this was an obviously feeble amount of money, it was enough of a political fig leaf to win support from wavering moderates and get the bill passed.

What does the CBO have to say about all this? It makes short work of the Upton amendment, writing that though it pushes down costs as intended, the effect “would be small because the funding would not be sufficient to substantially reduce the large increases in premiums for high-cost enrollees.” In other words, it's barely worth talking about.

The number-crunchers spend much more time on the MacArthur amendment, since it could fundamentally reshape how insurance is sold in some states. The report estimates that half of the country would live in places where lawmakers would choose to keep all of Obamacare's rules. There, premiums would be a mere 4 percent lower by 2024, largely because the AHCA's basic structure would tend to price older Americans out of the insurance market and draw in younger customers, who pay less for their coverage. Another third live in states that would nix many of the essential health benefits Obamacare now guarantees, such as maternity and mental health care. Those places would see a 20 percent drop in premiums by 2026 compared with current law, “primarily because, on average, insurance policies would provide fewer benefits.” However, not everyone would benefit equally. “The reductions for younger people would be substantially larger and those for older people substantially smaller,” the CBO notes. People who needed more extensive medical care would also have to pay more out of pocket.

Finally, the CBO thinks that about 1 in 6 Americans live in states that would drop both the essential health benefit and community rating rules. This would create significantly cheaper insurance for people with few health care needs while leaving the sick to pay “extremely high premiums” that would “rapidly rise” over time. Technically, insurers would still be required to sell to people with pre-existing conditions, and could only raise prices for those who have gaps in their insurance market. But for reasons previously spelled out well by analysts at Brookings, the CBO still thinks the markets in those states would bifurcate—one with cheap insurance for the healthy, and another with wildly expensive coverage for the ill. The CBO thinks premiums would be somewhat lower in these states for customers who could afford coverage. But because costs would vary so much based on health status, the office doesn't bother estimating how much they'd fall on average.

The funny part of all this is that, in the end, the new and improved AHCA still doesn't do much more to lower insurance premiums—which appears to be the GOP's only significant health care goal—compared to the version that died without a vote on the House floor. That edition would have dropped the cost of coverage by 10 percent by 2026, according to the CBO, though largely by raising them for the old and lowering them for the young, instead of changing the benefits that were offered. Ultimately, we're not talking about a major difference in effect—and there's no reason someone who thought the original AHCA was too toxic to support should be particularly pleased with what actually passed. Both renditions make life harder for older, sicker Americans to help out younger adults who need less care, ultimately achieving a marginal drop in the cost of insurance—and leaving millions without coverage in the process. The current bill makes changes around the edges; the cruelty is pretty much the same.

May 24 2017 7:48 PM

Trump’s Infrastructure Plan: Let Wall Street Build and Operate America

As recently as Monday, few campaign promises looked deader than Donald Trump’s trillion-dollar infrastructure plan.

How dead? So dead that the market for municipal bonds, which had cratered in the two weeks after election day, had come crawling back as bond-buyers realized that no big plans were afoot. “Investors are less optimistic that the administration will implement its pro-growth agenda that includes hefty spending on infrastructure at the state and local level and tax reform,” the Financial Times wrote last week. They were worried that he’d actually go through with it, flooding the market with newer, higher-rate bonds, and maybe even eliminating the tax exemption that makes municipal bonds such an attractive investment. Then they stopped worrying.

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And then on Tuesday, Trump went and quietly released an infrastructure plan, of sorts: a six-page document that Transportation Secretary Elaine Chao told reporters served as a guide to a legislative package that would come later this year.

It’s a short document, and like the rest of the budget, no more than a statement of intent for Congress to grapple with. (The White House decision to eliminate Amtrak long-distance routes and cut the popular TIGER infrastructure grant program, for example, part of a 13-percent slice out of the Department of Transportation budget, are unlikely to find favor in Congress.)

But it shows Trump’s two big goals: a smaller federal role in planning and funding (including expedited environmental reviews), and more private money in both new and existing infrastructure.

