Three Ways Pete Buttigieg Is No Moderate

In recent weeks, former South Bend Mayor Pete Buttigieg has enjoyed a boomlet in polls for the Democratic presidential nomination, helped in no small part by fawning press coverage. Politico and others have examined the candidate and his supposedly “moderate” message.

Rhetoric aside, however, the substance of Buttigieg’s policy plans seem anything but moderate. On multiple issues, Pete has embraced positions far to the left of anything Hillary Clinton dared endorse in her campaign four years ago, and which seem “moderate” only in comparison to the socialist delusions of candidates like Sen. Bernie Sanders (I-Vt.).

1. Big Tax Increases on the Middle Class

As I first noted last month, Buttigieg has supported at least one, and quite possibly several, tax increases on the middle class. His retirement security plan included one explicit tax increase on working families, endorsing legislation that would raise payroll taxes as part of a new regime of paid family leave.

The retirement white paper, released just before Thanksgiving, implicitly endorsed a second tax increase on the middle class as well. The plan proposed a new entitlement program, Long-Term Care for America, designed to replace the CLASS Act included in Obamacare, but which Congress repealed prior to its implementation due to solvency concerns. Buttigieg’s paper didn’t say how it would pay for the new spending created by the program, but other studies cited by the campaign did: They proposed another increase in the payroll tax, which would also fall on middle-class families.

I wrote about Buttigieg’s tax plans in the Wall Street Journal last month. Yet following that article, no one from the Buttigieg campaign bothered to refute, smack down, or otherwise correct my assertion that their candidate wants to tax middle-class families.

The deafening silence from the Buttigieg campaign regarding my op-ed suggests the candidate does indeed want to raise taxes on the middle class—he just hopes that no one will notice that fact. It seems like an ironic bit of silence, given that Buttigieg attacked Sen. Elizabeth Warren (D-MA) for being “extremely evasive” on the issue of middle-class tax increases last fall.

2. ‘Insurance, Whether You Want It or Not’

Buttigieg likes to advertise his health care plan as “Medicare for All Who Want It,” but as several stories over the holiday revealed, it comes with an intrusive twist. While his plan says that “individuals could opt out of public coverage,” they could do so only “if they choose to enroll in another insurance plan.”

In other words, Buttigieg would compel people to buy insurance—whether they want to or not, enforcing this revived individual mandate through the tax code. On April 15, individuals who didn’t enroll in health insurance the previous year would get a bill for coverage, which could total $5,000 or more, whether they wanted that coverage or not, and whether they knew they had that coverage or not.

It’s far from clear that this new “mandate on steroids” would pass constitutional muster. In 2012, the Supreme Court under Chief Justice Roberts blessed Obamacare’s mandate as a tax in part because “for most Americans the amount due will be far less than the price of insurance…It may often be a reasonable financial decision to make the payment rather than purchase insurance.”

Roberts justified Obamacare’s mandate as a tax because it gave the public a genuine choice: Buy insurance, or pay the IRS a tax. Buttigieg’s plan would give the public a Hobson’s choice: Buy insurance, or have insurance bought for you. It represents a significant increase in federal powers—one courts could (and should) strike down.

3. ‘Glide Path’ to Socialized Medicine

Notwithstanding his use of a strengthened individual mandate, Buttigieg ultimately wants to end up with a single-payer system of socialized medicine. He has made no bones about his objective, claiming that his health-care plan would provide a “glide path” to socialism.

As with most of the 2020 Democratic candidates who haven’t endorsed single payer explicitly, Buttigieg’s plan contains several characteristics designed to promote the growth of government-run health care. For instance, he would automatically enroll millions of individuals into the government-run health plan. (He claims Americans could opt out of the government plan, but if he wants the system to end in single payer, how easy would he make it for them to do so?) And he has proposed capping the amount that both private and public insurers can pay physicians and hospitals for health treatments, another way to funnel Americans into the government-run system.

Buttigieg’s plan would create the architecture to create a government-run system of socialized medicine. He just would build that edifice slightly more slowly than Sanders would. It represents but one of the big-government dreams of a candidate who, despite soothing rhetoric, has little in the way of policies to justify the term “moderate.”

This post was originally published at The Federalist.

Pete Buttigieg’s Plan to Tax the Middle Class

Democratic presidential candidate Pete Buttigieg claimed last month that “everything that we have proposed has been paid for, and we have proposed no tax increase on the middle class.” The South Bend, Indiana mayor is incorrect on both counts: He hasn’t said how he’d pay for all his proposed spending. He has endorsed one explicit tax increase on the middle class, and his recent retirement plan provides an outline for another. Add it up, and middle-class workers could face a trillion dollars in new taxes.

To support family caregivers, Mr. Buttigieg’s retirement plan restated his prior commitment to enact “an enhanced version of the Family Act,” which would provide 12 weeks of subsidized family leave. The candidate has yet to specify how exactly he would “enhance” the Family Act. But that legislation, introduced by Rep. Rosa DeLauro (D., Conn.) and Sen. Kirsten Gillibrand (D., N.Y.), pays for its new benefit by raising payroll taxes by 0.2% of income.

Mr. Buttigieg’s retirement plan also contains several new spending proposals, including a long-term care entitlement. He says the program would make benefits available to people over 65 and would “kick in after an income-related waiting period.” His plan cites two white papers as examples of “similar programs” proposed by scholars.

