Are the Obamacare Repeal Tax Cuts Just Giveaways to the Rich?

Jeffrey Miron

In the debate over the repeal of Obamacare, much opposition has
focused on the suggestion that the Republicans’ proposed cuts in
subsidies and coverage aim to fund big tax cuts for high-income
taxpayers.

The House and Senate health care bills adjust or repeal many
Obamacare taxes, but the main ones being castigated as
“handouts to the rich” are the elimination of the 3.8%
Affordable Care Act (ACA) hike in the tax rate on investment income
and the 0.9% increase in the Medicare tax on wage and salary income
for high-income earners (over $200,000 for an individual or
$250,000 for a family). The Tax Policy Center has estimated that, by 2026, people who earn
$5 million or more would, on average, see their taxes cut by almost
$250,000. 

This criticism of the Republican bills is understandable but
wrongheaded. 

The economically thoughtful way to evaluate government spending
and taxes involves two steps; first determining whether the
spending is justified and a good use of government resources,
setting aside how it’s paid for, and secondly, deciding on the best
way to raise revenue to pay for that spending. 

This criticism of the
Republican bills is understandable but wrongheaded.

The fact that taxes that distort the functioning of the economy
will be necessary to pay for government spending is a cost of that
expenditure. But otherwise, “sources and uses” are
separate issues.

How to pay

So, taking the amount of spending as given, whether under the
ACA, the American Health Care Act (AHCA) — or the Better Care
Reconciliation Act (BCRA), which taxes should be used to pay for
it? 

Standard economics says that high marginal tax rates reduce
economic activity by reducing the incentive to save and work. And
the ACA taxes on investment savings and high incomes are exactly
backwards from this perspective; they raise the tax burden on
savings and working for high income taxpayers, the ones most likely
to alter their behavior in response to such taxes, thereby slowing
economic growth which affects everyone.

There is considerable evidence that cutting taxes of this kind is a
plus — such cuts boost the economy in the short term,
and perhaps to a modest degree over the longer
haul.

Thus repeal of the ACA investment and income taxes makes sense,
whatever the fate of Obamacare more broadly. 

Eliminating these taxes does imply higher deficits, even though
the cuts will stimulate economic activity. The lost revenue is estimated by the Congressional
Budget Office at around $30-35 billion per year.

Cadillac tax

How should Congress make up for the lost revenue? By raising
taxes that improve rather than harm economic efficiency. The
obvious example is the so-called Cadillac tax on high-cost health
insurance policies.

This tax is an imperfect antidote to the current tax exemption
for employer-paid health insurance premiums. By waiving taxes on
the premiums, the current law subsidizes health insurance for those
who obtain coverage through their employer, so it encourages
purchase of overly generous provisions like low
deductibles. 

The public hates high deductible plans, but they do exactly what
insurance is supposed to do — protect the insured from large,
unpredictable expenses, not reimburse people for routine or
moderate health spending. This subsidy incentivizes care for which
the costs exceed the health benefits, and this increased demand
puts upward pressure on prices and therefore spurs health cost
inflation.

The best fix of this feature of the tax code would be repeal of
the tax exemption. According to the Office of Management and
Budget, that would generate more than $200 billion per year in
additional revenue, while making the tax and health care systems
more efficient.

Repeal of the full exemption, alas, faces stiff opposition. Not
surprisingly, therefore, the ACA did not schedule implementation of
the Cadillac tax, which goes only part of the way toward fixing
this problem, until 2018, four years after the ACA took effect.
Congress later pushed this to 2020. The House and Senate Republican
repeal bills postpone implementation until 2025 and 2026,
respectively. 

Other changes to the tax code, unrelated to health care, would
generate more revenue while improving economic efficiency —
elimination of the home mortgage interest deduction is a major
example.

Calm discussion of the House and Republican health bills,
therefore, suggests that individual features — such as repeal
of highly distorting taxes — make sense as good economics;
they are not merely giveaways to the rich.

Jeffrey
Miron
is director of economic studies at the Cato Institute and
director of undergraduate studies in Harvard’s Economics
Department.

Hyperinflation Usually Produces Hype, an Antidote in One Table

Steve H. Hanke

The literature on hyperinflation is replete with ad-hoc
definitions, ill-defined terminology, and a lack of concern for
clear, uniform metrics. Sloppy reasoning and hype prevail. To fill
the void, I set out in 2010, at the invitation of the editors of
the authoritative Routledge Handbook of Major Events in Economic
History
, to construct a new, comprehensive table of the
world’s hyperinflation episodes. This was an arduous task,
fortunately made less arduous because I was assisted by a team of
Johns Hopkins research assistants led by Nicholas Krus.

The results of our research — the Hanke-Krus World
Hyperinflation Table
– were first published by Routledge in
2013. The table contained all 56 countries that had ever
experienced a hyperinflation. In late 2016, we amended the Table.
It was then that Venezuela became the 57th official, verified
episode of hyperinflation and was added to the Table (see the table
below).


For the Hanke-Krus World Hyperinflation Table Notes and
Sources, see Hanke-Bushnell working paper
.

Just what are the criteria required for a country to qualify for
the hyperinflation designation? An episode of hyperinflation occurs
when the monthly inflation rate exceeds 50% for 30 consecutive
days. In the case of Venezuela its monthly inflation rate first
exceeded 50% on November 3, 2016 and continued to exceed 50% per
month for 42 days, ending on December 14, 2016 (see the chart
below).


Venezuela Monthly Inflation Rate.

But, just how do we measure inflation in countries that are
experiencing elevated inflation rates? In selected countries,
including Venezuela, my team at the Johns
Hopkins-Cato Institute Troubled Currencies Project (TCP)

measures monthly and annual inflation rates each day. Unlike many
of the numbers tossed around in countries with elevated levels of
inflation, our measurements meet academic standards. The TCP
measurements are based on changes in black market (read: free
market) exchange rates. The principle of purchasing power parity
(PPP) is used to translate exchange rate changes into estimates of
implied inflation rates. When inflation is elevated, this method
provides deadly accurate estimates.

