Archive for the ‘ taxes and spending ’ Category

The AHCA: Obamacare Minus Assistance to the Poor and Middle Class

After a week of studying the Republicans’ Obamacare replacement, it is clear that their strategy is to keep many things about Obamacare intact-  the insurance regulations, state based marketplaces, penalty for not having insurance. They just want to cancel the financial assistance that helps people afford insurance and send it to rich people as tax cuts.

After years of complaining about mandates, Medicare cuts, regulation-Oh the regulations!– Republicans decided that they were fine with all of that. No, what’s really bothering them about Obamacare is that it makes insurance too affordable.

Things the Republican bill changes:

Things it does not change:

So, if your view of Obamacare is that it is great, except insurance is too affordable and too many people have it, then this is the bill for you. However, that sentence seems to describe Republican members of Congress and no one else.

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The Obamacare Replacement’s Purpose is to Lower Taxes on the Rich

This is one of those conclusions that’s kind of hiding in plain sight, but no one is talking about. The Republican replacement bill for Obamacare, abbreviated AHCA, is so terrible as a health care bill that it has been savaged by everyone who cares about health policy. For instance, doctors and hospitals, even down to conservative wonks and media have all come out against this plan. Conservatives hated Obamacare! Why can’t Republicans design a healthcare plan that at least makes them happy?

The reason is that the AHCA, despite its name and the coverage surrounding it, is not a healthcare bill at all. It is a tax cut bill. Paid for by slashing medical services and assistance.

This is the only lens through which this bill makes sense.  A bill that was concerned about health outcomes could have easily picked a few of these groups and made them happy. However, you can’t even do that when you spend all of your bill’s money on giving tax cuts to the rich. Here’s a breakdown of the plan spends money, per the Congressional Budget Office’s official score of the legislation:

AHCA spending

You can see that the main effect of this bill is to decrease federal spending on healthcare. It replaces Obamacare’s health insurance credits with new credits almost half their size while also taking a huge whack at Medicaid spending. Its no wonder that 24 million people will lose health insurance as a result of this plan.

The largest expenditure item is not even related to health care. It is tax cuts. I separated the tax cuts into two groups. The largest group are non-healthcare related tax cuts. They mostly consist of cuts for people making more than $200,000 per year, with some more for health insurers and other healthcare companies. The second, smaller group (Other Tax Repeals) includes the individual mandate and taxes on other employers, which in fairness, are related in health insurance.

The Center on Budget and Policy Priorities illustrates this dynamic by demonstrating how the top 400 richest Americans fare every year under this bill, versus 800,000 residents of our smaller states:

cbpp aca repeal taxes

If you judge this bill by the effect it has on healthcare in the US, then you will be very disappointed, because taking hundreds of billions of dollars out of our healthcare system will tend to make it worse. However, that is not how Speaker Paul Ryan judges bills. He judges them by their effect on rich people’s pocketbooks. And by that measure, this bill is a resounding success.

 

Paul Ryan has a debt-reduction plan like Bush had a plan for post-Saddam Iraq

That is to say, Republican Representative Paul Ryan has no debt-reduction plan. He has a wish list, an outline maybe. There are certainly bullet points. But Paul Ryan and his Republican Party have no plan to make a dent in our debt.

So why isn’t Ryan’s much-discussed budgetary “Roadmap” a “plan”? Because it doesn’t actually say how it will achieve the debt-reduction it promises! Like Bush, Ryan will give you all the good stuff up front: “Saddam’s military will be no match for the US” or “We’re giving out big tax cuts!” but when it comes to the next step, they’re both a bit clueless: “Wait, we have to do something with Iraq after Saddam’s dead?” and “Wait, I have to pay for my tax cuts and then find trillions more to reduce the debt?”

