Senate Republicans coupled its tax-reform bill with a massive budget cut. The House of Representatives would be wise to follow suit.
The Senate majority leader and the Senate finance committee endorsed Senator Tom Cotton’s proposal to include a repeal of Obamacare’s individual mandate alongside tax cuts.
This either kills two birds with one stone or that one stone sinks the tax plan because of its weight. If Senator Bob Corker issued his complaints last month regarding deficit reduction in earnest, one guesses that the former occurs. Aside from moving toward individual freedom and the Constitution, the repeal of the individual mandate makes sense fiscally, particularly with a $20 trillion debt hanging above our heads. The added dynamic alleviates, at least, the concerns regarding the deficit aired by Senators Corker, John McCain, and Susan Collins.
“Repealing the mandate pays for more tax cuts for working families and protects them from being fined by the IRS for not being able to afford insurance that Obamacare made unaffordable in the first place,” explained Senator Cotton of Arkansas. Senator Rand Paul, who knows a great deal about the healthcare system as a doctor and now as a patient, noted the added benefit of repealing the individual mandate that “allows an additional $300+ billion in tax cuts.”
Or, alternatively, the repeal allows for more than $300 billion in deficit reduction. That’s the way the Congressional Budget Office (CBO) sees it. The coupling of the individual mandate’s repeal with tax reform at least allows Trump’s proposed plan — bringing top personal rates down to 35 percent from 40 percent and corporate rates to 20 percent from 35 percent — to justify its passage in much more persuasive terms to the various wings of his party.
The CBO predicts that repealing the individual mandate will reduce the deficit by $338 billion over the next decade as a result of relieving the government of the responsibility of subsidizing through Medicaid and the individual market’s cost-sharing reductions those who would choose, without the mandate, to go without insurance. Many in the individual market would see premiums increase after the exodus of healthy people who find insurance a losing bet. In a decade, the rolls of the insured would decrease by 13 million from what it would have been otherwise.
The CBO asserts, “Those effects would occur mainly because healthier people would be less likely to obtain insurance and because, especially in the nongroup market, the resulting increases in premiums would cause more people to not purchase insurance.”
The plan makes the treasury dollars, 34 billion of them a year to be precise, so, as the saying goes, it makes sense. More so would a look at the way Americans pay for healthcare, through tax dollars, insurance payments, and out-of-pocket expenses. Collectively, we spend more on medical-related expenses than every other country in the world — save three — spends on everything. In 1970, Americans devoted about 7 percent of GDP to health care. Today, the portion of the GDP approaches 20 percent.
Despite various schemes over the decades to make healthcare or prescription drugs more affordable, the costs inevitably increase. This makes tax cuts harder to accomplish. It also makes tax cuts less consequential than they once were.
In 1981, when Ronald Reagan slashed the top personal rates from 70 to 50 percent, the federal government imposed the heaviest burden on Americans. Now, the cost of the federal government and the cost of healthcare approaches parity. The former gobbles up the same portion of the GDP, more or less, that it has throughout our lifetimes. The latter has almost tripled in its proportion of the GDP in just a half century.
Donald Trump’s tax plan puts American businesses on a level playing field with their competitors abroad and sensibly allows citizens to keep more of what they earn. This undoubtedly helps the economy. But the Trump tax cut will not boost growth the way the Reagan or Kennedy or Coolidge cuts did because 2017’s economy faces a special health-care challenge that did not exist in the 1920s, 1960s, or 1980s.
Prosperity proves illusory in any economy in which the cost of one commodity outpaces growth. Who cares if a tax cut boosts GDP by one percent if medical inflation devours that increase in the economy?
Good for Republicans for recognizing that relief for citizens requires reforming not just the tax code but the healthcare system, as well. Bad for any of them to imagine the job done, or a boom around the corner, through a modest personal tax cut, a robust corporate rate reduction, and a repeal of the individual mandate.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.