April 27, 2017--Laugher Curve

As I draft this, President Trump has not as yet revealed the details of his "massive" tax cuts.

In spite of this I can speculate what his multi-trillion dollar proposal will contain and how it will be paid for.

When the non-partisan Congressional Budget Office (CBO) finishes its scoring, they will find that most of the cuts go to corporations--where the effective rate will be cut from 35% to 15%.

Also, a large slice of the tax cuts will go to America's highest earners. There will, though, to put a fig leaf on the truth, be some tax savings for middle class people, mainly an increase in the deduction for dependent children. Then in regard to children, thanks to Ivanka Trump's influence, there will be tax credits to offset some of the costs of childcare.

Unless paid for, over the decade, these cuts will add multiple-trillions to the national debt. So there will be some attempt to show how the cuts will be paid for.

Nearly a trillion will be the result of repealing and replacing Obamacare. As noted here last week, the legislation inching its way through the House of Representatives is not a healthcare bill but a tax cut bill. This of course means it has no chance of passing in the Senate and probably not in the House. So chalk that trillion up to the debt.

The real savings to pay for the tax cuts will not be from savings at all but rather from extra tax income that will be the result of a dramatic rise in economic growth.

At the moment, the Gross Domestic Product (GDP) is going up by a tepid annual rate of less than two percent. The Trump proposal will show a growth rate of about twice that. They feel they can project that because tax cuts for wealthy people and corporations are stimulative to the economy. Growth will trickle down to average folks who will in turn use the extra income they derive from tax cuts and increased economic circumstances to buy cars and houses and stuff.

This assumption, this projection is based on bogus economic theory promulgated most prominently during the 70s. and 80s by Arthur Laffer. It is graphically most famously represented by the Laffer Curve which illustrates how tax cuts spur enough economic growth to generate new tax revenue which in turn cuts into the deficit.

Arthur Laffer in 1974

Here's the problem--

There is no historical or empirical evidence whatsoever that it works. When first taken up by Ronald Reagan during the 1980 Republican presidential primaries, George H.W. Bush, who was contesting for the nomination, memorably called it like it is--Voodoo Economics. Telling the truth helped cost him the nomination and the rest is history.

That history includes truly massive tax cuts under Reagan of just the sort of which Laffer would approve. And did approve. But it did not jolt the economy as promised and it was paid for, as Trump's will be, by adding trillions to the national debt. Over time, during the eight years of his presidency, Reagan nearly tripled it.

And if we need further evidence, when 20 years later, George (the son) Bush pushed another round of tax cuts through Congress, the economy collapsed and the debt doubled.

As the French would say, Viola.

On the other side of the ledger, there are other voila moments--the resulting state of the economy after Bill Clinton and Barack Obama raised taxes. Clinton raised them on the highest earners and the GDP increased annually, on average over his eight years, by 3.8%. Obama inherited a prostrate economy from George W. Bush and managed to more than halve the annual debt while the economy grew by about 2% a year.

One might, therefore, conclude that tax cuts of the Laffer kind do not follow the Laffer Curve but in spite of this here we are again with voodoo economics resurrected. Why anyone would believe Treasury Secretary Mnuchin that "The tax plan will pay for itself with economic growth" is beyond my comprehension.

He knows not all of us are economic illiterates and so he confesses that the preposterous 3-4% GDP growth rate is the result of "dynamic scoring." This is when growth rate projections are based not on observable reality but are derived from assumptions about where the economy will be as the result of various hypothetical actions. In other words, rather than projections based on a semblance of reality ("static scoring") economists such as Laffer and government officials such as Mnuchin just make things up. They pick a growth number out of the air that fits their theory and proclaim it to be the empirical truth.

These might be considered economic alternative facts. Let's see if the public and Congress will again take a sip of the Kool-Aid.

March 14, 2017--Donaldcare's Death Panels

Among the few progressive policies he trumpeted during the campaign was Donald Trump's soft promise that he would make sure everyone in America, after repealing and replacing Obamacare, would have health insurance. That Donaldcare thus would be better.

With yesterday's Congressional Budget Office analysis of the Ryan-Trump replacement plans projecting that over the decade 24 million people currently on Obamacare would lose their insurance, that promise turns out to be another Trump lie.

OK, "alternative fact."

The CBO models are not flawless and Trump and most Republicans have been preemptively trashing the work and findings of this reliable nonpartisan office. But even if the CBO is over-estimating by half, this means that"only" 12 million would lose their coverage.  12 million.

Remember Michele Bachmann who back in 2012, while in the lead for a week in the polls for the Republican nomination, blatantly claimed, without evidence, that the Affordable Care Act called for "death panels" of government bureaucrats who would decide who to treat and who to let die?

Well, this is worse. Much.

This is a death panel policy on steroids.

If "just" one percent of those who would lose their care were to die because of that, that's 120,000 people who would die.

Less euphemistically, be killed.

Even less euphemistically, murdered, with the definition of murder "intent to kill," which this is.

The New York Times reports that the CBO's estimate that over the same decade $337 billion of government money would be saved is convincing fiscally conservative Republicans who didn't believe Donaldcare would "save" money are already softening their opposition to the Ryan-Trump plan.

Saving money--a good thing.

Saving lives--not so much.

Michele Bachmann

September 8, 2014--Two Cheers for Obamacare

I've been wondering why we've been hearing relatively little recently from Republicans about Obamacare. It had been thought that in the run up to the November midterm elections the GOP would be all over it, savaging it as an assault on both our freedom and the federal budget. It was to be their political trump card. The route to majority control of both houses.

Could it be that there is now relative silence because Obamacare is actually . . . working.

Many millions have signed up, and with the exception of some anecdotal horror stories the vast majority with health care coverage for the first time are happy with it; and, perhaps most surprising, in spite of all the scary stories about how the Affordable Care Act would bust the budget, it has in fact not only been cost effective but has already been contributing to deep cuts in the federal deficit.

Just as Obama said it would.

So then two cheers for Obamacare. It is too soon to offer three because, though the nonpartisan Congressional Budget Office's projections show significant downward trends in overall Medicare costs (the result in part of aspects of the ACA law) and thus dramatic deficit reductions over the decade, we still do not know how many more will sign up, how much subsidy they will require, and the nature of the care these new enrollees will require.

The CBO, adjusting for inflation, recently reported that the average amount spent annually per Medicare recipient declined from $12,000 each in 2011 to $11,200 this year and will be reduced further to $11,000 per Medicare enrollee by 2017. Technically, this is called "negative excess cost growth."

All told, the CBO is projecting that, as a result, over the next ten years the federal deficit will be reduced by $715 billion. Nearly three-quarters of a trillion dollars.

To be fair, this good news is not fully the result of the ACA. This downward trend is also a consequence of "young" Baby Boomers becoming eligible for Medicare for the first time and the apparent, not entirely understood, reduction in costly tests, treatments, and drug use. All good things as our health care system has grown bloated with over-testing and the over-selling of unneeded treatments and medications.

This $714 billion in savings dwarfs all deficit reduction plans being discussed, including Paul Ryan's draconian budget.

Wouldn't it be good if we could stop playing demagogic games with the budget and health care and get on to the real problems we face--how to create more jobs, improve the treatment of veterans, fix our crumbling infrastructure, improve public education, and tackle the inequality crisis.

Why am I not optimistic?