First, the plan calls for several well-known privatization projects. Airport traffic control would be corporatized. The lines, towers, and substations of the Power Marketing Administration, which helps the government sell hydroelectric power across the south and west, would be sold off. The administration also argues for tolls and private investment at rest stops on interstate highways, and congestion management strategies for urban areas.

But that’s just the beginning. The most significant signal of the Trump Administration’s goals may lie in the document’s other and more nebulous key principle: “Align Infrastructure Investment with Entities Best Suited to Provide Sustained and Efficient Investment.”

There, the administration says it will look for “opportunities to appropriately divest from certain functions, which will provide better services for citizens, and potentially generate budgetary savings. The Federal Government can also be more efficient about disposing underused capital assets, ensuring those assets are put to their highest and best use.” (Bolding mine.)

According to the Washington Post, the administration would like to begin a program of “asset recycling,” whereby cities, counties and states sell or lease their public assets to investment banks or private equity groups in exchange for upfront payments that can be invested in newer, less profit-friendly infrastructure. The administration may pay localities a bonus to privatize their assets, the Post reports:

"Instead of people in cities and states and municipalities coming to us and saying, ‘Please give us money to build a project,’ and not knowing if it will get maintained, and not knowing if it will get built, we say, ‘Hey, take a project you have right now, sell it off, privatize it, we know it will get maintained, and we’ll reward you for privatizing it,’ ” [Gary] Cohn told executives at the White House. “The bigger the thing you privatize, the more money we’ll give you."

The document also calls for targeted federal spending, using public money as leverage for private money, and encouraging local initiatives—broad ideas with which few pols would disagree, at least in theory.

The administration wants more money for TIFIA and WIFIA, federal programs that fund, respectively, transportation projects and water infrastructure. Each uses a relatively small amount of federal money to tap private dollars for assets like toll roads that generate user fees. The document also calls for more Private Activity Bonds, which help raise money for companies building certain types of infrastructure, such as airport and port upgrades. (More typical municipal bonds can only be issued for public projects, which limits the ways, for better and for worse, that private investors can get involved in water, sewer, school, and road projects.)

There’s plenty of debate about the wisdom of unleashing private money in public infrastructure. Sometimes the public gets ripped off, as when Chicago Mayor Richard M. Daley leased the city’s parking meters in 2008 to Morgan Stanley, shoring up the city’s operating budget but losing taxpayers nearly $1 billion over the deal’s 99-year term. Sometimes consultants inflate projects’ viability, which leaves public partners holding the bag when revenues don’t pencil out. (Of course, public infrastructure can be expensive and unnecessary too.)

More of a problem for the Trump administration: Only some big project types in the U.S. have been successful as public-private partnerships. Investors haven’t rushed to build new schools or hospitals. Building nuclear power plants in the Southeast U.S. proved too difficult for Westinghouse Electric, which filed for bankruptcy in March. Texas 130, a tolled highway between Austin and San Antonio built with $430 million in TIFIA-backed loans, went bankrupt in October—one of three TIFIA-backed toll roads to do so in recent years.

That’s where Trump’s “asset recycling” might come in, as cities and counties would be paid (by Washington, and by the buyer) to transfer their profitable public assets to private equity groups. The megafunds aiming at American infrastructure investment, like a Saudi-backed $40 billion fund run by Blackstone, whose CEO Steve Schwarzman heads Trump’s business council, could buy airports or bridges, while local governments use the new cash to pay for the new projects—like pipes for Flint—that the private market can’t or won’t provide. In the long term, governments would be left with money-losing assets while Wall Street runs more lucrative public assets such as bridges, airports, utilities, and prisons.

May 24 2017 4:08 PM

The Procedural Trick That Might Let Trump Pass Budget-Exploding Corporate Tax Cuts

It appears that the Trump administration is warming up to a tricky procedural move that might let the Senate pass permanent tax cuts without bothering to pay for them.