Today, Venezuela remains in play. Its socialist economy is
imploding and its currency, the bolivar, is collapsing. This gave
rise to the world’s 57th episode of hyperinflation in late 2016.
And in 2017, there was a period in which the monthly inflation rate
exceeded 50% for 19 consecutive days. At present, the monthly rate
sits at 31%.

Most of what is reported in the press are not measurements of
actual inflation rates. Rather, they are forecasts for Venezuela’s
inflation that have been made by various international institutions
­- most notably the International Monetary Fund. These forecasts
are nothing more than guestimates — finger-in-the-wind
forecasts. They are carved in stone and repeated ad nauseam in the
financial press. Unfortunately, as with most things in finance, the
95% Rule reigns — 95% of what you read in the financial press
is either wrong or irrelevant.

Steve Hanke is
a professor of applied economics at The Johns Hopkins University
and a senior fellow at the Cato Institute.

Pluralism and Equality Need Educational Freedom

Neal McCluskey

Americans recoil at “discrimination.” The word connotes
exclusion for not just superficial, but also hateful reasons, which
Americans experienced for decades in the form of racial segregation
– often government-mandated – from schools to lunch
counters. This shameful history is no doubt why Secretary of
Education Betsy DeVos set off a firestorm recently when she refused
to say that she would prohibit potential federal vouchers from
going to private schools that don’t accept all comers.

But we should not let our immediate, understandable feelings
keep us from asking: Might there be acceptable, perhaps even good,
reasons that schools would not work with some people?

There may be. Pluralism, academic achievement, and authentic,
sustainable integration are all important considerations.

First pluralism. Ours is a nation of greatly diverse people –
myriad religions, ethnicities, languages, cultures – and we must
allow unique communities to educate their children in ways that the
political majority, which controls public schools, might not
select, and do so without having to sacrifice their education tax
dollars. We must enable people to choose schools that share their
values, or cultures, or views of history, on a level playing field.
If we do not, we doom them to unequal status under the law, and
even risk their withering away in a generation or two.

We should not let our
revulsion for malevolent discrimination snuff out the ability of
the country’s countless, cherished communities to live on by
teaching their children as they see fit.

Religion is the most obvious, widespread sticking point. By law,
public schools cannot inculcate religious values. But there are
millions of people who believe that religion is inseparable from
education; that all life and learning is centered on God.

For more than a century public schools were de facto Protestant
institutions for this reason, but that marginalized atheists, Roman
Catholics, and many others. Schools also must take sides on issues
with inescapable religious implications, such as evolution and sex
education. These are huge reasons that millions of people enroll
their children in
private
or
home
schools – Southern Baptists have even debated an

“exodus” from public schools
– but they must sacrifice their
tax dollars to do so.

Of course, it is not just religious communities that are
handicapped and rendered unequal under public schooling. Racial,
ethnic, and linguistic minorities often are, too. For instance, in
Tucson, Ariz., a battle has raged for years over classes for
Mexican-American students that focus on the community’s unique
history and culture. They were eventually outlawed for advocating,
among other things, “ethnic solidarity,” which may just be another
way of saying, “trying to sustain their community.”

It now seems clear that equality and pluralism necessitate that
communities be able to offer schooling on an equal footing with
public schools. But the question remains: Does this also require
that private schools be able to exclude some students?

For a school to truly stand for things central to the community
it serves, those who enter the community must share those values.
For instance, being forced to accept a large influx of families
hostile to a community’s views on, say, the role of
Mexican-Americans in the United States, or marriage, would threaten
the demise of such a school.

It could also smother a school academically. As sociologist
James Coleman famously surmised after studying Roman Catholic
schools, the key to their success was their high level of social
capital; essentially, their internal cohesion from administrators,
teachers, and families all voluntarily accepting the same norms and
values. That enabled them to teach clear, rigorous curricula, and
uphold well-delineated norms of behavior.

There is one last consideration when it comes to communities
deciding whom they will and will not accept: freedom of
association.

While prohibiting schools from turning some families away is
utterly understandable given our history, it may be
counterproductive, essentially creating unsustainable tolerance
theater. As social psychologist
Patricia Devine has noted
, coercing prejudiced people to act in
unprejudiced ways can fuel “anger and resentment, and sadly, this
anger fuels their prejudice and their tendency to show a backlash
against the pressure.”

Of course, we should not stand idly by while people cruelly
discriminate. We should expose, criticize, and shun bigots. But we
should not let our revulsion for malevolent discrimination snuff
out the ability of the country’s countless, cherished communities
to live on by teaching their children as they see fit.

Neal McCluskey (@NealMcCluskey) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is the director of the Cato Institute’s Center for Educational Freedom and maintains Cato’s Public Schooling Battle Map.

The Real Lessons from the Kansas Experiment

Ryan Bourne

What is it about leftwingers and overreach? Two weeks ago,
Labour’s defeat in the general election was being spun as the
“death of neoliberalism”. It even emboldened the party to advocate
the requisition (i.e. taking) of people’s private houses and
apartments after the Grenfell Tower fire. Now we have the partial reversal of
large income tax cuts
in the American state of Kansas being
heralded as the death of supply-side economics and the idea that
lower marginal tax rates can improve growth prospects.

Back in 2012, the Kansas Republican Governor, Sam Brownback,
slashed his state’s marginal income tax rates, reducing the
top rates from 6.45 per cent and 6.25 per cent to 4.9 per cent and
cutting the rates for low earners from 3.5 per cent to 3 per cent.
He doubled the personal allowance from $4,500 to $9,000 and,
perhaps most significantly, proposed exempting so-called
“pass-through” entities from income tax altogether.