Mr. Buttigieg fails to note how both white papers propose to pay for the new benefits. In the first paper, the Long-Term Care Financing Collaborative envisions a program “fully financed by a dedicated revenue source,” including a payroll tax, “an explicit income tax surcharge, or other dedicated tax.”

The second paper, written by researchers affiliated with the Urban Institute, contains several policy details Mr. Buttigieg adopted, including waiting periods for wealthier people to qualify. That paper also proposes a specific funding source: “an additional tax of about 1.0 percent of earned Medicare-covered income.” In other words, an increase in the payroll tax—a tax increase on the middle class.

The Congressional Budget Office estimated last December that a one percentage point increase in the Medicare tax rate would raise $898.3 billion over a decade. If Mr. Buttigieg intends to fund his new long-term care program via the payroll tax, that tax increase, coupled with the 0.2% payroll tax hike in the Family Act he has already endorsed, would bring total payroll-tax increases to more than $1 trillion.

If Mr. Buttigieg doesn’t want to fund his long-term-care entitlement with the payroll-tax increase proposed in a paper his campaign cited, he should explain where that money will come from. His own claims notwithstanding, Mr. Buttigieg’s candidacy has lacked fiscal candor. His campaign told the Indianapolis Star last month that it had proposed $5.7 trillion in spending to that point, but cited a total of only $5.1 trillion in tax increases and savings.

Mr. Buttigieg’s retirement-security plan has since added other spending proposals with no mention of a funding source. There’s his plan to make those receiving Social Security disability benefits immediately eligible for Medicare, which will likely cost more than $100 billion. There’s his new requirement for state Medicaid programs to cover community-based services as a mandatory benefit, along with mandates on nursing homes—including a $15 minimum wage and higher staffing ratios—which will raise Medicaid spending.

Mr. Buttigieg called Elizabeth Warren “extremely evasive” for her answers on single-payer health care, saying, “I think that if you are proud of your plan and it’s the right plan, you should defend it in straightforward terms. And I think it’s puzzling that when everybody knows the answer to that question of whether her plan . . . will raise middle class taxes is ‘Yes.’ Why wouldn’t you just say so, and then explain why you think that’s the better way forward?” He should follow his own advice.

This post was originally published at The Wall Street Journal.

The Tax Increase Joe Biden’s Tax Plan “Forgot” to Mention Affects His Pocketbook

The details of Joe Biden’s tax plan emerged on Thursday—“emerged” because the campaign has yet to release a plan on its website. Instead, Bloomberg News obtained and published details of the tax proposal.

Most news coverage of the plan has to date focused on two issues. First, Biden’s plan proposes raising a relatively modest amount of revenue—“only” $3.2 trillion over a decade, compared to $20-30 trillion for the likes of Sens. Elizabeth Warren (D-MA) and Bernie Sanders (I-VT). As an additional point of comparison, the 2017 tax cut, which Biden called “the dumbest thing in the world,” reduced revenues by $1.46 trillion over 10 years—less than half the fiscal impact of Biden’s tax increase. (Biden has said he wants to repeal those tax cuts, most of which are not included in his $3.2 trillion tax increase proposal.)

Second, stories have centered around the fact that Biden’s proposed revenue raisers would hit corporations and the affluent, while sparing the middle class. But few if any stories on Biden’s tax plan have mentioned one tax he has not proposed increasing—the one he failed to pay himself.

The List of Tax Increases

The Bloomberg story listed ten tax increases included in Biden’s $3.2 trillion plan:

  1. Taxing capital gains as ordinary income for individuals making more than $1 million ($800 billion revenue increase over ten years);
  2. Increasing the corporate income tax rate back up to 28% ($730 billion);
  3. Ending the “stepped-up basis” of taxation, under which the cost basis of inherited property (e.g., stocks, real estate, etc.) for determining capital gains tax liability is the value of the property at the time of the inheritance, rather than the value of the property when the deceased individual purchased the asset ($440 billion);
  4. Imposing a 15% minimum tax on all corporations with net income over $100 million, but who paid no federal income taxes ($400 billion);
  5. Doubling the rate of tax on profits generated overseas to 21% ($340 billion);
  6. Limiting the value of deductions for the wealthy to 28%, a proposal included in several Obama administration budgets ($310 billion);
  7. Raising the top rate of tax back up to 39.6% ($90 billion);
  8. Imposing sanctions on countries that “facilitate illegal corporate tax avoidance” ($200 billion);
  9. Eliminating real estate tax loopholes ($70 billion); and
  10. Ending fossil fuel subsidies ($40 billion).

Among that list of revenue raises, Biden did not incorporate a proposal submitted by the Obama administration in its budgets. That proposal, which would have raised taxes by an estimated $271.7 billion as of February 2016, attempted to end the practice of individuals funneling their profits through S corporations, to avoid paying self-employment taxes on their earnings.

The omission might come because, as previously reported, Biden and his wife used this loophole Obama wanted to close. In taking more than $13 million in book and speech earnings as income from their corporation, rather than wages, Joe and Jill Biden avoided paying as much as $500,000 in taxes—taxes used to fund Obamacare and Medicare. Experts interviewed by the Wall Street Journal over the summer called the maneuver “pretty aggressive” and a “pretty cut and dried” abuse of the system, because the Bidens’ speech and book income clearly came from their own intellectual property, rather than as a result of a corporate creation (e.g., profits from a restaurant, a car business, etc.).

Colluding Reporters?