While the White House still doesn't have a formal tax plan yet, it's pretty safe to assume that whatever proposal the administration eventually produces will punch a sizable hole in the federal budget. One big reason why is that Donald Trump very badly wants to cut the top corporate tax rate by more than half—it's been one of the president's few consistent policy positions since his campaign—but has so far dismissed any of the revenue-raising ideas that might realistically balance out such a reduction.

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This all raises a serious legislative problem—namely, Republicans might not be able to make Trump's tax cuts permanent. GOP leaders are planning to pass their tax package using the budget reconciliation process—the procedural tool that bars filibusters on tax and spending bills, allowing the Senate to approve them on a bare majority vote. Reconciliation is a useful means of trampling over Democratic resistance. But it comes with a catch: By law, Congress can't use it to enact policies that will raise the federal deficit outside of the budget window, which traditionally only lasts 10 years. The standard way around this restriction, known as the Byrd Rule, is to simply make tax cuts temporary if they increase the deficit, by setting them to expire before the budget frame shuts. That's why, for instance, the fiscally ill-advised Bush tax cuts sunset during the Obama years.

But the Byrd Rule might not just force Republicans to set a countdown clock on their tax cuts; it could make some ideas, like Trump's 15 percent corporate rate, essentially impossible to pass at all. As Paul Ryan's senior tax counsel, George Callas, has noted, even a corporate tax cut lasting just three years would raise the deficit more than a decade later if it wasn't paid for. That means a cut passed in 2017 would have to expire before Trump's second term got started—and even Republicans wouldn't bother with such a preposterous policy. “A plan of business tax cuts that has no offsets, to use some very esoteric language, is not a thing,” Callas said in April. “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.”

Does that mean Trump's plans are dead? Not necessarily. Theoretically, Congress could choose to legislate based on a longer budget window—say, one that lasts two or three decades. The tax cuts would still have to expire in the long run, but as Pennsylvania Sen. Pat Toomey noted in a recent Bloomberg op-ed pushing this idea, they'd be good as permanent. Here's how he explained things:

The governing law, the Budget Act of 1974, forbids a relevant tax bill from increasing the deficit beyond the time frame contemplated in the enabling budget resolution. But it does not limit the duration of that time frame.
Congress has traditionally used a 10-year time frame, but nothing in the law prevents us from using a 20- or even 30-year time frame. A 20- or 30-year tax reform would be as close to permanent as we can get since Congress would be likely to overhaul the tax code within that period anyway.

Now it appears the administration is also embracing Toomey's open-the-window-wider strategy. On Wednesday, during a House committee appearance, White House budget chief Mick Mulvaney told members that the administration would be kosher with a longer-term budget. Per the Wall Street Journal:

Mr. Mulvaney told a House panel that Congress should be able to extend the window without changing the law. “We are exploring the possibility of also looking a little further out, especially when you start to talk about changes in mandatory spending,” he told lawmakers at a House Budget Committee meeting.
The benefits of changes to mandatory spending often don’t show up within the first decade, he said. “I think it’s a more reasonable way to look at the budget window,” he said.

Later in the hearing, Mulvaney claimed that the administration's tax plan would eliminate enough deductions and loopholes to be revenue-neutral. In theory, this would eliminate the need for a longer budget window—but I'm guessing the man wants to cover his bases just in case the administration can't follow through on its flimsy fiscal promise.

The big question about this strategy is whether enough Republicans would actually go for it. On the one hand, it would make deeply irresponsible tax cuts for the wealthy easier to execute. On the other, a longer budget window would also require a score from the Congressional Budget Office potentially showing decades of red ink. And given that some lawmakers seem to sincerely want budget-neutral tax reform, they may be hesitant to embrace the Toomey-Mulvaney strategy.

Still, there's a procedural trick that might make Trump's most feckless dreams a reality. And at least a few important people in Washington are taking it seriously.

May 23 2017 3:17 PM

Trump’s Budget Would Kill a Major Student Loan Forgiveness Program, but Only for New Borrowers

As was widely expected, President Trump's new budget calls for eliminating a major student loan forgiveness program designed to help government and nonprofit workers, such as lawyers, teachers, and social workers. Those who have already taken on debt for school may not need to worry for now, however, because it appears the administration only wants to end the program for new borrowers.

