The Senate’s Trumpcare Update

I have been away for a while for professional and personal reasons. In general, summertime gives me less fodder to write about since this blog is primarily meant to extend answers, lines of inquiry, and needed clarifications from class. Alas, I find the finally released Senate update of Trumpcare too important to let pass unacknowledged.

First, it has been humorous to watch conservatives defend the secrecy that the Senate undertook to amend the House’s version of Trumpcare. A pillar of contemporary conservative philosophy is that a large and active federal government undermines liberty since federal politicians cannot possibly retain a concern for the best interests of the American people while upon their federal perch. Instead, conservative doctrine asserts that states and local government are more likely to be genuinely concerned with and working for the welfare of citizens since those politicians are closer to local realities and local voters. With power in the federal government bestowed on conservatives then, you would think they would be very open and very frank about their lawmaking, so as to avoid the same charges of indifference they levy at defenders of federal authority. Yet, with both versions of Trumpcare, the American people received none of that frankness or openness. Ryan et. al. in the House infamously rushed through their bill before the Congressional Budget Office could score it. For good reason too: the law would lead to twenty-three million fewer people being insured by 2026, pushing the overall number of uninsured Americans in 2026 above fifty (fifty!) million people.  For a bill that has such an effect on the lives of twenty-three million Americans, it is hypocrisy at its best when it is written and rushed through a vote by a party who proclaims the inherent threat of power’s abuse by a large, centralized governing authority.

Now the Senate’s version has come out. The CBO has yet to score it (it won’t be much better, if at all, and may even be scored to be worse, as measured by how many Americans will be insured, and which Americans will benefit most from the law). It was, however, done completely in secret, with no bipartisan outreach at all (by the house too). What’s more, a bill affecting the healthcare of men and women of all stripes was entirely crafted by men. For a party bent on warning about the danger of ceding power to a federal authority, it appears they have no problem abusing that authority to affect the daily lives of millions of Americans. In effect, they have just proven their own concern.

For the economics of the plan, all we need to do is follow the numbers: tens of millions left uninsured; rising deductibles and/or premiums; significant reductions in the amount of people in poverty or with disabilities covered by Medicaid; decreases in the tax burdens of wealthier Americans.

Most conservatives will assert that by reducing taxes on wealthy Americans (taxes that were used to subsidize the cost of health insurance for poorer Americans) such as Trumpcare will do will lead to economic dynamism through higher labor participation rates and the increased spending attendant with it. The rationale follows this logic: lowering taxes will lead people to spend more of their money; more private spending will lead businesses and companies to hire more employees in order to meet increased demand; increased hiring will lead to increased private spending by the newly hired, and so on. In economics, the theory that substantiates this claim – lowering taxes leads to economic growth and increased tax revenue – is called the Laffer Curve ( I am not kidding). This theory, however, has not only recently proven disastrous for the people of Kansas (see here, here, and here, for a sampling), the theory itself has been disproven by empirical economics (see this power point for a good bibliography), and only survives as a theory. As such, the claim propping up Trumpcare cannot be substantiated by any real-world experience.

Nor can the economic dynamism claim be logically substantiated by current economic conditions. In theory, cutting taxes to spur spending makes sense at a time when labor force participation is low (this is what happened after The Great Recession’s onset). However, such an action does not make sense for our contemporary time when labor force participation is high. The most recent employment statistics put current unemployment at 4.3%, below the natural rate of 5%. Overall labor force participation has steadied since a precipitous drop after The Great Recession’s onset, hovering consistently between 62% and 67%. With wages growing (albeit slowly), it appears that there is not some shadow labor force choosing not to work at all (to be sure, this is hard to measure. But one way is to look at wages: if employers believe there is a labor force not yet hired but willing to work, they have no incentive to raise wages. Since wages are starting to rise, it is more likely that most people who want work are working). Hence, cutting taxes will not lead to more employment, leaving those currently without insurance, or kicked off of it due to the expected rise in premiums and deductibles , uninsured permanantly.

Not only does the evidence above suggest a serious illogic behind the plan, but a similar logic substantiates the ACA in its current form for the same economic dynamism outcome (so too do polls gauging comparative support for both plans). That is, keeping the ACA in place is better for the economy than it is not. Specifically, the ACA (or some other insurance system that insures most people by choice or mandate) is better for economic growth and productivity. For if most Americans can be reasonably sure that any employer they are hired by will insure them, then they are free to make their labor mobile, maximizing the gains they receive, and leading to a more efficient allocation of the American labor force. Take the proverbial West Virgina coal miner, likely unemployed or underemployed for a long time now, suffering from serious work-related health issues.  If her skills are no longer employable in West Virginia but are employable in a related industry requiring similar skills (say oil extraction in Texas), she is more likely to seek this work since both employers are legally required to offer her health insurance that will serve her medical needs. What’s more, even if she were to not obtain a job offer prior to leaving West Virginia and still leave for a new labor market in search of new work, she would be able to obtain health insurance privately. Yes, she would likely avail herself of subsidies, and benefit from the mandate for not penalizing pre-existing conditions. Still, her labor would be more mobile. And as it is true for her, so it is true for many others. With labor being mobile because of insurance made available and affordable (in no small part because of taxes levied on wealthier Americans), the economy becomes more dynamic, productive, and efficient.

What we are left with, then, is a Senate Trumpcare plan that will make insurance more unaffordable for middle-income Americans (by phasing out subsidies, and lowering the subsidy-qualifying threshold), and poorer, disabled, and elderly Americans (through the phasing out of, and capping federal expenditures on, Medicaid). All this in order to lower taxes on the wealthy, and for no apparent benefit to the larger macroeconomy. Since when is being or becoming “great” measured by how much the rich benefit at the expense of the poor? No history of America, nor economic experience or logic, can substantiate that claim. SHAME!

 

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