As noted above, Bloomberg News broke the story of Biden’s tax plan. Its story mentioned not a word about how Biden’s plan omitted the Obama proposal on self-employment taxes, or Biden’s history of questionable tax maneuvers. The silence comes as Bloomberg said it would not conduct investigative reporting into declared candidate, and Bloomberg News owner, Michael Bloomberg’s rivals for the Democratic presidential nomination—but would continue to investigate President Trump.

At some point, reporters should stop colluding with each other to avoid investigations into Joe Biden’s sordid tax history. And they should start asking why a candidate who has campaigned on preserving and building upon Obamacare didn’t want to pay the taxes that fund it.

This post was originally published at The Federalist.

Warren Advisor Admits Her Health Plan Raises Middle Class Taxes

That didn’t last long. Five days after Sen. Elizabeth Warren released a health plan (chock full of gimmicks) that she claimed would not raise taxes on the middle class, one of the authors of that plan contradicted her claims.

In an interview with Axios published on Wednesday, but which took place before the plan’s release, Warren advisor and former Centers for Medicare and Medicaid Services Administrator Donald Berwick said the following:

Q: Many people may not know their employers cover 70% or more of their entire premium — money that otherwise would go to their pay. Is this the main problem when talking about reforms?

DB: The basics are not that complicated. Every single dollar — every nickel spent on health care in this country — is coming from workers. There’s no other source. [Emphasis mine.]

Compare that phraseology to what Joe Biden’s campaign spokesperson said on Friday about Warren’s plan and its effects:

For months, Elizabeth Warren has refused to say if her health care plan would raise taxes on the middle class, and now we know why: Because it does….Senator Warren would place a new tax of nearly $9 trillion that will fall on American workers. [Emphasis mine.]

In response to the Biden campaign’s criticism, Warren said last Friday that her health plan’s projections “were authenticated by President Obama’s head of Medicare”—meaning Berwick. Unfortunately for Warren, Berwick, by virtue of his comments in his interview with Axios, also “authenticated” Biden’s attack that her required employer contribution will hit workers, and thus middle-class families.

Warren also tried to defend her plan on Friday by claiming that “the employer contribution is already part of” Obamacare. Obamacare does include an employer contribution requirement, but that requirement:

  • Is capped at no more than $3,000 per worker, far less than the average employer contribution for workers’ health coverage—$14,561 for family coverage as of 2019— which will form the initial basis of Warren’s required employer contribution;
  • Does not apply to employers at all if the firm offers “affordable” coverage—an option not available under Warren’s plan, which would make private insurance coverage “unlawful;” and
  • Will raise an estimated $74 billion in the coming decade, according to the Congressional Budget Office—less than 1 percent of the $8.8 trillion Warren claims her required employer contribution would raise.

While Obamacare and Warrencare both have employer contributions, the similarities pretty much end there. Calling the two equal would equate a log cabin to Buckingham Palace. Sure, they’re both houses, but differ greatly in size. Warren’s “contribution”—which Berwick, her advisor, admits will fall on middle-class workers—stands orders of magnitude greater than anything in Obamacare.

Public Accountability?

In the same Axios interview, Berwick highlighted what he termed a tradeoff “between public accountability and private accountability.” He continued: “By not having a publicly accountable system, we are paying an enormous price in lack of transparency.”

His comments echo prior justification of his infamous “rationing with our eyes open” quote in a 2009 interview. As he explained to The New York Times as he departed CMS in late 2011, “Someone, like your health insurance company, is going to limit what you can get….The government, unlike many private health insurance plans, is working in the daylight. That’s a strength.”

Except that Berwick, as CMS administrator, went to absurd lengths to hide from public scrutiny after his series of remarks. He would gladly meet with health-care lobbyists behind closed doors, but refused to answer questions from reporters, going so far as to duck behind curtains and request security escorts to avoid doing so.

Warren apparently has taken a lesson in opacity from Berwick’s time as CMS administrator. At first, she avoided releasing a specific health care proposal at all, only to follow up by issuing a “plan” containing so many absurd assumptions as to render it irrelevant as a serious blueprint for legislating.

Unfortunately for her, however, Berwick committed the unforgivable sin of speaking an inconvenient truth about the effects of her proposal. Eight years after leaving office as CMS administrator, Berwick, however belated and however unwittingly, delivered some much-needed public accountability for Warren’s health plan.

This post was originally published at The Federalist.

Analyzing the Gimmicks in Warren’s Health Care Plan

Six weeks ago, this publication published “Elizabeth Warren Has a Plan…For Avoiding Your Health Care Questions.” That plan came to fruition last Friday, when Warren released a paper (and two accompanying analyses) claiming that she can fund her single-payer health care program without raising taxes on the middle class.

Both her opponents in the Democratic presidential primary and conservative commentators immediately criticized Warren’s plan for the gimmicks and assumptions used to arrive at her estimate. Her paper claims she can reduce the 10-year cost of single payer—the amount of new federal revenues needed to fund the program, over and above the dollars already spent on health care (e.g., existing federal spending on Medicare, Medicaid, etc.)—from $34 trillion in an October Urban Institute estimate to only $20.5 trillion. On top of this 40 percent reduction in the cost of single payer, Warren claims she can raise the $20.5 trillion without a middle-class tax increase.