The White House is proposing an overhaul of the student lending system that would streamline many of the options the government currently offers borrowers for paying down their debts. As part of those reforms, it would end the Department of Education's Public Service Loan Forgiveness program, or PSLF, which wipes borrowers' balances after they spend 10 years working either for a government or nonprofit employer. A good number of readers panicked when I wrote about this possibility last week—yes, I saw all your emails and tweets—since it wasn't clear if people currently paying their loans would be grandfathered into the program. Many, many young adults have gone deep into debt for grad school in order to pursue relatively low-paying careers in the public or nonprofit sectors on the assumption that PSLF would be around to sweep away their loans after a decade (full disclosure: my wife is one of them), and no small number have been worried that Washington might pull the rug out from under them.

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Trump’s proposed budget says changes to the student loan program, including PSLF, would only apply to those who start borrowing after July 2018. (I’ve contacted the Department of Education to confirm my reading of the budget and am waiting on an answer, but the text seems pretty straightforward.)

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To be clear, I am leading with the good news here because I know there are droves of people who've been freaked out that the Trump administration might scrap the program they staked their financial futures on. However, this budget is still pretty brutal on students. Aside from nixing PSLF for future generations, it ends subsidized loans for low-income students and milks an additional $76 billion from the student loan program over a decade, in part by making students pay more of the earnings each year under a revised income-based repayment plan. The changes might work OK for those who only have undergraduate loans, since they will now qualify for forgiveness after 15 years under income-based repayment, rather than the current 20. But those with graduate debt will have to spend 30 years paying back their loans before getting them forgiven, instead of 25. Given that graduate degrees are only becoming more essential in the workplace, even in lower-paid careers like teaching, it seems like a pretty raw deal for the next generation of kids on campus.

How much of this could Trump actually accomplish? The White House would need Congress' help to end PSLF or subsidized loans. But it seems possible the administration might try to restructure income-based repayment on its own, given that President Obama took unilateral action to expand the program. Beyond that, there are plenty of conservatives on Capitol Hill who would be happy to increase costs on students in the name of budget savings, and given that higher education tends be a second-tier issue in Washington, a lot of these initiatives could be slipped quietly into larger bills. Without an outcry, I wouldn't be surprised to see some of these plans become a reality.

May 23 2017 11:58 AM

Donald Trump’s Budget Is Based on a Hilarious Accounting Fraud

Aside from a being a testament to the White House's willingness to decimate large swaths of the social safety net, it appears Donald Trump's new budget is based on a transparent and nonsensical accounting gimmick.

Here's the deal. The administration says its new proposal will erase the budget deficit after 10 years. However, to get there, it assumes that its policies—basically, tax cuts and deregulation—will send economic growth surging to 3 percent per year, allowing the government to collect $2 trillion or so in tax revenue. This is fanciful. You might as well write that eliminating the estate tax will cause an avenging nuclear lizard to rise from the sea and vanquish ISIS. But this kind of magical thinking about tax cuts is more or less standard these days.

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It's the next step in the administration's arithmetic that seemingly qualifies as a straightforward fraud (or a hilarious error, depending on how you interpret intent here). The budget mentions the tax cuts, but doesn't include any of their costs. Instead, it just states that they'll be deficit-neutral, presumably thanks largely to their economic benefits (Treasury Secretary Steve Mnuchin has insisted that the administration's tax reductions would cover their own cost through growth). In other words, the White House is relying on its tax cuts to both pay for themselves and then add $2 trillion to the government's coffers. It's essentially double-counting their (already dubious) benefits.

“This is a mistake no serious business person would make,” economist and former Treasury Secretary Larry Summers wrote Monday. “It appears to be the most egregious accounting error in a presidential budget in the nearly 40 years I have been tracking them.”

To be fair, there are other potential interpretations of the administration's calculations. One is that it believes the tax cuts will, in fact, be so salubrious for the economy that they'll more than pay for themselves. This would be almost as intellectually bankrupt as simple double-counting, but would at least inoculate the White House from accusations of mathematical incompetence.