Ryan is very specific about how he will increase the debt. He says that he will vastly lower taxes for the richest Americans. For example, Ryan would reduce Mitt Romney’s tax rate to about 0% by getting rid of the taxes on capital gains. Ryan is very detailed and specific about this how to increase debt and income inequality. But when it comes to getting rid of debt, Ryan’s got nothing. Ryan is the Donald Rumsfeld of budgets.

Ryan promises a total of about $5 trillion in tax cuts for the richest Americans over the next decade (in addition to the Bush tax cuts). He says he will pay for this with……. well, he doesn’t actually say how he would pay for it. He says that his plan “eliminates nearly all existing tax deductions, exclusions, and other special provisions” to pay for itself. Really? Which ones? There are a lot of tax breaks that are very near and dear to voters in the country. But of course Ryan won’t say which ones he will eliminate. Its a long road to eliminating an astounding $5 trillion in tax breaks but Ryan won’t say how he plans to get there. Not even a hint.

The weirdest part of Ryan’s budget is his goal to cut spending. Ryan wants to cut spending by $5.3 trillion more than President Obama over the next decade. Only, whenever anyone tries to figure out what, exactly, Ryan is going to cut, Ryan becomes defensive and extremely ambiguous. You see, the trick in Ryan’s budget is that he never actually names programs that he wants to cut. Like with getting rid of tax breaks, Ryan has a broad goal for spending reduction, but few plans to get there.

Turns out, this technicality is a big advantage for Ryan. He can say the popular thing: “I’ll make massive cuts in spending” and whenever anyone asks: “Well wait, will you get rid of my favorite program?” Ryan can respond: “No! We’ll get rid of another program (but I’m not telling you what it is).”

As comical as this sounds, this is actually how Ryan is framing his budget “plans.” Recently, President Obama gave a speech outlining how Ryan’s plan would affect major federal programs saying,

“If this budget became law and the cuts were applied evenly … over 200,000 children would loose their chance to get an early education in the Head Start program,” Obama said. “There would be 45,000 fewer federal grants at the Department of Justice and the FBI” to combat violent crime.

Obama said hundreds of national parks would close.

Predictably, Republicans responded by saying “Where did Obama get these specifics? He imagined them.” Well, yea, what was he supposed to do when handed a plan that makes radical changes to America but contains no specifics? In fact Obama anticipated this come-back and said:

“Republicans may say, well ‘we’ll avoid some of these cuts,’” Obama said. “But they can only avoid some of these cuts if they cut even deeper in other areas.”

Which is exactly right. Eventually the hammer has to fall somewhere or not at all. And for every program you protect, another gets hit twice as hard. Either you’re cutting spending or you’re not. If you are, then real people are going to be hurt and if not, then then you’re not actually reducing the debt. If Paul Ryan is serious about his budget then he needs specifics. For an example of a serious budget with specifics, here’s a good starting point.

(For a overview of Obama’s a Ryan’s budgets, look here)

(Here’s more on Ryan’s spending cuts conundrum from Ezra Klein)

Comparing the budgets of Obama and Republicans

Recently, Congressional Republicans and President Obama released their budget proposals for this year and coming years, as Ezra Klein notes, “budgets are a moment when the two parties can’t hide,” where “we can see the decisions the parties make when they’re forced to choose between competing priorities and constituencies.” They are important documents, in other words. So without further ado, here is my summary of Obama’s and Congressional Republicans’ budgets:  (Obama’s is available here and Republicans’ is available here)

Obama’s Budget

Obama’s  budget is cautious but probably does enough to stabilize America’s debt through a mixture of tax hikes on the wealthy and some already agreed-to spending cuts. Mainly, Obama’s budget consists of three parts: 1) some increased spending on infrastructure and education 2) spending cuts to domestic spending and defense totaling $2.7 trillion 3) $1.6 trillion in new tax revenue from corporations and the wealthiest 2% of Americans.

First, the increased spending will go to areas where, by all accounts, the funds are sorely needed. The American Society of Engineers has given the US a grade of a “D” overall for the condition of its infrastructure, which once led the world. Obama has proposed spending billions more to upgrade the nation’s roads, bridges, railways, passenger rail systems and internet connections over the next six years. This money will put Americans to work building systems that will repay our investment many times over.