As politicians often do, he over-egged the likely positive
effects of such measures, describing them as a “real live
experiment” in supply-side economics. But left-wing commentators
are now using the stubbornness of the state’s budget deficit,
and the relatively weak growth performance since, to attempt to
discredit the case for cutting marginal tax rates anywhere. Their
partial account of what really happened and its lessons deserves
correction.

Taxes are not everything,
and in many cases may not even be the most important policy lever
to improve growth prospects. But there is a much broader
theoretical and empirical literature than just the Kansas
“experiment” which shows that they really do matter.

First, the impact of the tax cuts on the Kansas budget deficit
owed more to politics than the tax reform. In Brownback’s
original proposal, almost all of the “cost” of lost revenues was
made up for for by broadening the tax base. He wanted to eliminate
a number of tax credits and deductions, such that overall there
would be little budget impact. But his opponents in the Kansas
Senate defeated implementation of these “pay for” measures, meaning
the tax cuts alone led to more government borrowing in the absence
of significantly cutting spending.

Second, though taxes are important, they aren’t
everything. A range of other things have affected the Kansas
economy in the time since the tax cut was passed. In particular,
the state is strongly affected by what goes on in the agricultural
and energy industries. Given the weakness of commodity prices over
this period, the state economy has struggled for reasons nothing to
do with the tax cuts.

Third, the specific tax package proposed went against good tax
practice in one crucial regard, which even most supply-siders would
denounce. By completely eliminating the income tax on pass-through
businesses, the Governor significantly increased opportunities for
tax avoidance for individuals working in certain types of
company.

The take up of this provision was much, much higher than
expected and one of the key reasons why state revenues were lower
than expected. But this type of bad tax policy need not be part of
a rate-cutting agenda. In North Carolina,
the Tax Foundation
has shown how income taxes can be cut in a
way that, alongside base-broadening, leads to sharpened incentives
and reduced opportunities for avoidance, and so does not lead to
large budget shortfalls.

Finally, state income taxes are already very low in America. Few
economists would suggest that cutting them would lead to such a
huge impact on economic growth that they would be self-financing,
especially without the “pay-fors”. But because the economist Art
Laffer was associated with drafting this reform, many mistakenly
viewed Kansas as a test of whether
the Laffer Curve thesis works
(i.e. that there is some
revenue-maximising rate of tax above which higher tax rates even
lower revenues). It was no such thing.

Of course, one can understand why the Left is so keen to
highlight Kansas’ failures. For decades, the free-market
Right has broadly won the argument on whether low marginal tax
rates on income and corporate profits boost growth by increasing
incentives to work and invest. With President Trump promising large
cuts to marginal rates too, the critics are perhaps right to point
out that free-marketeers sometimes overplay the case for tax cuts
relative to other areas of policy.

But it is another thing entirely to ignore the specific
conditions of Kansas, and the history of how this tax cut occurred,
and to extrapolate that it illustrates how supply-side economics
does not work. An extensive review on the link between taxation and
economic growth published here by
the Institute of Economic Affairs
last year showed that high
marginal taxes, other things given, tend to slow the growth of
economic activity.

Taxes are not everything, and in many cases may not even be the
most important policy lever to improve growth prospects. But there
is a much broader theoretical and
empirical literature
than just the Kansas “experiment” which
shows that they really do matter.

Ryan Bourne occupies the R. Evan Scharf Chair for the Public Understanding of Economics at Cato.

Another Bleak Supreme Court Decision for Property Rights

Roger Pilon

Property owners have long suffered under the Supreme Court’s
erratic rulings. It got worse last Friday when the court ruled
against owners who wanted simply to sell their property.

Both facts and law in Murr v. Wisconsin are
complicated. But in a nutshell, the Murrs, four siblings, inherited
adjoining lots on the St. Croix River that their parents had
purchased at separate times in the 1960s, building a home on one
and keeping the other as an investment. Deeded and taxed
separately, the two lots remained so to the present.

But in 1975 a local zoning ordinance combined the lots. The
effect, as the Murrs discovered in 2004 when they sought to sell
the investment lot (valued at $410,000), was to prohibit them from
doing so unless they sold the other lot and house with it. So they
sued under the Fifth Amendment’s Takings Clause, which prohibits
the government from taking private property for public use without
just compensation.

In effect, the ordinance had taken their right to sell that lot,
one of the basic rights of property. The case is no more
complicated than that. Under the Constitution’s Takings Clause they
should have been compensated for their loss.

So, why did they lose? Here things get really complicated
because the Court’s “regulatory takings” law is a morass. A 1922
decision, for example, held that if a regulation goes “too far” it
constitutes a taking. Things haven’t gotten much clearer since, and
Friday’s decision, written by Justice Anthony Kennedy, made it only
worse.

In brief, to decide Murr the Court turned mainly to a
1978 decision, Penn Central v. New York, which had
introduced a three-part “balancing test” to determine whether a
taking has occurred. Under it, a court must weigh a regulation’s
economic impact on the property, its interference with
investment-backed expectations, and the character of the government
action. And the crucial point here: Those factors must be applied
to “the parcel as a whole.”

No one knows what those factors mean or how to apply them. But
hold that last point, because a second precedent has to be
considered.

In a 1992 decision, Lucas v. South Carolina Coastal
Council
, the Court held that an ordinance prohibiting the
plaintiff from virtually all rightful uses of his property
constituted a taking because it wiped out all of the property’s
value. The problem with this “wipeout” rule, of course, is that
most regulations leave at least some value in the property. When
the dissent objected to the rule, Justice Antonin Scalia, writing
for the Court, responded tersely, “Takings law is full of these
‘all or nothing’ situations.”

