- Senate Republicans cleared a significant hurdle toward passing their version of the Tax Cuts and Jobs Act.
- I now think it’s more likely than not that it will pass.
- Significant hurdles remain with key senators.
By passing the tax bill through the Senate Budget Committee – and more importantly, by getting Sens. Bob Corker, Ron Johnson and Susan Collins to express optimism that their objections to the bill are being addressed – Republicans have passed a major hurdle.
I have been sceptical that this bill would get done. I now think it will probably pass.
But I would note, not as much has been achieved today as it looks like, and the bill still faces significant hazards.
Essentially, Republicans were able to get the bill out of committee by convincing many Republican senators their concerns would be addressed later in the legislative process. “Later” still has to come someday.
Probably the biggest breakthrough is with Collins, who seems prepared to support the bill as long as a deduction for property taxes is added, and as long as Trump supports two pieces of legislation designed to stabilise the health insurance market – though those bills would move later.
Mike DeBonis of The Washington Post cites Sen. Lindsay Graham as saying at least one of the insurance bills (the Alexander-Murray proposal to fund some cost-sharing subsidies and give new market flexibility to states) would be attached to a must-pass government funding bill. That means Collins would be going on more than just the president’s word that the issue would be taken up after tax reform.
But for Corker’s and Johnson’s demands, there are a lot more blanks to be filled in.
The devil is still in the details
Corker said he had reached an agreement for some sort of “trigger” mechanism that would unwind tax cuts if economic or tax revenue projections aren’t met. The idea is to ensure the bill doesn’t grow the deficit by more than is projected.
We have yet to see how this trigger would work, and how acceptable it will be to senators once its details are known. And a trigger mechanism could damp the economic growth effects of the tax bill.
Corporate tax cuts are supposed to encourage investment by promising investors lower taxes on the returns from new investments. If a trigger might cause those tax rates to go back up, the incentive to make those investments is reduced.
What Johnson has gotten is even vaguer. He agreed to move the bill forward with his vote in the Budget Committee with the expectation that some assistance for owners of pass-through businesses would be added later in the legislative process.
But satisfying Johnson’s request would likely cost hundreds of billions of dollars over a decade. Meeting that request would require taking tax cuts away from someone else, because the bill is under a hard cap that it can’t increase projected deficits by more than $US1.5 trillion. Similarly, it’s not clear how they will pay for the property tax concession to Collins.
It remains to be seen how those details will be filled in, and what constituencies the pay-for mechanisms might alienate.
There were a lot of moments like this during the healthcare repeal process, where bills moved through committee on the expectation that something would be fixed later with a manager’s amendment. It never quite worked out in the end.
That said, Republicans are very motivated to cut taxes, and it ought to be possible to find a way to dole out $US1.5 trillion in tax breaks while pleasing enough Republican constituencies to pass a bill.
That’s why I think they will get it done eventually. But they’re not quite as close as they look.
Thinking about a world after the Obamacare individual mandate
If this tax bill passes, the Affordable Care Act’s individual insurance mandate will likely go away. This would lead to millions fewer people buying health insurance. It may also lead to higher health insurance premiums, though a reinsurance plan backed by Collins could contain those premium rises.
With the mandate under serious threat, I think it would behoove liberals to think a little about whether it is politically sustainable as policy.
The mandate remains unpopular, even as the Affordable Care Act as a whole has reached record levels of popularity. More problematically, I don’t think there is likely ever to be public buy-in to the philosophy behind the mandate.
The health insurance mandate was supposed to become a social expectation like auto insurance: Responsible citizens carry insurance because it would be unfair for them to become burdensome to others if they got sick.
But this hasn’t happened. People view the mandate itself as unfair, since it requires them to buy a product with their own money – a product that often does not seem to provide good value for money.
For unsubsidized purchasers (those who make more than four times the poverty level), buying an Obamacare health plan means paying thousands of dollars in premiums only to face a deductible that is often itself thousands of dollars. This feels unfair to a lot of people.
This not only undermines the mandate politically. It also undermines its effectiveness as an insurance market mechanism, since the creation of a social expectation to buy insurance was supposed to be one of the mechanisms by which the mandate increased coverage.
People don’t want mandatory insurance or the freedom to go uninsured – they want insurance they like
High insurance prices are not, as Republicans would have it, a consequence of Obamacare’s deficiencies. They are a consequence of the high overall cost of American healthcare.
But Americans get sticker shock from the plans because they are not used to seeing the real price of American healthcare.
Most American adults are used to insurance plans where an employer pays most of the premium, sight-unseen; or to Medicaid plans, which are paid entirely by taxpayers; or to medically underwritten individual market plans that predated Obamacare, which offered low costs only to people with below-average healthcare needs.
They may also look enviously at Medicare plans, which have low premiums and therefore create the illusion of low cost, even as taxpayers bear most of the cost.
These are the baselines that people use to imagine what sort of health plan they would sign up for freely. A plan that bakes in the true, population-level cost of healthcare is obviously going to look unappealing by comparison.
The mandate has still been somewhat effective because, however people feel about its fairness, the threat of being charged a tax penalty of 2.5% of income is a motivating factor to carry insurance. But it has not been as effective as its creators might have hoped, and it’s not clear the public is ever going to get comfortable with it.
Thinking about alternatives to the mandate
A mandate is a useful tool for stabilizing an insurance market, but it is not the only available tool. Reinsurance can hold insurers harmless for the sickening of the insurance pool absent a mandate, as Larry Levitt of the Kaiser Family Foundation has noted. This could prevent rises in pre-subsidy premiums due to mandate repeal, if administered well.
As for pushing coverage rates up, more people will buy insurance if the plans are offered at an appealing price.
One way to do that is to more effectively push down costs, for example by offering a public insurance option that pays Medicaid or Medicare rates to providers. Another way to do that is to simply subsidise premiums more.
I don’t expect Republicans to do most of these things – though they may do something on reinsurance, since Collins is not stupid and presumably is not folding for nothing.
But if Republicans repeal the mandate, Democrats will have to think about what they will propose to do if they retake power – and I don’t think reimposing the mandate is likely to be an appealing option to very many.
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