It could also simply be that the administration hasn't fleshed out its tax plan enough to spell out how it would influence the deficit. According to the Wall Street Journal, Office of Management and Budget Mick Mulvaney told reporters on Monday that the cuts mentioned in the budget are just a “placeholder” with details TBD.

“It was in all honesty the most efficient way to look at it, because if we said it’s going to add to the deficit, then we have to go into more detail than what’s in the summary right now,” Mulvaney said. “If we say it’s going to reduce the deficit, we have to go into more detail than what’s in it right now. And we simply are not in a position to do that.”

Or, maybe—just maybe—this proposal isn't really meant to be an economically coherent policy document, and is instead merely a flashing signal to Congressional Republicans that they should feel free to eviscerate the government's social spending programs once they get around to formulating their own budget. You don't have to be any good at math to tell Paul Ryan to sharpen his knives.

May 22 2017 6:28 PM

Donald Trump’s Budget Will Never Pass. It’s Still Frightening.

 

It’s often said that presidential budgets are mere “wish lists”—documents that let administrations showcase their principles and spell out policy ideas that have very little hope of making it into law. The White House can only make suggestions about spending, after all. The actual hard work of setting the government’s funding levels is done by Congress, where members have their own ideas and concerns.

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But “wish list” feels like the wrong way to frame the repugnant grab bag of spending cuts Donald Trump's staffers are preparing to drop on Tuesday. For starters, there's a good chance our president doesn’t really understand the contents of the proposal going out under his name—recall that this is the man who couldn't even be bothered to learn what was in the House health care bill he lobbied for. Trump won't even be in the country when the budget is released. While that may just be a timing coincidence, it also feels aptly symbolic of the president’s personal investment in the proposal. It seems highly unlikely he truly cares much about whether most of the budget's contents pass.

You might instead think of Trump's first full budget—as is traditional for new administrations, the White House released a partial “skinny budget” in March—as a permission slip. It is essentially a stack of papers telling Republicans that they are free to go wild butchering essential pieces of the safety net in order to fund extraordinary tax cuts for the wealthy and increased defense spending. Food stamps? In Trump’s proposal, the Supplemental Nutrition Assistance Program gets $193 billion in cuts over 10 years, and would allow states to stiffen work requirements for the program. Temporary Assistance for Needy Families, aka welfare as we now know it? Its already anemic funding gets slashed by $21 billion. The administration is already trying to spin this kind of hatchet work as “welfare reform”—but it's mostly just a signal to conservatives that they can get their cleavers out, should they feel compelled. The same goes for the $800 billion in Medicaid cuts, which mirror the reductions in the House health care bill, and the reported reductions to Social Security Disability Insurance. (Update, May 23, 8:46 a.m. Actually, it appears the proposed Medicaid cuts go billions go beyond what's in the ACHA, enough to cut the program by 47 percent over a decade.)

None of this is especially surprising. Trump's budget director is Mick Mulvaney, a former Tea Party congressman from South Carolina who seems to largely have been given free rein to design this blueprint. With Mulvaney in charge, it was always going to be a bloodbath, full of the kinds of cuts to social spending Republicans have been advocating for years.

For that reason, the most important thing about the budget may be what's not in it. The plan reportedly will not call for any cuts to Medicare or Social Security benefits for seniors, which Trump promised not to touch during his presidential campaign (he also promised not to cut Medicaid and failed to mention that his promises to protect Social Security didn't include the disability portion of the program, which many of his supporters in West Virginia and Kentucky likely rely on, but who's counting?). Mulvaney personally supports raising the Social Security retirement age to 70 and means-testing Medicare benefits, but in April he said Trump had vetoed such changes to the programs. When it comes to those two entitlements, Trump is apparently checked in, resisting the traditional conservative agenda.