Second, Obama will cut spending, mostly by the amounts already agreed to in the as part of the debt ceiling negotiations with Republicans last year. This will cut defense spending, domestic discretionary spending (an umbrella term covering most federal programs), federal pensions and agricultural subsidies by $2.1 trillion. Medicare and Medicaid will also be trimmed for $360 billion, mostly through cuts agreed to in the debt ceiling negotiations and also by changing some tax treatments that will shift Medicaid costs to the states.

Third, Obama will end the Bush tax rate cut for the top 2% of earners, raising their top marginal rate to 39.5% from 35%. He will also implement the “Buffett rule” which states “that no household making more than $1 million a year pays less than 30 percent of their income in taxes.” These small changes are to make sure that the richest Americans pay their fair share for deficit troubles that their tax breaks caused. Obama also proposes a $61 billion “Financial Crisis Responsibility Fee” which would compensate taxpayers for their extraordinary support  of the financial industry in the 2008-2009 crisis. He will also plans to close some tax loopholes for the rich and corporations to make up a total of $1.5 trillion in new revenue (he names some specific ones).

Comparison of taxes and spending cuts in past deficit deals by Ezra Klein

Taken as a whole, Obama’s plan is very moderate. It is more conservative than most past bipartisan deficit deals. It also tries to spread the pain of deficit reduction somewhat evenly across all facets of society. Civil servants, the rich, the poor and the elderly all have their favored programs or tax breaks trimmed to make room for the deficit reduction that experts agree the US needs to undertake. His budget is far from perfect, but it would preserve the American social contract and social safety net, unlike Republicans plan.

Republicans’ Budget

Congressional Republicans’ budget (authored by Rep. Paul Ryan), is a very radical document. Ryan seeks to eliminate basically everything the US government does besides Medicare, defense and Social Security. He would also give out a massive $4.6 trillion tax cut, aimed at the richest Americans. Then, because their first two actions mostly balance out deficit-wise, Republicans would try to eliminate almost every tax break on the books to balance the budget. So let’s pull this apart:

First, Republicans will eliminate almost everything the federal government does except defense, Medicare and Social Security. The military is the only area of the budget that gets larger under Ryan’s plan, everything else goes under the ax. The cuts are painful and they start immediately. By 2050 there will be almost nothing left. Pell Grants-gone. National Parks-gone. Energy and health research-gone. Highway and transportation funding-gone. Homeland Security-gone. Food stamps-gone. Early childhood education- well, you get the picture. Over  the first decade this is how the cuts will fall:

The poor will bear of 2/3 of Republicans’ budget cuts in the first ten years, and more in the years to come. In fact, between 14 and 27 million people will lose Medicaid health coverage in the first ten years of this plan, as estimated by the Urban Institute.

Second, in a sharp contrast to his cuts to the poor, Ryan and the other Republicans plan to give out trillions of dollars to the rich in tax cuts. Ryan’s plan would drop Mitt Romney’s tax rate to near 0% (no wonder Mitt thinks this plan is “marvelous”) and would plaster the rich with money, even as it cuts trillions in spending from the poor. Take a look:

Ryan's tax cuts go overwhelmingly to the rich

So if you make a lot of money, you come out as a big winner in Paul Ryan’s plan. If you don’t make very much, then you are  in for a world of hurt if  this budget gets passed.

Third come the “mystery meat”  in Paul Ryan’s budget, as Paul Krugman says. See, Ryan has a problem because at this point in the budget process he has made the debt a lot worse by passing huge tax breaks and only made up for it with some big spending cuts. Now he has to try to cut the national debt.  So, Republicans propose that we get rid of almost every tax break in the book to pay down the debt. Only, they don’t tell us what breaks they want to cut. They leave those trillions in cuts up to our imagination. Seriously. To get the kind of deficit reduction he promises, Ryan would have to eliminate lots of tax breaks that benefit the poor and the middle class like the child tax credit, earned income tax credit, the tax free status of 401(k) and other retirement plans, the mortgage tax deduction, etc. That means that the last chart I posted will be completely different once Republicans are done.