If the state can wipe out
pre-existing rights simply by issuing a later ordinance, and
thereby escape the requirements of the Takings Clause, that
guarantee is a dead letter.

Go back now to the Murrs. If their lots are treated separately,
as the separate deeds and taxes have long implied, then all value
in the investment lot has been wiped out by the 1975 ordinance and
the Murrs, under Lucas, are entitled to compensation for
the taking. But with the two lots combined as one, value remains in
“the parcel as a whole,” under Penn Central. So putting
the two precedents together, the state can escape paying the Murrs
any compensation unless the Penn Central balancing test
saves them.

It did not, said Justice Kennedy in an opinion that muddied the
waters even further. In his dissent for himself and Justices
Clarence Thomas and Samuel Alito (Justice Neil Gorsuch took no
part), Chief Justice Roberts dissected Kennedy’s opinion but did
little more. In fact, Roberts wrote that the Court’s holding “does
not trouble him,” only its reasoning. He would have vacated the
judgment below and sent the case back for that court to identify
the “relevant property” (the single, or the combined lots) using
Wisconsin property law.

But that law is precisely the problem. If the state can wipe out
pre-existing rights simply by issuing a later ordinance, and
thereby escape the requirements of the Takings Clause, that
guarantee is a dead letter.

Only Thomas seemed to appreciate that. He joined the dissent
because, as he wrote, “it correctly applies this Court’s regulatory
takings precedents.” But he went on to say that the Court should
take a fresh look at those.

Only Thomas seemed to appreciate that. He joined the dissent
because, as he wrote, “it correctly applies this Court’s regulatory
takings precedents.” But he went on to say that the Court should
take a fresh look at those.

Therein lies the problem with so many of the Supreme Court’s
decisions, and not only in the area of property rights. There is
all the difference in the world between modern “constitutional law”
and the Constitution itself.

Roger Pilon (@Roger_Pilon) is vice president for legal
affairs at the Cato Institute and director of Cato’s Center for
Constitutional Studies.

China’s Moment to Lead on North Korea

Doug Bandow

After insisting that China should “solve” the North
Korea problem, President Donald Trump appears to have given up.
“While I greatly appreciate the efforts of President Xi &
China to help with North Korea, it has not worked out. At least I
know China tried,” he tweeted. Now the issue apparently is
back in President Trump’s not so capable hands.

Unfortunately, the administration really didn’t try.
Beijing never was going to act just because President Trump wanted
it to. Expecting the People’s Republic of China to destroy
its ally while the U.S. was busy elsewhere in the region seeking to
contain Chinese military power, and to do so without receiving
anything in return, never was realistic. Unspecified trade
concessions simply weren’t enough to make a deal. Washington
had to offer far more.

Alas, the administration doesn’t have any other good
options. Despite President Trump’s posturing with his promise
to send an armada off of Korea’s coast, his officials later
discounted the possibility of taking military action. Airstrikes
might not reach all the facilities and probably would ignite a war,
with devastating consequences to everyone involved, most
dramatically South Korea.

The situation in the
North is likely to worsen, while the opportunities to solve it
peacefully are likely to shrink. Action is needed now.

Enhanced sanctions are more likely, including secondary
sanctions against Chinese companies and banks. This would risk
creating a confrontation with Beijing, which has always rejected
unilateral penalties, especially against its nationals. By shifting
the issue from North Korea to the PRC the Trump administration
might actually increase Chinese support for the North. Witness the
popular rage against South Korea over the THAAD deployment.

Moreover, though tougher sanctions would impose economic
hardship, there is no reason to assume that alone would bring
Pyongyang to heel. When I visited the Democratic People’s
Republic of Korea in June, officials insisted they would stand firm
against America’s “hostile policy” no matter
what. Of course, they could be expected to say that. But the DPRK
did not change policy even in the midst of horrific famine a couple
decades ago.

And so far the PRC appears to value stability above all. If the
Kim regime appeared in danger of breaking, Beijing might buttress
the North rather than risk a collapse, and the violent chaos which
could follow. Which likely would lead to U.S. retaliation against
China.

None of this is in the PRC’s interest. Instead of acting
as bystander if both regional stability and U.S. relations unravel,
Beijing push Washington to engage in serious negotiation with all
parties.

The U.S. is in no position to simply order the DPRK about.
Indeed, America’s bellicosity and propensity for regime
change have given the Kim dynasty a justification for building
nuclear weapons. The North Koreans pointed to American military
intervention elsewhere and told me that they intended to meet
military force with military force. To change that Washington will
have to make concessions too.

America’s priority should be halting Pyongyang’s
advancing missile and nuclear programs. Living with a North Korean
arsenal of 20 bombs would be unpalatable but not impossible. The
DPRK with 100 nukes and the capability to hit any city in the U.S.
would be quite different. The priority should be containing the
threat.

Thus, Washington should revive the North’s proposal for a
freeze on its activities in return for an end to annual military
exercises between the U.S. and South Korea. The latter agitates
North Korean officials, who call them a cover for possible attack.
However, when I raised this possibility they dismissed it, saying
that the U.S. had rejected their offer. Coming from China and
America together, and backed by the threat of joint sanctions, it
would be more persuasive.

With some breathing space, Washington could work with the
Republic of Korea and Japan to develop a big offer in return for
denuclearization, and Beijing to win the latter’s
endorsement. The package would have to emphasize security—the
DPRK’s rulers watched the war in Libya and aren’t
impressed with verbal assurances like those offered by Secretary of
State Rex Tillerson. Washington would have to take steps to end its
“hostile policy,” in the North’s parlance.

China should offer its support, as well as whatever assistance
and assurances would encourage Pyongyang’s acceptance. The
objective is to denuclearize the peninsula peacefully through
negotiation. All efforts should be directed at providing a positive
option that contrasts favorably to the much more hostile approach
if diplomacy is rejected.

