Weekend Reading: Jacob S. Hacker and Paul Pierson: Republicans’ Obsession with Tax Cuts for the Rich Drove Their Health Care Plan Over a Cliff: "Somehow, Republicans managed to craft a policy that simultaneously...
...raised premiums and out-of-pocket costs, lowered the quality of insurance plans, increased the chances of insurance market death spirals, put new pressure on state budgets, and massively increased the ranks of the uninsured.
Were these ugly outcomes evidence of sheer policymaking ineptitude? Incompetence was certainly a factor, but the main reason for the bill’s flaws was the overriding priority Republicans placed on repealing the taxes on high-income households and on health care companies — taxes that had financed the Affordable Care Act. The AHCA was, above all, intended to deliver a huge tax cut to a narrow set of beneficiaries. All else flowed from this central objective.
Imagine an alternative scenario, in which Ryan’s team had used the majority of that roughly $1 trillion in tax cuts to grease the wheels for structural reforms in American health care, instead of returning it to the well-off. Taking benefits from people is easier if policymakers compensate some of the losers, and if they delay the most negative effects. Republicans could have made the cuts in Medicaid more gradual, in the process buying greater support from GOP governors and the health care industry.
They could have offered bigger subsidies to Americans buying insurance on their own and, in particular, increased the subsidies for older voters, and for voters in rural areas (where health care tends to be costlier). The goal would not have been to shore up Obamacare, but to transition people out of it and into a system that, in the long run, exposed them to more of the direct cost of care — the outcome that many conservative policy thinkers believe is the key to containing costs (wrongly, but that’s another piece). They could, in short, have softened the immediate pain in return for cementing a long-term policy victory.
Whether Republicans could have gotten the Freedom Caucus on board for this jujitsu approach is an open question. They certainly could have attracted more support from the party’s least conservative wing. Moreover, pressuring legislators is far more effective when the legislation itself is not astonishingly unpopular. As it was, House leaders lost both the coalition’s most and least conservative members, along with many in between. It’s hard to believe a strategy of structural reform would have fared worse.
Instead, high-end tax cuts trumped all other considerations. For all the disagreement among House Republicans about other ramifications of the AHCA, there was virtually no disagreement on this element — even though it made the GOP legislative task near-impossible.
What’s more, in acceding to Ryan’s priorities, Donald Trump showed that his populism was as phony as his university. When push came to shove, he was willing to sacrifice the people who voted for him on the altar of tax cuts for the rich. Perhaps the most surreal moment in the whole surreal debate came in an exchange with Fox’s Tucker Carlson, who asked Trump whether he understood that the “counties who voted for you will do far worse under your plan." Trump’s reply? "Oh, I know." (Trump professed to believe such problems were small and could be fixed in the Senate, but they lay at the heart of the bill.)
Lest there be misunderstanding, very few Americans share the GOP political class’s obsession with marginal tax rates on the affluent — excepting the affluent who donate to the GOP political class. Even a majority of Republican voters oppose new tax cuts for wealthy households.
But being spectacularly out of step with the public on this issue is nothing new for the Grand Old Party. At the outset of the Iraq invasion, Tom DeLay famously said: “Nothing is more important in the face of war than cutting taxes.” Republican leaders from Gingrich to Bush to Ryan have consistently placed the battle to cut taxes for the wealthiest at the top of their to-do list.
Indeed, the priority of high-end tax cuts dictated Ryan’s grand strategy. Health care reform — or, rather, tax cuts under the banner of health care reform — was to be round one. Round two has been structured around a Border Adjustment Tax that would raise a trillion dollars to fund additional tax cuts targeted (surprise!) even more on the wealthy than the 2001 cuts achieved under President Bush.
Republicans need new revenues, and new spending cuts — cuts like those they’d hoped to extract from Medicaid in their failed bill — because they are hemmed in on two fronts. Unlike in 2001, the federal government is facing substantial deficits. And while Republicans have certainly quieted down about fiscal rectitude now that they are in charge, there is a limit to how much they are willing to worsen the situation.