Most low and middle income earners will probably end up paying more under Republicans’ plans than they do now because their tax breaks will be eliminated. But won’t tax breaks for the rich be eliminated as well? Nope. The biggest tax break for the rich (the lower tax bracket for capital gains) will actually be expanded. Rich people will no longer have to pay anything on their income from stocks, bonds and property, dropping Bill Gates’ Warren Buffett’s and Mitt Romney’s tax rates to about 0.

The only debt reduction in the Republican budget is the elimination of tax breaks and loopholes, which Republicans leave completely unspecified. The rest of the budget is not an attempt to come to grips with our debt, but an attempt to radically remake American government and society. Republicans would literally destroy the American social safety net in order to write huge checks to the millionaires in our country. The losers in Republicans’ budget are clear: anyone who is poor or middle income stands to lose all of their support from the government and see their taxes raised. The winners are the rich. They will see their taxes vastly reduced and all they will have to worry about are those Tiny Tims who come to their door asking for money around Christmas every year.

Yes, Obamacare will significantly reduce our Debt

Today, a former Bush administration official (Charles Blahous) made a big splash when he wrote a new “study” saying Obamacare will increase the United States’ debt by $340 billion over ten years. This is exactly the opposite of what every independent organization has found about the law. The CBO, Washington’s authoritative legislation scorer, says that Obamacare will reduce our debts by $100-200 billion (depending on what time period you use) over a decade. So who’s right?

Not the new guy. Charles Blahous came to his figure using a dishonest accounting trick that does not reflect the costs of the ACA at all. Basically, he assumed that Medicare spending would be cut drastically, starting in 2017. No one in all of America actually thinks (or ever thought) this would happen. Since Obamacare makes it explicit that Medicare funding will not be severely curtailed in 2017, Blahous says that Obamacare will increase the deficit.

His assertion is preposterous. Obamacare makes Medicare spend its money more efficiently, cutting its spending by about $500 billion over a decade. But in twisted Blahous’ logic, Medicare cuts actually increase the deficit! What? If he used this same logic against the Republicans’ budget (which he wouldn’t) he would also find that their budget significantly increases the debt. That’s because his method is a preposterous way to look at our debt.

For a less succinct, more technical account of how this works, read Jonathan Chait or Paul van de Water.

“We should eliminate waste, fraud and abuse”

You win a prize if you can name the politician who promised to do this when they were elected to office. O wait, as it turns out, every single candidate for every elected office from President to deputy school board member has made a promise to “eliminate waste, fraud and abuse” in the government. From the tone of campaigns, you’d think that Washington (or state capitals) was just full of all this waste, fraud and abuse (WF&A) and that all of our elected representatives are completely unwilling to do anything about it. At least now that we have all these vigilant waste-cutters on the case, surely this problem has been completely solved?  Well, yes and no.

As it turns out, there is very little obvious WF&A around in Washington. Ezra Klein has the rundown of all the WF&A that Obama proposes eliminating in his deficit plan. It doesn’t amount to a whole lot of money, “just” “$160 billion over 10 years, and a big chunk of that ($30 billion or more) would come from cracking down on tax cheats by beefing up the IRS, hardly an uncontroversial thing to do.” That’s because, if there were obvious sources of WF&A in the government, they would have been taken care  of by now.

The claim that someone is going to go to Washington to clean up all the WF&A floating around is mostly chimerical. All the stuff everyone can agree on has  been taken care of already. If a candidate says they’re going into government to clean it up, ask them what exactly they will do and how much that will actually save, then you’ll get a more honest picture of what they’re talking about. You see, everyone has a different idea of what actually constitutes waste or fraud or abuse.