Independent Report Shows How Socialism Will Raise Your Taxes

Democratic candidates for president continue to evade questions on how they will pay for their massive, $32 trillion single-payer health care scheme. But on Monday, the Committee for a Responsible Federal Budget (CRFB) released a 10-page paper providing a preliminary analysis of possible ways to fund the left’s socialized medicine experiment.

Worth noting about the organization that published this document: It maintains a decidedly centrist platform. While perhaps not liberal in its views, it also does not embrace conservative policies. For instance, its president, Maya MacGuineas, recently wrote a blog post opposing the 2017 Tax Cuts and Jobs Act, stating that the bill’s “shortcomings outweigh the benefits,” because it will increase federal deficits and debt.

Everyone’s Taxes Will Go Up—a Lot

Consider some of the options to pay for single payer CRFB examines, along with how they might affect average families.

A 32 percent payroll tax increase. No, that’s not a typo. Right now, employers and employees pay a combined 15.3 percent payroll tax to fund Social Security and Medicare. (While employers technically pay half of this 15.3 percent, most economists conclude the entire amount ultimately comes out of workers’ paychecks, in the form of lower wages.) This change would more than triple current payroll tax rates.

Real-Life Cost: An individual earning $50,000 in wages would pay $8,000 more per year ($50,000 times 16 percent), and so would that individual’s employer.

Real-Life Cost: An individual with $50,000 in income would pay $9,450 in higher taxes ($50,000 minus $12,200, times 25 percent).

A 42 percent Value Added Tax (VAT). This change would enact on the federal level the type of sales/consumption tax that many European countries use to support their social programs. Some proposals have called for rebates to some or all households, to reflect the fact that sales taxes raise the cost of living, particularly for poorer families. However, using some of the proceeds of the VAT to provide rebates would likely require an even higher tax rate than the 42 percent CRFB estimates in its report.

Real-Life Cost: According to CRFB, “the first-order effect of this VAT would be to increase the prices of most goods and services by 42 percent.”

Mandatory Public Premiums. This proposal would require all Americans to pay a tax in the form of a “premium” to finance single payer. As it stands now, Americans with employer-sponsored insurance pay an average of $6,015 in premiums for family coverage. (Employers pay an additional $14,561 in premium contributions; most economists argue these funds ultimately come from employees, in the form of lower wages—but workers do not explicitly pay these funds out-of-pocket.)

Real-Life Cost: According to CRFB, “premiums would need to average about $7,500 per capita or $20,000 per household” to fund single payer. Exempting individuals currently on federal health programs (e.g., Medicare and Medicaid) would prevent seniors and the poor from getting hit with these costs, but “would increase the premiums [for everyone else] by over 60 percent to more than $12,000 per individual.”

Reduce non-health federal spending by 80 percent. After re-purposing existing federal health spending (e.g., Medicare, Medicaid), paying for single payer would require reducing everything else from the federal budget—defense, transportation, education, and more—by 80 percent.

Real-Life Cost: “An 80 percent cut to Social Security would mean reducing the average new benefit from about $18,000 per year to $3,600 per year.”

The report includes other options, including an increase in federal debt to 205 percent of gross domestic product—nearly double its historic record—and a more-than-doubling of individual and corporate income tax rates. The impact of the last is obvious: Take what you paid to the IRS on April 15, or in your regular paycheck, and double it.

In theory, lawmakers could use a combination of these approaches to fund a single-payer health care system, which might blunt their impact somewhat. But the massive amounts of revenue needed gives one the sense that doing so would amount to little more than rearranging deck chairs on a sinking fiscal ship.

Taxing Only the Rich Won’t Pay for Single Payer

CRFB reinforced their prior work indicating that taxes on “the rich” could at best fund about one-third of the cost of single payer. Their proposals include $2 trillion in revenue from raising tax rates on the affluent, another $2 trillion from phasing out tax incentives for the wealthy, another $2 trillion from doubling corporate income taxes, $3 trillion from wealth taxes, and $1 trillion from taxes on financial transactions and institutions.

Several of the proposals CRFB analyzed would raise tax rates on the wealthiest households above 60 percent. At these rates, economists suggest that individuals would reduce their income and cut back on work, because they do not see the point in generating additional income if government will take 70 (or 80, or 90) cents on every additional dollar earned. While taxing “the rich” might sound publicly appealing, at a certain point it becomes a self-defeating proposition—and several proposals CRFB vetted would meet, or exceed, that point.

Socialized Medicine Will Permanently Shrink the Economy

The report notes that “most of the [funding] options we present would shrink the economy compared to the current system.” For instance, CRFB quantifies the impact of funding single payer via a payroll tax increase as “the equivalent of a $3,200 reduction in per-person income and would result in a 6.5 percent reduction in hours worked—a 9 million person reduction in full-time equivalent workers in 2030.”

By contrast, deficit financing a single-payer system would minimize its drag on jobs, but “be far more damaging to the economy.” The increase in federal debt “would shrink the size of the economy by roughly 5 percent in 2030—the equivalent of a $4,500 reduction in per person income—and far more in the following years.”

Moreover, these estimates assume a great amount of interest by foreign buyers in continuing to purchase American debt. If the U.S. Treasury cannot find buyers for its bonds, a potential debt crisis could cause the economic damage from single payer to skyrocket.

To say single payer would cause widespread economic disruption would put it mildly. Hopefully, the CRFB report, and others like it, will inspire the American people to reject the progressive left’s march towards socialism.

This post was originally published at The Federalist.