In addition, Ryan’s ambitious and partisan agenda means he is committed to producing tax cuts through the so-called reconciliation process, which requires only 50 Senate votes. That process, however, requires the numbers to balance after a 10-year budgetary window. This turned out to be the Achilles’ heel of Bush’s 2001 strategy: His tax cuts had to “sunset” in order to make reconciliation work.
Had a Republican been in the White House in 2011, he might have continued the cuts in full, but President Obama was there instead. After a two-year extension and much debate, his cuts in income tax rates were continued — for most Americans but not for the highest tax bracket (covering income above $400,000 for single filers); other provisions benefiting very high-income families were also phased out.
Republicans like Ryan regard that 2011 showdown as a profound defeat, even though roughly four-fifths of the Bush tax cuts remained intact. The ones that went away, however, were the ones that really mattered to them — that is, the cuts for the rich.
Republicans have multiple reasons for focusing on the wealthy. They believe that tax cuts at the top produce big job gains by increasing investment and work effort (despite considerable evidence that gains are far more modest); they believe that high taxes on the affluent are punitive; and they know that the wealthy (and corporations) are an important and resource-rich part of their coalition. Our point isn’t about the merits of the goal; it’s about the way in which that goal drives the rest of the GOP agenda — in ways that aren’t always favorable for the GOP.
While the siren call of tax cuts drove Ryan’s agenda, the choice of where to get the money for those cuts made clear the other big GOP priority — reducing social programs benefiting the poor and middle class. When talking about the devastating cuts in Medicaid in the AHCA to the National Review’s Rich Lowry, Ryan blurted out: “We’ve been dreaming of this since we were drinking from kegs.” This may not have burnished his reputation as the GOP’s most wonkish politician, yet it certainly revealed a great deal about how Ryan views public benefits for the least advantaged: as just more wasteful spending typical of a bloated government. The speaker may have publicly disavowed his 2012 claim that the safety net was being transformed into a “hammock that lulls able-bodied people into complacency and dependence,” but once again, actions spoke louder than words.
As we’ve tried to show, the Republican health care legislation was mostly a tax-cut bill masquerading as health policy. Even with regard to health policy, however, it wasn’t so much an attack on Obamacare as on one important element of it: The ACA’s upgrading of Medicaid, which accounts for the majority of those newly insured since 2014.
Indeed, the main aim of the GOP health bill was to undo the three-decades-long expansion of Medicaid that had transformed a legislative afterthought passed alongside Medicare into a program with more beneficiaries and spending than Medicare itself. The failed House bill would have radically restructured Medicaid, changing it from an individual benefit backed primarily by the federal government into a capped program where state governments would carry more of the load and face relentless pressure to scale back benefits over time.
Which brings us to a final parallel to the Bush administration. Though more moderate than Ryan, President Bush was also driven by an animus toward core programs of the American welfare state — an animus (like its twin, a love of high-end tax cuts) that unites Republican elites, although not their voters. Mostly forgotten today, the signature initiative of President Bush’s second term was a push to partially privatize the nation’s most popular social program, Social Security.
In the end, Bush’s Social Security reform met the same dismal fate as Ryan’s health care reform, and for much the same reason. Having declared that he “earned political capital” in his successful reelection effort and now intended “to spend it,” Bush instead learned he had nowhere near enough. His plan went down to a humiliating defeat, foreshadowing the string of policy and political debacles that would define his second term.
What Bush had really needed was financial capital to invest in the politically perilous task of taking on Social Security — side-payments of the sort that Ryan needed (and lacked) as he fought to phase out the ACA. But Bush had already spent it all: on high-end tax cuts. Bush’s ambitions in 2005 of remaking the American welfare state along conservative lines, like Ryan’s in 2017, had been sacrificed for the GOP’s eternal priority: making sure that the wealthiest Americans paid as few taxes as possible.