For instance, someone from the religious right would probably say that its a waste to spend money on birth control for low income women. Of course, there are plenty of women’s health advocates who would strongly disagree.

I might argue that there are many wasteful defense projects and that it is a travesty that the Pentagon can’t even be audited because “serious financial management problems at the Department of Defense made its financial statements unauditable.” But there are probably many defense contractors who would disagree and say that military spending doesn’t need to be audited, “trust us.”

There is very little obvious waste, fraud and abuse left in the government. The WF&A that is still there is, in almost all cases, there because it is protected by powerful interest groups. And, in many respects, waste is in the eye of the beholder. One man’s sinkhole for tax dollars is another man’s valuable government service. If it was easy to find and eliminate waste in the government, someone would have done it already.

What “cutting spending” means

Can we just think for a second about Republicans’ plan to “fix” the economy? You know what their plan is. Republicans say we need to lower taxes on the rich (not the poor) and cut spending to create  jobs. Recently, their efforts have been directed toward cutting government spending. And I’m not talking about the old “cutting waste, fraud and abuse” line that every politician uses compulsively. That’s important but its not what Republicans want to do. They just want total government spending cut down.

Here’s  the big question: how does cutting spending create jobs? The thing is, when you cut funding for NPR, the EPA or what have you, that means that the EPA has to cut its budget and Joe the EPA guy loses his job. How does firing Joe help other people get employed?

Its pretty clear how firing Joe hurts other job-seekers. They now have to compete against one more person for their next job! How does the government firing Joe help Best Buy, for instance, hire more workers? Again, its pretty clear how firing Joe will hurt Best Buy. Joe was going to buy a new plasma screen TV for his family, but now that he’s laid off he can’t afford it anymore. I’m seeing plenty of ways that firing Joe and his 1,000 EPA buddies will hurt the economy, so how would it help the economy?

In the GOP’s weekly address on April 23 of this year, Sen. Mike Johanns tried to explain how cutting spending (firing people) would somehow help the economy:

The current record-setting deficits – and the $14 trillion plus in accumulated national debt – are serious impediments to job creation because they have a ripple effect right to Main Street.

Our job creators can’t thrive in an environment where creditors pull back because of our government’s debt, because without credit, small businesses can’t grow.

Our debt threatens to devalue the dollar which will lead to increased costs and interest rates, which has a chilling effect on small business growth.

Ah, so that’s  how firing government workers will somehow “create jobs.” Republicans are saying that, in a roundabout way, eliminating government jobs will “create” jobs in other sectors because our debt is keeping businesses from hiring. Apparently, investors don’t want to lend money and our debt is causing high interest rates. This is what Johanns says is hurting growth. Of course, that’s all nonsense.

from The Washington Post/Ezra Klein

The graph on the left shows what kind of interest rates the US government is paying on its debt. Johanns says that our large amount of debt should be leading to “increased costs and interest rates.” What we are seeing is quite the opposite. Currently, the US has record low interest rates on its debt. How low? Well, once those lines on the graph go below zero, that means that investors are actually paying the US government to hold their money. You read that right. Right now investors want to buy the US government’s debt so badly that they are willing to actually pay the government for the opportunity to hold its debt for a few years. This is the exact opposite of what Johanns says should be happening.

So now we’re back to the start. How does cutting government spending help the economy? It doesn’t. It hurts the economy because cutting government workers just adds more bodies to the legions of the unemployed. Increasing unemployment right now is an economic recipe for disaster. Cutting spending will not lower interest rates (they’re already below zero, how much lower can they go?) or help anybody on “Main Street.”

Cutting spending is not an economic plan. It is an ideological position. If you favor reduced government spending, that’s fine. Just don’t pretend that it will create  jobs. Republicans’ plan will just put more people out of work, take money out of consumers’ hands, raise the number of people drawing unemployment benefits, and increase the number of people looking for even more scarce jobs.