In return, the PRC would agree to back the effort with the
threat of enforcing its own and U.S. sanctions, so long as its
other interests were respected. That would include allied
assistance for China if the result was a DPRK collapse. There
likely would be refugees to be cared for. There could be factional
fighting. Beijing might believe military intervention was necessary
to stabilize the country.

Moreover, the U.S. should offer assurances that reunification
would not put Beijing at a geopolitical disadvantage: in
particular, all American military forces should go home in the
event of unification. Seoul should consider a declaration of
military neutrality for a unified peninsula. The allies might find
such offers distasteful, but the PRC cannot be expected to aid its
own containment.

Even this approach has critics. Some aver the importance of
regular maneuvers to combat effectiveness, but the ROK should be
taking over ever more of the responsibility for its own defense.
The South vastly outstrips the North on every other measure of
power. Others fear the agreement would not be enforceable, but that
would be an issue for any negotiated settlement. Finally, such an
agreement would leave human rights at risk. However, a North Korea
holding tightly to its nuclear weapons seems unlikely to relax
political controls.

President Trump raised the potential of a China-U.S. deal over
North Korea. Beijing shouldn’t let him drop the issue without
trying to reach an agreement. The situation in the North is likely
to worsen, while the opportunities to solve it peacefully are
likely to shrink. Action is needed now.

Doug Bandow is
a senior fellow at the Cato Institute and a former special
assistant to President Ronald Reagan.

Republicans’ Grim Health-Care Fairy Tale

Michael D. Tanner

Once upon a time in the far-off land of Washington, Republicans
swore a mighty oath that, if they ever had the power, they would
repeal Obamacare. Sometimes they added the word “replace,” but
mostly, every Republican running for anything from president to the
Tupelo school board vowed to rip the health-care law out by the
roots, drive a stake through its heart, and shred it. Republicans
in Congress even voted some 58 times to repeal all or part of the
law. Sure, they knew that either Senate Democrats or President
Obama would block their repeal attempts, but it was important to
show everyone that they really, really, really hated this law. This
was, after all, a very bad law that was driving up health-care
costs, destabilizing health markets, and depriving Americans of
their choice of insurance plan and sometimes their doctor.

Then, behold, a wondrous thing happened. Republicans won control
not just of Congress but the presidency itself. Now, nothing stood
in the way of their efforts to get rid of Obamacare. So, quickly
they … oh, never mind.

The health-care bill released by Senate Republicans last week
does many things. Repealing Obamacare is not one of them. In fact,
this bill not only preserves the core of Obamacare, it may actually
accomplish the difficult feat of making the health-care law’s many
failures worse.

Republicans looked at a
health-care law that was rapidly spiraling into oblivion and
decided that what they really needed to do was to preserve and
expand it.

In fairness, Republicans face a daunting task, complicated by
interparty ideological rifts, complex Senate rules on
reconciliation, and a president who neither understands the policy
nor has done anything to help sell an Obamacare-replacement plan to
the public. But no one expected a combination of bad policy and bad
politics as bad as this.

At the heart of Obamacare lies a devil’s bargain: The law
expands the number of people with insurance coverage at the cost of
driving up insurance premiums for those who already had coverage,
which is to say the vast majority of people. Republicans apparently
decided that the answer to this is to cut back on the increased
coverage, while doing nothing to bring down premiums. That may not
be “mean,” in the words of President Trump, but at the very least
it is dumb.

For example, the law keeps in place all of the “essential
benefits” that Obamacare requires every insurance plan to cover.
Those required benefits, including maternity coverage for elderly
men and child dental and vision care for childless adults, add
considerably to the cost of a policy and prevent individuals from
buying the insurance that best meets their needs or those of their
families. True, states would be able to apply for a waiver from
some of those mandates, but the reality is that most Americans will
still be forced to buy a high-priced insurance plan designed by
Washington bureaucrats, not by individual consumers.

Worse, the Senate bill preserves Obamacare’s rules regarding
pre-existing conditions. Those regulations, really a form of price
controls, drive up costs for the young and healthy in order to
subsidize those who are already sick. Moreover, this attempt to
shoehorn people who are by definition “uninsurable” into the
traditional insurance market has destabilized those markets,
leading companies to pull out, jack up premiums, and restrict their
provider networks.

The Senate bill doesn’t fix this. In fact, by simultaneously
dropping the individual mandate, which forces the young and healthy
to buy overpriced coverage, this bill could accelerate the
“adverse-selection death spiral” whereby healthy people drop out of
the insurance pool, leaving an ever sicker and more costly
population of the insured. The Republicans do try to cut down on
people gaming the system by imposing a six-month waiting period for
people who fail to buy or maintain insurance while healthy (call it
a soft mandate), but because the wait applies equally to the
healthy and sick, it will likely prove ineffective.

The Congressional Budget Office does conclude that the
Republican plan would ultimately reduce accumulated deficits by
$321 billion over the next ten years. However, most of those
savings occur in the last few years of that period. “Don’t worry,
we may not be cutting now, but we double pinky swear to cut in the
future” is something we’ve heard before. Indeed, Senate Majority
Leader Mitch McConnell is already hinting that he plans to use some
of those savings to increase subsidies and Medicaid spending in an
effort to bring Republican moderates on board.

Speaking of subsidies, the Senate bill would continue
Obamacare’s extension of the welfare state well into the middle
class, covering families that earn as much as $86,000 per year. And
despite the outcry over slowing the growth in Medicaid spending
(not actual cuts as has been so often misreported), this bill would
still keep Obamacare’s expansion in place until 2025, five years
longer than in the bill that passed the House earlier. To be fair,
unlike the House version, the Senate bill would prohibit states
that haven’t implemented Medicaid expansion from doing so. But it
then turns around and expands Obamacare’s “premium-assistance tax
credits” to 2.6 million people in those states, effectively
expanding Medicaid without saying so.