How Joe Biden Deliberately Avoided Paying Obamacare Taxes

In the campaign for the 2020 Democratic presidential nomination, Joe Biden has portrayed himself as Obamacare’s biggest defender. His health care plan, released this month, pledges to “protect the Affordable Care Act” and states that he “opposes every effort to get rid of this historic law.”

However, his campaign rhetoric in support of Obamacare overlooks one key fact: For the past two years, Joe Biden structured his financial dealings specifically to avoid paying a tax that funds “this historic law,” along with the Medicare program.

While the Bidens paid federal income taxes on all their income, they did not have to pay self-employment taxes on these millions of dollars in profits. The Bidens saved as much as $500,000 in self-employment taxes by taking most of their compensation as profits from the corporation, as opposed to salary.

The Journal cited multiple tax experts who called the Bidens’ move “pretty aggressive,” and a “pretty cut and dried” abuse of the system. Given that most of their income came from writing and speaking engagements, one expert called that income “all attributable to [their] efforts” as individuals and thus wage income, rather than a broader effort by any corporation resulting in profits.

Most important to Biden’s political future is what that foregone self-employment tax revenue would have funded. Section 9015 of Obamacare increased the tax’s rate from 2.9 percent to 3.8 percent for all income above $200,000 for an individual, and $250,000 for a family. By taking comparatively small salaries from their S corporations and receiving most of their income as profits from those corporations, the Bidens avoided paying a tax that funds an Obamacare law Joe Biden claims he wants to defend.

Moreover, the other 2.9 percent in self-employment tax helps finance the Medicare program, which faces its own bleak fiscal future. According to the program trustees, the program will become insolvent by 2026, just seven years from now. If people like Joe Biden use tax strategies to avoid paying self-employment taxes, Medicare’s date of insolvency will only accelerate.

During the last presidential election cycle, Sen. Bernie Sanders repeatedly returned to Hillary Clinton’s paid speeches before companies like Goldman Sachs. Both the more than $100 million in income Bill and Hillary Clinton generated from their speeches, and Hillary Clinton’s insouciance at the vast sums she received—“That’s what they offered,” she said of the $675,000 sum Goldman Sachs paid her to give three speeches—made her look out-of-touch with the concerns of families struggling to make ends meet.

Likewise, Biden’s 2020 competitors almost certainly will use the questions about his taxes to undermine his image as “Middle Class Joe.” Few middle-class families will make in a lifetime the $15.6 million in income that the Bidens received in but two years. Moreover, how can Joe Biden claim to defend Obamacare—let alone Medicare—when he created a tax strategy specifically to avoid paying taxes that fund those two programs?

In 2014, Barack Obama, whose administration proposed ending the loophole the Bidens used to avoid self-employment taxes, attacked corporations for seeking to migrate to lower-tax jurisdictions overseas: “It is true that there are a lot of things that are legal that probably aren’t the right thing to do by the country.” In Joe Biden’s case, his tax behavior probably wasn’t the right thing to help his political future either.

This post was originally published at The Federalist.

The Return of the Individual Mandate

Well, that didn’t last long. Fewer than six months after Congress effectively repealed Obamacare’s individual mandate—and more than six months before that change actually takes effect, in January next year—another liberal group released a plan to reinstate it. The proposal comes as part of the Urban Institute’s recently released “Healthy America” plan.

In the interests of full disclosure: I criticized Republicans for repealing the individual mandate as part of the tax reform bill last fall. I did so not because I support requiring Americans to buy health insurance—I don’t—but because Republicans need to go further, and repeal the federal insurance regulations that represent the heart of Obamacare and necessitated enacting the mandate in the first place.

Lipstick on an Unpopular Pig?

The Urban Institute plan tries to re-brand a federal requirement to purchase insurance by never even using the term “mandate” in its proposal. Instead, the document says that “uninsured people would lose a percentage of their standard deduction (or the equivalent for the itemized deduction) when they pay income taxes….Half the lost deduction amount could be refunded the following year if the person enrolls in coverage and maintains it for the next full plan year.”

But as the saying goes, if it looks like a mandate and functions like a mandate, it’s a mandate. The paper claims that taking away a “tax benefit…would be better received politically than the additional tax penalty” under Obamacare, but functionally, that provides a distinction without a difference. Even the Urban researchers call this “loss of a tax benefit” a “penalty” later in the paper, because that’s what it is: A penalty for remaining uninsured.

The paper even includes a chart highlighting the average tax for remaining uninsured by income under the proposal, which generally mimics the tax penalties the uninsured pay under Obamacare:

Other Components of the Plan

Unfortunately, the Urban Institute plan goes well beyond merely reinstating the individual mandate, albeit in a slightly different form. It also makes other major changes to the health care system that would entrench the role of the federal government in it. It would federalize Medicaid health insurance coverage by transferring Medicaid enrollees into exchanges, supplementing benefits for low-income children and individuals with disabilities, and requiring states to keep paying their current contributions into the system. (Long-term care coverage under Medicaid would continue unchanged.)

The exchanges would have a new government-run plan—the default option for low-income enrollees automatically enrolled into coverage—and options run by private insurers. However, all plans would cap reimbursement to doctors and hospitals at Medicare rates, making premiums more “affordable” by imposing price controls that would potentially pay providers at below-market levels. The plan also proposes to “save” on prescription drugs by extending Medicaid rebates (i.e., price controls) to additional individuals.

