Health and tax overwhelm the Republicans

The party should let the bill die and take a bipartisan approach to tax reform

by: Rana Foroohar




Healthcare reform is the Moby-Dick of American politics, a great white whale that can pull down anyone who takes it on. Former President Barack Obama encountered it, as did Hillary Clinton during her husband’s tenure in the White House. Republican senators returning this week from their July 4 holidays must surely be thinking about it, too, as they try again to push through a healthcare bill that has become the single most unpopular piece of legislation in three decades.

They should let it die, not only because 88 per cent of the public wants it to, but because the battle for the bill is putting Republicans and the Trump administration at risk of losing support from business, which is starting to believe that they simply cannot get anything done.

“It’s really tough to tackle both of these big and complicated issues [healthcare and tax reform] at the same time,” says Mark Weinberger, chairman and chief executive of EY Global, who sits on the president’s business advisory council. He warns that chief executives are worried about how little of the “business friendly” president’s agenda has moved forward. That’s not only because of infighting between the various power centres in the Trump administration, but also because the issues of healthcare and tax reform have become inexorably, and nonsensically, intertwined.

As anyone outside the US knows, the most cost-effective and humane way to provide healthcare is via a nationalised system that allows people to buy add-on options in the private market.

In the US, we have the opposite. The reason that nobody — not individuals, businesses or most policymakers — likes the Republican healthcare bill is that it adds more complications and less coverage to a market that is fundamentally broken and needs to be scrapped.

As OECD figures show, US healthcare spending is 15.3 per cent of gross domestic product, about 5 percentage points above France, the next most expensive country, and with worse outcomes. Like so much in the US economy, healthcare is bifurcated: we have concierge medicine for the wealthy and state-of-the-art pharmaceutical research but many people cannot afford to have their teeth fixed or have a baby without risking financial ruin. Given that the cost of healthcare is the number one reason for personal bankruptcy in the US, this is a big net loss economically.

Republicans are pushing a healthcare bill that would exacerbate those inequities by leaving 23m more people without insurance. They also hope to use the money generated by reversing Obamacare tax increases to cover the cost of their own proposed tax cuts. Amazingly, the administration still seems to believe in the magical thinking of the Laffer Curve, which posits that tax cuts always increase growth. Yet at the state level, conservative politicians are not only giving up on that idea, but are going the other way.

Just look at Kansas, a Republican state which cut top marginal individual rates and corporate taxes to the bone in 2012 and 2013. It has seen slower growth and ballooning deficits since, leading to major cutbacks in everything from education to infrastructure and social spending, making Kansas a less attractive place for business in general (the state’s bond rating has been downgraded twice in the past few years). Not only have Republican members of Congress supported tax increases since to provide basic services, but Jerry Moran, a Kansas senator, has become an obstacle to his party’s aspirations to reform healthcare at a national level.

He and a number of other senators from states with poor and rural populations argue that it is economically and socially wrong to roll back coverage just for the sake of overturning Mr Obama’s signature legislation.

They are right, and both Republicans and business people should think carefully about the lessons here. The election of Donald Trump has overturned much of what passed for political wisdom in Washington. But his election was partly a result of the fact that mainstream conservative economic thinking is stuck in the past.

Republicans and many of the business leaders who support the party have failed to move on from Reaganomics, which posits that government cannot do anything except cut taxes.

But voters have, rightly, lost faith in this message since it has not worked for the past 20 years. There are areas, such as healthcare, in which the government should be more involved. It would save money and help US corporations which are at a huge disadvantage relative to international competitors since they shoulder most of the burden of healthcare costs (60 per cent of Americans want government, not business, to run healthcare). And tax cuts of the sort being proposed by the Trump administration, which mirror much of what has failed in Kansas, are not going to help the economy.

My own white whale hope? That Republicans will let their healthcare bill die naturally, and take on tax reform in a more sensible, bipartisan way. This means cutting the corporate rate to international norms, not cutting the top marginal rate for individuals, and closing loopholes.

The administration could then show business that it has actually accomplished something — and something good for the economy to boot.

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