The Senate bill does take tentative steps toward Medicaid
reform, a program that has proven itself both ineffective and
fiscally unsustainable, but those changes, like the spending cuts,
are put off into the future where they are imminently reversible by
future congresses.

Of course, no Obamacare capitulation would be complete without a
little corporate welfare. Accordingly, the bill retroactively funds
“cost-sharing subsidies” for insurance companies. The subsidies
would be eliminated in the future, but insurers will now be paid
for expenses that they have already incurred. This bailout of the
big insurers effectively undoes one of the biggest Republican
victories on Obamacare in recent years, a federal court ruling that
such subsidies were illegally financed.

Senate Republicans even flinched on taxes. While the bill
repeals most Obamacare tax hikes, including a number of taxes that
hit the middle class hardest, it simply postpones the infamous
“Cadillac tax” on high-priced insurance plans.

Somehow, Republicans looked at a health-care law that was
rapidly spiraling into oblivion and decided that what they really
needed to do was to preserve and expand it.

At this point, the bill seems unlikely to pass. Either way, this
is one fairy tale that probably won’t end happily ever after.

Michael
Tanner
is a senior fellow at the Cato Institute, a free-market
oriented think tank.

ObamaCare by Another Name Is Still ObamaCare

Michael F. Cannon

Senate conservatives, and ObamaCare opponents broadly, have
panned the Senate healthcare bill as a charade. If conservatives
help enact this or any other bill that leaves ObamaCare’s central
architecture in place, they will take responsibility for the
ongoing harm it causes, squander their one best shot at repeal and
imperil other conservative priorities.

For seven years, Republicans have pledged to repeal ObamaCare
in full. Donald
Trump
put it
in writing
. The Senate bill would instead
preserve and even expand ObamaCare
. Like the
substantially-similar bill that already passed the House, the
Senate bill is a snub to all who voted Republican because of that
pledge.

Trump and other GOP leaders are intensifying the pressure on
Senate conservatives to vote for the bill precisely because their
hand is weak. Republican leaders need conservatives more than
conservatives need to vote for this bill.

If Republicans fail to
repair the damage ObamaCare is causing, pressure to do so would
only grow

Let’s game out the scenarios.

The Senate bill could exacerbate what are already likely GOP
losses in the 2018 midterm elections. The nonpartisan Congressional
Budget Office
projects
the Senate bill would cause premiums to be 20-percent
higher in 2018 and 10-percent higher in 2019 than under ObamaCare
alone.

Democrats are already united and energized. If the Senate bill
delivers two separate premium hikes leading up to the 2018 midterm
elections, deflated GOP voters would stay home while angry
consumers turn out to vote Democratic. Republicans would lose even
more seats in Congress, jeopardizing the Senate bill’s tax cuts and
spending constraints, not to mention other conservative priorities,
like Supreme Court nominees.

If conservatives refuse, GOP leaders would have to offer them
concessions. The longer they hold out, the larger the concessions.
Why?

If Republicans fail to repair the damage ObamaCare is causing,
pressure to do so would only grow. ObamaCare’s harmful government
regulations would continue to drive premiums skyward,
reduce quality
and
cause insurance to disappear in parts of the country
.

Consumers would keep demanding relief. The GOP base would
continue to demand its leaders follow through on their
most prominent and long-standing
campaign promise. Anti-tax
conservatives would demand Congress take up ObamaCare again to
repeal its tax hikes and facilitate tax reform.

GOP leaders would have little alternative but to work with
conservatives. If they work with Democrats to rescue ObamaCare,
they would face a rebellion that would also depress GOP turnout on
Election Day. If Trump continues to bail out ObamaCare with
payments to private insurance companies that
two of his cabinet officials
– not to mention
a federal court
– have declared unconstitutional, he would
spark a similar revolt.

The conservative House Freedom Caucus won concessions only after
showing they were willing to
let a phony repeal bill fail
. (They quickly decided they
preferred losing to winning, though. The concessions
did not materially improve the House bill
, and most HFC members
voted for it anyway.)

What changes would make the Senate bill worth passing?

Conservatives could demand an expansion of tax-free health
savings accounts (HSAs) along the lines of
legislation
by Sen. Jeff Flake
(R-Ariz.) and Rep. Dave Brat (R-Va.). Unlike ObamaCare and the
Senate bill, which merely subsidize unaffordable care, “Large HSAs”
would drive prices down.

Designed properly, Large HSAs could fit within the Senate bill’s
revenue-loss figure and even have a tax-cut-multiplier effect.
Since they would free workers to control $700 billion dollars of
their earnings that employers currently use to choose and purchase
their health benefits, they could deliver an effective tax cut
larger than all Reagan and Bush tax cuts combined.

Alternatively, conservatives could agree to keep some ObamaCare
Medicaid spending in exchange for structural reform and greater
spending constraints. A system of block grants where federal
outlays would not grow at all would allow Congress to give states
greater federal funds in the initial years than they would get
under ObamaCare.

If Congress included ObamaCare’s exchange subsidies, which would
otherwise go to insurers, states could get far more than under
current law, which would allow states to address preexisting
conditions themselves. That would free Republicans to repeal
ObamaCare’s regulations, as they promised to do, which would
instantly stabilize the individual market and could reduce average
premiums by
an estimated

90 percent
.

These options would materially improve on the status quo, even
if they fall short of full repeal. The Senate and House bills would
do neither. Those bills are not going to get better if Senate
conservatives throw away their one best shot to repeal
ObamaCare.