The Urban plan also proposes much richer health coverage subsidies, consistent with its earlier 2015 proposal. Specifically:

  • Individuals with incomes below the federal poverty level would not pay either premiums or cost-sharing;
  • Individuals with incomes below 138 percent of poverty (the threshold for Obamacare’s Medicaid expansion) would not pay premiums;
  • Premium subsidies would be linked to a plan paying 80 percent of expected health care costs (i.e., actuarial value), as opposed to a 70 percent actuarial value plan under Obamacare;
  • Individuals would have to pay less of their income in premiums than under Obamacare—for instance, an individual with income just under four times poverty would pay 8.5 percent of income in premiums, as opposed to 9.56 percent under Obamacare; and
  • Unlike Obamacare, which limits eligibility for subsidies to those with incomes under four times poverty, the Urban plan would limit premium payments to 8.5 percent of income at all income levels (i.e., including for those making more than four times poverty).

Moreover, “short-term and other private insurance plans that do not comply with Healthy America regulations (consistent with [Obamacare’s] regulatory framework” would be prohibited, including association health plans and other concepts the Trump administration has proposed to give Americans more flexible coverage options.

The Urban researchers admit their plan would require significant new revenues to pay for the new subsidies—an estimated $98 billion in the first year alone. The plan only briefly discusses options to pay for this new spending, but it admits that, even if Congress hikes the payroll tax by an additional percent, raising an estimated $823 billion over ten years, “other adjustments to excise and income taxes would be needed.”

Where the Plan Fits In

At the end of their paper, the Urban researchers include a helpful chart comparing the various liberal proposals for expanded government involvement in health care—lest anyone claim that the left hand doesn’t know what the far-left hand is doing. In general:

  • Elizabeth Warren (D-MA) introduced a bill that would not go as far as the Urban plan. It incorporates the subsidy changes Urban proposed, adds a government-run plan, and imposes other regulatory changes to the exchanges, but (unlike the Urban plan) retains the status quo for Medicaid;
  • The Center for American Progress’ “Medicare Extra” proposal, which I wrote about earlier this year, goes farther than the Urban plan, by eliminating Medicaid (which the Urban plan modifies) entirely, and including more robust auto-enrollment provisions, with “Medicare Extra” the default option for all Americans; and
  • The single-payer bill introduced by Sen. Bernie Sanders (I-VT) would go farthest of all, abolishing virtually all forms of insurance (including Medicare) and creating a single-payer health system.

So much for “If you like your plan, you can keep it.” For that matter, so much for “If you like your freedom, you can keep it.” Like it or not, the Left seems insistent on terrifying the American public with what Ronald Reagan viewed as the nine most effective words to do so: “I’m from the government and I’m here to help.”

This post was originally published at The Federalist.

Legislative Bulletin: House Republicans’ Leaked Obamacare Replacement Draft

On Friday, Politico released a leaked version of draft budget reconciliation legislation circulating among House staff—a version of House Republicans’ Obamacare “repeal-and-replace” bill. The discussion draft is time-stamped on the afternoon of February 10, and according to my sources has been changed in the two weeks since then, but it represents a glimpse into where House leadership was headed going into the President’s Day recess.

A detailed summary of the bill is below, along with possible conservative concerns where applicable. Where provisions in the discussion draft were also included in the reconciliation bill Congress passed early in 2016 (H.R. 3762, text here), differences between the two versions, if any, are noted. In general, however, whereas the prior reconciliation bill sunset Obamacare’s entitlements after a two-year transition period, the discussion draft would sunset them at the end of calendar year 2019—nearly three years from now.

In the absence of a fully drafted bill and complete Congressional Budget Office score, it is entirely possible the parliamentarian has not vetted this discussion draft, which means provisions could change substantially, or even get struck, due to procedural concerns as the process moves forward.

Title I—Energy and Commerce

Prevention and Public Health Fund: Eliminates funding for the Obamacare prevention “slush fund,” and rescinds all unobligated balances. This language is substantially similar to Section 101 of the 2015/2016 reconciliation bill.

Community Health Centers: Increases funding for community health centers by $285 million for Fiscal Year 2018—money intended to offset reductions in spending on Planned Parenthood affiliates (see “Federal Payments to States” below). A parenthetical note indicates intent to add Hyde Amendment restrictions, to ensure this mandatory funding for health centers—which occurs outside their normal stream of funding through discretionary appropriations—retains prohibitions on federal funding of abortions. Language regarding community health centers was included in Section 102 of the 2015/2016 reconciliation bill.

By contrast, the House discussion draft retains eligibility for the able-bodied adult population, making this population optional for states to cover, rather than mandatory. (The Supreme Court’s 2012 ruling in NFIB v. Sebelius made Medicaid expansion optional for states.) Some conservatives may be concerned that this change markedly weakens the 2015/2016 reconciliation bill language, and will entrench a massive expansion of Medicaid beyond its original focus on the most vulnerable in society.

With respect to the Medicaid match rate, the discussion draft reduces the enhanced federal match to states, effective December 31, 2019. The bill provides that states receiving the enhanced match for individuals enrolled by December 31, 2019 will continue to receive that enhanced federal match, provided they do not have a break in Medicaid coverage of longer than one month. (In the case of states that already expanded Medicaid to able-bodied adults prior to Obamacare’s enactment, the bill provides for an 80 percent federal match for 2017 and all subsequent years.)