Otherwise, he's granting Paul Ryan permission to cut away. And that, ultimately, is what makes Trump's budget so frightening. Even if the whole package probably isn't going to become a reality, it's still a sign that he won't stop Republicans enacting whatever rash part of their agenda they manage to legislate. And while they may be more hesitant to pass dramatic cuts to some programs now that they're actually in power and liable to suffer the electoral consequences—many come from farm states that tend to like food stamp spending, for instance—the GOP now has an empty suit in the oval office who's apparently willing to bring their most extreme ideas to life. He might not even bother to read them first.

May 22 2017 1:20 PM

The White House Wants Everyone to Keep Guessing Whether It Will Nuke Obamacare

The White House was expected to deliver a final decision Monday about whether it would continue to defend a lawsuit that could determine the fate of Obamacare's coverage markets. But Politico reports that it will instead ask the court for an additional three months to make up its mind—a delay that will leave insurers grappling with further financial uncertainty as they determine rates for next year, almost certainly leading to higher premiums for their customers.

The suit, which was first filed by House Republicans against the Obama administration, challenges the government's ability to continue sending crucial subsidies to insurers to compensate them for limiting the out-of-pocket costs they charge low-income enrollees. A federal trial judge previously sided with the GOP members, ruling that Congress had never properly appropriated funding for the so-called cost-sharing reduction payments, and the case is currently on appeal. Trump himself has threatened to abandon the case and cut off the CSRs, which most experts believe would amount to dropping a bomb on Obamacare's insurance exchanges. Because insurers are still required by law to keep costs down for poorer enrollees, the industry would face severe financial losses without the subsidy payments, which are predicted be worth $7 billion this year. Many carriers would likely abandon the individual market, while those that remained would have to raise their premiums significantly.  

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By simply leaving the fate of the CSRs in limbo, Trump is pretty much ensuring Americans will pay more for their health coverage next year. Insurers have begun submitting their rate requests to state regulators for 2018, and uncertainty over the president's decision has already caused some companies to ask for major rate hikes this year just in case the subsidies are eventually cut off. Allowing this issue to linger for another three months will force pretty much every coverage provider to set its prices without knowing whether the subsidies will last, which will force them to charge more. This move probably won't cause an immediate crisis for the insurance markets, but it will continue to undermine them, as higher premiums will likely drive away more customers. Some carriers may also choose to bail rather than deal with the guessing game. Here's how the Kasier Family Foundation researcher Cynthia Cox summed up the situation for me:

If the stay continues, then insurers will continue to face a great deal of uncertainty for next year. This could cause some insurers to drop out of the market and others to raise premiums substantially since they won’t know whether they will get these payments by the time they have to file their premiums for next year. This uncertainty will likely mean less choice of insurers or possibly some parts of the country with no choice of insurers on the exchanges. We also suspect that insurers will have to raise their rates so much that premium tax credits will also increase substantially, meaning it will cost tax payers more than if the government had made these payments.

This might all suit the administration's political purposes better than dropping the appeal entirely. Simply cutting off the CSRs would be an overt move that would trigger a wave of media attention, with lots of cable news headlines about Trump choosing the nuclear option on health care. Delaying the issue will instead subtly sabotage the exchanges without capsizing them outright—which will make it easier for Trump to suggest that Obamacare is failing on its own and must be replaced. The president is doing plenty of damage by doing nothing.

May 19 2017 6:05 PM

Trump Reportedly Wants to Blow Up Obamacare, for Real This Time

It appears our president is ready to move on from hostage-taking to hostage-shooting.

According to Politico, President Trump told his staff this week that he wants to cut off a crucial set of subsidies that are paid to health insurers under Obamacare, a move that could potentially bring about the collapse of the law's coverage marketplaces. Trump has previously told reporters that he might halt the flow of funds if Democrats refused to negotiate a new health care bill, and the administration has generally sent mixed messages about its plans, which has caused a great deal of fear and confusion among insurers.

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Many of Trump's advisors, including Secretary of Health and Human Services Tom Price, apparently oppose the plan, because they “worry it will backfire politically if people lose their insurance or see huge premium spikes and blame the White House.” Which is a reasonable fear. Americans tend to blame their president for their personal misfortunes, particularly when they can easily trace them back to the discrete, rash actions of the man in the Oval Office.