Michael F. Cannon is
“ObamaCare’s single most relentless antagonist” (The New Republic)
and director of health policy studies at the libertarian Cato
Institute.

The Danger of Mission Creep in Syria

Emma Ashford

On Sunday, a U.S. Navy fighter jet shot down one of Bashar al-Assad’s warplanes
attacking U.S.-allied Syrian forces, drawing the United States
deeper into that conflict. Raising tensions with Russia and
potentially placing American troops in danger, this action was just
another in a long line of tactical decisions which increase U.S.
involvement in Syria without any viable long-term strategy for
resolving or exiting the civil war.

Much of the criticism has focused on President Donald Trump’s
impulsive and pugnacious personality. While Trump has accelerated
this process, he is not wholly to blame for the slippery slope that
the United States is now sliding down in Syria. The Obama
administration resisted large-scale escalation, but their choices
nonetheless contributed directly to today’s haphazard Syria
strategy. The Trump administration needs to decide what it wants to
achieve in Syria now, or the inevitable logic of mission creep may
rob them of the ability to choose.

Obama’s Syrian Wars

A common narrative among hawks in Washington is that Barack
Obama’s failure to escalate in Syria—most notably his
decision not to follow through on his “red line” comments about chemical
weapons—reduced U.S. credibility and worsened the conflict
there. These criticisms are largely unjustified: the red line
comment may have been foolish, but the Russian-brokered chemical
weapons deal succeeded in preventing the further use of chemical
weapons during Obama’s term, and was likely more effective
than air strikes would have been.

The United States has no
viable long-term strategy for resolving or exiting the civil
war.

Obama does deserve some credit for his willingness to avoid
large-scale escalation against the Assad regime in Syria in 2013
and again in response to Russia’s 2015 intervention. Whether
he feared a repeat of the 2011 Libya intervention—where
narrow humanitarian goals quickly and almost seamlessly
transitioned into regime change—or he simply acknowledged the
complexity of the Syrian conflict, the former president repeatedly
resisted pressure to commit U.S. forces against Damascus.

Yet his administration did get involved in other ways, recognizing the Syrian opposition in 2012, and
later supplying arms and training to anti-Assad rebels. Meanwhile,
the campaign against ISIS was characterized by mission creep.
Initially portrayed as air strikes in support of local forces,
Operation Inherent Resolve quickly saw the deployment of troops in
both Iraq and Syria: as early as May 2015, U.S. Special Forces were
engaging in ground raids against ISIS, and by May 2016, they were
fighting alongside Syrian rebels to take the town of
al-Shaddadi.

To support these missions, the United States helped to seize and
expand an airfield near Kobane in northern Syria, staffing it with
civil engineers, intelligence and support personnel. By the time
Obama left office, the United States had 500 Special Forces
personnel on the ground in Syria in addition to support staff. This
gradual escalation went largely unnoticed at the time, with U.S.
forces often seemingly “plugged-in” to fill a temporary
gap in local partner capacity.

Indeed, Obama never appeared to have a good strategy for the
endgame. As long as the fighting in Syria’s civil war stayed
geographically segregated from the campaign against ISIS, both
could proceed without raising difficult questions about territorial
control. Perhaps the biggest problem with the
administration’s Syria policy was its failure to more
aggressively pursue the diplomatic steps that could have begun the
peace process. Rather than admitting America’s limited
strategic interests in the Syrian conflict, ambivalence and gradual
escalation ultimately laid the groundwork for Trump’s more
impulsive escalations.

Trump Hits the Afterburner

If Obama’s involvement in Syria could be characterized as
“creeping escalation,” Trump appears to be sprinting
towards heavier involvement in the conflict. In his first months in
office, the new president authorized substantial new
deployments—almost doubling the number of Special Forces in
Syria—and has begun to deploy conventional forces too,
sending around 400 marines to establish fire bases in northern
Syria.

Trump has also proved far less willing to draw a clear line of
distinction between ISIS and militias associated with the Assad
regime. In April, in response to a chemical-weapons attack, Trump
authorized a tomahawk missile strike on a Syrian air base. Since
that time, U.S. troops have struck Assad-linked militias several
times, bombing convoys and drones that entered into
the exclusion zone near the U.S. base at al-Tanf.

This increase in incidents inside Syria is the inevitable result
of Trump’s choice to speed up the fight against ISIS. Since
weaknesses in local partners can no longer be built-up slowly, U.S.
forces are needed instead to provide required capacity (such as
recently deployed marine artillery units) in key areas. This then
produces new problems for force protection: recent strikes on
regime-allied forces are largely aimed at protecting U.S. and
allied forces. As U.S.-backed and regime-backed forces come into
contact more frequently, these tensions will only grow.

Danger, Will Robinson

Worryingly, unlike the Obama administration, Trump’s approach to
Syria does not appear to be driven by a coherent strategy. Though
far from perfect, Obama’s slow-and-steady approach to the anti-ISIS
campaign, coupled with a concerted international diplomatic effort,
had the potential to yield a substantive rollback of ISIS and at
least a managed ceasefire process in the rest of Syria. But in
rushing the end of the campaign, substituting U.S. forces for local
ones, and effectively ignoring diplomacy, the new administration is
merely increasing the chaos in Syria.

Worse, the Trump administration is reportedly considering using
its involvement in Syria to push back on Iran, a step that will
increase the risks to U.S. troops in Syria and Iraq while producing
no obvious policy benefits. Aside from ISIS, the United States has
never had strong interests in the Syrian conflict; in contrast,
Iran, Russia and the Assad regime are all heavily invested in the
outcome of the conflict.