Some conservatives may be concerned that, rather than representing a true “freeze” that was advertised, one that would take effect immediately upon enactment, the language in this bill would give states a strong incentive to sign up many more individuals for Medicaid over the next three years, so they can qualify for the higher federal match as long as those individuals remain in the program.

DSH Payments: Repeals the reduction in Medicaid Disproportionate Share Hospital (DSH) payments. This language is identical to Section 208 of the 2015/2016 reconciliation bill.

Cost-Sharing Subsidies: Repeals Obamacare’s cost-sharing subsidies, effective December 31, 2019 (the year is noted in brackets, however, suggesting it may change). However, the bill does not include an appropriation for cost-sharing subsidies for 2017, 2018, or 2019. The House of Representatives filed suit against the Obama administration (House v. Burwell) alleging the administration acted unconstitutionally in spending funds on the cost-sharing subsidies without an explicit appropriation from Congress. The case is currently on hold pending settlement discussions between the Trump administration and the House. Similar language regarding cost-sharing subsidies was included in Section 202(b) of the 2015/2016 reconciliation bill.

On a related note, the House’s draft bill does not include provisions regarding reinsurance, risk corridors, and risk adjustment, all of which were repealed by Section 104 of the 2015/2016 reconciliation bill. While the reinsurance and risk corridor programs technically expired on December 31, 2016, insurers have outstanding claims regarding both programs. Some conservatives may be concerned that failing to repeal these provisions could represent an attempt to bail out health insurance companies.

The cap would include all spending on medical care provided through the Medicaid program, with the exception of DSH payments and Medicare cost-sharing paid for dual-eligibles (individuals eligible for both Medicaid and Medicare). The cap would rise by medical consumer price index (CPI) plus one percentage point annually.

While the cap would take effect in Fiscal Year 2019, the “base year” for determining cap levels would be Fiscal Year 2016 (which concluded on September 30, 2016), adjusted forward to 2019 levels using medical CPI plus one percentage point.

Creates five classes of beneficiaries for whom the caps would apply: 1) elderly individuals over age 65; 2) blind and disabled beneficiaries; 3) children under age 19; 4) expansion enrollees (i.e., able-bodied adults enrolled under Obamacare); and 5) all other non-disabled, non-elderly, non-expansion adults (e.g., pregnant women, parents, etc.). Excludes State Children’s Health Insurance Plan enrollees, Indian Health Service participants, breast and cervical cancer services-eligible individuals, and certain other partial benefit enrollees from the per capita caps.

Requires the Department of Health and Human Services (HHS) to reduce states’ annual growth rate by 1 percent for any year in which that state “fails to satisfactorily submit data” regarding its Medicaid program. Permits HHS to adjust cap amounts to reflect data errors, based on an appeal by the state, increasing cap levels by no more than 2 percent.

The bill benefits states who expanded Medicaid to able-bodied adults under Obamacare.

For the period including calendar quarters beginning on October 1, 2017 through October 1, 2019, increases the federal Medicaid match for certain state expenditures to improve data recording, including a 100 percent match in some instances.

Some conservatives may note the bill’s creation of a separate category of Obamacare expansion enrollees, and its use of 2016 as the “base year” for the per capita caps, benefit states who expanded Medicaid to able-bodied adults under Obamacare. The most recent actuarial report on Medicaid noted that, while the actuary originally predicted that adults in the expansion population would cost less than existing populations, in reality each newly eligible enrollee cost 13.6 percent more than existing populations in 2016. Many states have used the 100 percent federal match for their expansion populations—i.e., “free money from Washington”—to raise provider reimbursement levels.

Some conservatives may therefore be concerned that the draft bill would retain the increased spending on adults in expansion states, extending in perpetuity the inequities caused by states that have used Obamacare’s “free money” to raise Medicaid spending while sending Washington the tab.

Federal Payments to States: Imposes a one-year ban on federal funds flowing to certain entities. This provision would have the effect of preventing Medicaid funding of certain medical providers, including Planned Parenthood, so long as Planned Parenthood provides for abortions (except in cases of rape, incest, or to save the life of the mother). This language is virtually identical to Section 206 of the 2015/2016 reconciliation bill.

State Innovation Grants: Creates a new program of State Innovation Grants, to be administered by the Centers for Medicare and Medicaid Services, for the years 2018 through 2026. Grants may be used to cover individuals with pre-existing conditions (whether through high-risk pools or another arrangement), stabilizing or reducing premiums, encouraging insurer participation, promoting access, directly paying providers, or subsidizing cost-sharing (i.e., co-payments, deductibles, etc.). A similar program was first proposed by House Republicans in their alternative to Obamacare in 2009.

This provision maintains the federal intrusion over insurance markets exacerbated by Obamacare, rather than devolving insurance regulation back to the states.

Provides for $15 billion in funding for each of calendar years 2018 and 2019, followed by $10 billion for each of calendar years 2020 through 2026 ($100 billion total). Requires a short, one-time application from states describing their goals and objectives for the funding, which will be deemed approved within 60 days absent good cause.

For 2018 and 2019, funding would be provided to states on the basis of relative costs, determined by the number of federal exchange enrollees and the extent to which individual insurance premiums in the state exceed the national average. Every state would receive at least 0.5 percent of the national total (at least $75 million in 2018 and 2019).

For 2020 through 2026, CMS would be charged with determining a formula that takes into account the percentage of low-income residents in the state (the bill text includes in brackets three possible definitions of “low-income”—138 percent, 250 percent, or 300 percent of the federal poverty level) and the number of residents without health insurance.