Ending the subsidies, which are known as cost-sharing reduction payments, has widely been viewed as the easiest way that Trump could wreck Obamacare's delicate insurance markets—it's often described as the administration's nuclear option. Insurers receive the payments in return for keeping out-of-pocket costs like co-pays and deductibles low for their poorer customers, and experts generally assume that many carriers would simply bail on the exchanges if the flow of money stopped, causing them to topple. Trump is in a position to hit the kill switch now because House Republicans sued to stop the subsidies several years ago, arguing that funding for them had never been properly appropriated. A federal trial court judge ruled in their favor, and the White House has to tell an appeals court by Monday whether it will continue appealing the case.

Trump's previous hamfisted attempts to treat the CSRs as a bargaining chip have gone nowhere, as Democrats have refused to negotiate over them. It's not hard to figure out why. If Trump ends the CSRs, it could cause millions to lose their health insurance. But so will any Obamacare repeal bill passed by a Republican Congress, even with a few token bipartisan votes. In the first scenario, Democrats could blame Trump. In the second, they'd be culpable for the fallout from any compromise legislation.

It's particularly unclear what Trump stands to gain now by finally axing the subsidies now. Democrats still have no reason to budge on Obamacare repeal. Congressional Republicans aren't particularly interested working across the aisle; the House has already passed a bill on partisan lines, after all. Meanwhile, the exchanges in some states, like Iowa, are already in a precarious place (thanks in small part to Trump's rhetoric), which has been enough for him to go on TV and claim that the entire law is failing. Pushing the the entire market off its ledge only invites voters to blame Trump himself for the wreckage.

Even if you just think about it in mob-movie terms, it doesn't make much sense. What villain ever got paid after they killed their hostage?

Rational analysis has never been our president's strong suit, though. Trump may be convinced that Democrats still “own” Obamacare and will be blamed if it finally fails, even if cable channels suggest he's at fault. I am still assuming that somebody will talk Trump out of leveling the entire individual health insurance market in a misbegotten effort to win political leverage over his opposition. But who can really be sure?

May 19 2017 4:51 PM

The Rich Are Getting More Mortgages. The Poor Are Getting More Car Loans.

On Wednesday, the New York Fed confirmed that Americans had finally reached a symbolic marker of recovery from the Great Recession: a new record for household debt.

 

Americans personally owed $12.73 trillion at the end of March, an amount that finally surpasses the $12.68 trillion we owed in September of 2008, before the economy tanked. It’s basically an arbitrary milestone, since the number isn’t adjusted for inflation, and doesn’t account for how much bigger the U.S. economy is now—as a percent of GDP, household debt isn't even close to where it was nine years ago.

 

We owe money for different stuff now. Student loans now make up 11 percent of household debt, up from 5 percent in 2008, which is one reason student loans became a campaign issue in 2016, and a reason that everyone and their mother is reading my colleague Jordan Weissmann’s post about student loan forgiveness.

 

Something else is also happening with auto loan debt, which is up to 9 percent of U.S. household debt from 6 percent in 2009. For much of the 2000s, auto loans and home mortgages rose in sync, suggesting either that houses and cars are complementary purchases that get made together, or that at least houses and cars responded to the same underlying economic trends.

 

But that link came unstuck five or six years ago, and auto loans haven’t looked back. Far more Americans—107 million—now owe money for car purchases than for home purchases.

 

May 19 2017 2:04 PM

Trump’s Growth Forecasts Are the Budgetary Equivalent of Putting Your Fingers in Your Ears and Yelling, “Na Na Na Na Na”

Earlier this week, the Wall Street Journal previewed the proposed budget the Trump administration is expected to unveil next week. It would simultaneously cut taxes massively and leave Social Security and Medicare untouched while keeping deficits muted and reducing the ratio of federal debt to GDP. The secret sauce: higher growth, projected endlessly into the future. “The White House projects the nation’s economic growth rate will rise to 3% by 2021, compared with the 1.9% forecast under current policy by the Congressional Budget Office,” the Journal’s Nick Timaroas wrote. He added, dryly: “It’s unusual to see the White House’s growth forecasts differ from the CBO and other blue-chip projections by such a large margin over such a long stretch of the 10-year budget window.” That’s one way to put it!