Indeed, the recent mission creep in Syria effectively refutes
the long-running hawkish position on Syria which argued that
targeted strikes would force other actors to take a more
conciliatory approach to ending the conflict. Trump’s missile
strikes have not stopped the Assad regime’s attacks on civilians,
and militias continue to probe U.S.-associated forces on the
ground—even after the recent strikes. The recent shootdown is
of particular concern, as it highlights that the Trump
administration is willing to retaliate for attacks on local
partners, not just for direct attacks on U.S. forces.

With neither side willing to back down in Syria, the potential
for further escalation is high. Trump is accelerating fast, but
with no clear goal in sight. The White House needs a coherent Syria
strategy soon, before events spiral even further out of its
control.

Emma Ashford
is a research fellow in defense and foreign policy studies at the
Cato Institute.

What Americans Really Want from Health Care Reform Is Impossible

Michael D. Tanner

It is an old joke among health policy wonks that what the
American people really want from health care reform is unlimited
care, from the doctor of their choice, with no wait, free of
charge.

For Republicans, trying to square this circle has led to panic,
paralysis, and half-baked policy proposals such as the ObamaCare
replacement bill. For Democrats, it has led from simple disasters
such as ObamaCare itself to a position somewhere between fantasy
and delusion.

The latest effort to fix health care with fairy dust comes from
California, whose Senate voted to establish a statewide
single-payer system. As ambitious as the California legislation is,
encompassing everything from routine checkups to dental and nursing
home care, its authors haven’t yet figured out how it will be
paid for. The plan includes no co-pays, premiums or deductibles.
Perhaps that’s because the legislature’s own estimates
suggest it would cost at least $400 billion, more than the
state’s entire present-day budget.

Adopting a single-payer
system would crush the American economy, lowering wages, destroying
jobs and throwing millions into poverty.

In fairness, legislators hope to recoup about half that amount
from the federal government and the elimination of existing state
and local health programs. But even so, the plan would necessitate
a $200 billion tax hike. One suggestion being bandied about is a 15
percent state payroll tax. Ouch.

The cost of California’s plan is right in line with that
of other recent single-payer proposals. For example, last fall,
Colorado voters rejected a proposal to establish a single-payer
system in that state that was projected to cost more than $64
billion per year by 2028. Voters apparently took note of the fact
that, even after figuring in savings from existing programs,
possible federal funding, and a new 10 percent payroll tax, the
plan would have still run a $12 billion deficit within 10
years.

Similarly, last year Vermont was forced to abandon its efforts
to set up a single-payer system after it couldn’t find a way
to pay for the plan’s nearly $4 trillion price tag. The state
had considered a number of financing mechanisms, including an 11.5
percent payroll tax and an income tax hike (disguised as a premium)
to 9.5 percent.

On the national level, who could forget Bernie Sanders’
proposed “Medicare for All” system, which would have
cost $13.8 trillion over its first decade of operation? Bernie
would have paid for his plan by increasing the top US income-tax
rate to an astounding 52 percent, raising everyone else’s
income taxes by 2.2 percentage points, and raising payroll taxes by
6.2 points.

Of course, it is no surprise that Medicare for All would be so
expensive, since our current Medicare program is running $58
trillion in the red going forward. It turns out that
“free” health care isn’t really free at all.

How, though, could a single-payer system possibly cost so much?
Aren’t we constantly told that other countries spend far less
than we do on health care?

It is true that the US spends nearly a third more on health care
than the second-highest-spending developed country (Sweden), both
in per-capita dollars and as a percentage of GDP. But that
reduction in spending can come with a price of its own: The most
effective way to hold down health care costs is to limit the
availability of care. Some other developed countries ration care
directly. Some spend less on facilities, technology or physician
incomes, leading to long waits for care.

Such trade-offs are not inherently bad, and not all health care
is of equal value, though that would seem to be a determination
most appropriately made by patients rather than the government. But
the fact remains that no health care system anywhere in the world
provides everyone with unlimited care.

Moreover, foreign health care systems rely heavily on the US
system to drive medical innovation and technology. There’s a
reason why more than half of all new drugs are patented in the
United States, and why 80 percent of non-pharmaceutical medical
breakthroughs, from transplants to MRIs, were introduced first
here. If the US were to reduce its investment in such innovation in
order to bring costs into line with international norms, would
other countries pick up the slack, or would the next revolutionary
cancer drug simply never be developed? In the end, there is still
no free lunch.

American single-payer advocates simply ignore these trade-offs.
They know that their fellow citizens instinctively resist rationing
imposed from outside, so they promise “unlimited” care
for all, which is about as realistic as promising personal unicorns
for all.

In the process, they also ignore the fact that many of the
systems they admire are neither single-payer nor free to patients.
Above and beyond the exorbitant taxes that must almost always be
levied to fund their single-payer schemes, many of these countries
impose other costs on patients. There are frequently co-payments,
deductibles and other cost-sharing requirements. In fact, in
countries such as Australia, Germany, Japan, the Netherlands and
Switzerland, consumers cover a greater portion of health care
spending out-of-pocket than do Americans. But American single-payer
proposals eliminate most or all such cost-sharing.

Adopting a single-payer system would crush the American economy,
lowering wages, destroying jobs and throwing millions into poverty.
The Tax Foundation, for instance, estimated that Sanders’
plan would have reduced the US GDP by 9.5 percent and after-tax
income for all Americans by an average of 12.8 percent in the long
run. That is, simply put, not going to happen. So Americans are
likely to end up with a lot less health care than they have been
promised.

Santa Claus will always be more popular than the Grinch. But the
health care debate needs a bit more Grinch and a lot less Santa
Claus. Americans cannot have unlimited care, from the doctor of
their choice, with no wait, for free. The politician who tells them
as much will not be popular. But he or she may save them from
something that will much more likely resemble a nightmare than a
utopian dream.

Michael
Tanner
is a senior fellow at the Cato Institute and the author
of “Going for Broke: Deficits, Debt, and the Entitlement Crisis.”