Healthcare: One More Thing …

by on May 7, 2017 in Economics, Politics

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

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

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

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

Now, put the two together.

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

What’s all this to do with healthcare reform?

Easy.

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 When Obamacare is repealed the Federal deficit won’t budge much because the cut in taxes would be offset by a cut in services, but the cut in taxes reduces the projected “baseline”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

Why?

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

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

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

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

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

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

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

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

The House plan will go nowhere.

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

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

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

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

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