The focus in the Wall Street Journal article is on the unreasonableness of assuming 3 percent growth endlessly into the future, which would make deficits go away. You can get more output by having more people working and consuming consistently, and you can get more output by having those people work more productively. But our working-age population isn’t growing that much, and productivity has hit something of a plateau. Even with a goose from tax cuts and structural reforms, sustained growth at such a high rate is going to be exceedingly difficult.

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It’s even more unrealistic, however, to presume, as the Trump proposal does, that the economy won’t hit a speed bump some time in the next several years.

All presidential budgets are triumphs of hope over experience and reality. And forecasting what will happen in the economy or the world over a 10-year period—and hence how that will affect tax receipts and expenditures on food stamps or defense—is exceedingly difficult. Nobody in 2007 would have—or did—forecast a deep recession that would sap tax rates, require a massive stimulus and bailouts, and lead to several years of trillion-dollar deficits.

There is a natural tendency to forecast by simply extrapolating the recent past endlessly into the future. This works for 10-year plans only if you presume that the business cycle is dead and disruptions don’t happen. In early 2001, after the U.S. had posted very small budget surpluses for the first time in decades, Federal Reserve Chairman Alan Greenspan famously told the Senate that 10-year projections called for an $800 billion surplus in fiscal year 2011. While tentative, these projections “make clear that the highly desirable goal of paying off the federal debt is in reach before the end of the decade,” Greenspan said. He fretted that the government would have no choice but to deploy its vast, recurring surpluses to purchase private assets—socialism realized.

Well. Two months after Greenspan’s testimony, a recession started. Next came 9/11, the Iraq War, the Bush tax cuts, and new spending on education and Medicare prescription drug benefits that put us right back into deficits. In fiscal year 2011, the deficit was $1.3 trillion, meaning Greenspan was off by, oh, $2.1 trillion. And the federal debt, rather than having been paid off, stood at $14.8 trillion in fiscal year 2011. And this was the guy they used to refer to as The Maestro.

Long-term economic and budget forecasts almost never call for a recession. That’s in part because they have become increasingly rare. We live in an age of very long business cycles. The 1980s Reagan-era expansion lasted 92 months, the 1990s expansion went on for 10 full years, the “Bush Boom” of the aughts lasted a little more than six years. The current expansion, which started in July 2009, is approaching its eighth anniversary.

But it’s also because the projection of even the briefest downturn can throw havoc into long-term projections, thus rendering them effectively useless. The budget picture is highly procyclical. When things are going well, you get a double whammy: more tax collections at the same time you’re spending less on unemployment benefits and food stamps. But it works the other way. When growth falters, revenues plummet at the same time spending on social welfare soars and the government is inclined to ramp up stimulus efforts. If you have one year of being down 1 percent instead of being up 2 or 3 percent, you quickly fall behind the curve and you need several years of substantially higher growth to catch up. Between the first quarter of 2008 and the first quarter of 2012, federal revenues didn’t grow at all.

The math behind Trump’s budget proposal only begins to approach the outskirts of plausibility if you believe the economy will experience uninterrupted growth in the coming decade. Now, economic expansions don’t die of old age. And it’s hard to speak with great certainty about the future. It’s better to speak of likelihoods. Is it likely that after eight years of economic growth the economy will suddenly shift permanently into a substantially higher gear and then remain there for years? And that the current expansion will last for at least 18 years—80 percent longer than the longest expansion to date? All at a time when the structure of our workforce and our demonstrated ability to boost productivity seem to argue against higher growth?

If you think the answer to these questions is yes, I have some shares in Trump hotels, casinos, and resorts I’d like to sell you.

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