Requires that states match their grants in 2020 through 2026—by 7 percent of their grant in 2020, 14 percent in 2021, 21 percent in 2022, 28 percent in 2023, 35 percent in 2024, 42 percent in 2025, and 50 percent in 2026.

Continuous Coverage: Requires insurers, beginning after the 2018 open enrollment period (i.e., open enrollment for 2019, or special enrollment periods during the 2018 plan year), to increase premiums for individuals without continuous health insurance coverage. The premium could increase by 30 percent for individuals who have a coverage gap of more than 63 days during the previous 12 months. Insurers could maintain the 30 percent premium increase for a 12-month period. Requires individuals to show proof of continuous coverage, and requires insurers to provide said proof in the form of certificates. Some conservatives may be concerned that this provision maintains the federal intrusion over insurance markets exacerbated by Obamacare, rather than devolving insurance regulation back to the states.

Essential Health Benefits: Permits states to develop essential health benefits for insurance for all years after December 31, 2019.

Age Rating: Changes the maximum variation in insurance markets from 3-to-1 (i.e., insurers can charge older applicants no more than three times younger applicants) to 5-to-1 effective January 1, 2018, with the option for states to provide for other age rating requirements. Some conservatives may be concerned that, despite the ability for states to opt out, this provision, by setting a default federal standard, maintains the intrusion over insurance markets exacerbated by Obamacare.

Special Enrollment Verification: Requires verification of all special enrollment periods beginning for plan years after January 1, 2018. This provision would effectively codify proposed regulations issued by the Department of Health and Human Services earlier this month. Some conservatives may be concerned about the continued federal intrusion over a matter that has been until now left to state regulation, and question the need to verify enrollment in exchanges, given that the underlying legislation was intended to repeal Obamacare—and thus the exchanges—entirely.

Transitional Policies: Permits insurers who continued to offer pre-Obamacare health coverage under President Obama’s temporary “If you like your plan, you can keep it” fix to continue to offer those policies in perpetuity in the individual and small group markets outside the exchanges.

Title II—Ways and Means

Subsidy Recapture: Eliminates the repayment limit on Obamacare premium subsidies for the 2018 and 2019 plan years. Obamacare’s premium subsidies (which vary based upon income levels) are based on estimated income, which must be reconciled at year’s end during the tax filing season. Households with a major change in income or family status during the year (e.g., raise, promotion, divorce, birth, death) could qualify for significantly greater or smaller subsidies than the estimated subsidies they receive. While current law caps repayment amounts for households with incomes under 400 percent of the federal poverty level (FPL, $98,400 for a family of four in 2017), the bill would eliminate the repayment limits for 2018 and 2019. This provision is similar to Section 201 of the 2015/2016 reconciliation bill.

Modifications to Obamacare Premium Subsidy: Allows non-compliant and non-exchange plans to qualify for Obamacare premium subsidies, with the exception of grandfathered health plans (i.e., those purchased prior to Obamacare’s enactment) and plans that cover abortions (although individuals receiving subsidies can purchase separate coverage for abortion). While individuals off the exchanges can receive premium subsidies, they cannot receive these subsidies in advance—they would have to claim the subsidy back on their tax returns instead. Only citizens and legal aliens could receive subsidies.

These changes would make an already complex subsidy formula even more complicated; increase costs to taxpayers; and distract from the purported goal of the legislation.

Modifies the existing Obamacare subsidy regime beginning in 2018 by including age as an additional factor for determining subsidy amounts. Younger individuals would have to spend a smaller percentage of income on health insurance than under current law, while older individuals would spend a higher percentage of income.

For instance, an individual under age 29 who makes just under 400 percent FPL would pay 4.3 percent of income on health insurance, whereas an individual between ages 60-64 at the same income level would pay 11.5 percent of income on health insurance. (Current law limits individuals to paying 9.69 percent of income on insurance, at all age brackets, for those with income just below 400 percent FPL.)

Some conservatives may be concerned that 1) these changes would make an already complex subsidy formula even more complicated; 2) could increase costs to taxpayers; and 3) distract from the purported goal of the legislation, which is repealing, not modifying or “fixing,” Obamacare.

Repeal of Tax Credits: Repeals Obamacare’s premium and small business tax credits, effective January 1, 2020. This language is similar to Sections 202 and 203 of the 2015/2016 reconciliation bill, with one major difference—the House discussion draft provides for a three-year transition period, whereas the reconciliation bill provided a two-year transition period.

Individual and Employer Mandates: Sets the individual and employer mandate penalties to zero, for all years after December 31, 2015. This language is similar to Sections 204 and 205 of the 2015/2016 reconciliation bill, except with respect to timing—the House discussion draft zeroes out the penalties beginning with the previous tax year, whereas the reconciliation bill zeroed out penalties beginning with the current tax year.

Repeal of Other Obamacare Taxes: Repeals all other Obamacare taxes, effective January 1, 2017, including:

  • Tax on high-cost health plans (also known as the “Cadillac tax”);
  • Restrictions on use of health savings accounts and Flexible Spending Arrangements to pay for over-the-counter medications;
  • Increased penalties on non-health care uses of health savings account dollars;
  • Limits on Flexible Spending Arrangement contributions;
  • Tax on pharmaceuticals;
  • Medical device tax;
  • Health insurer tax;
  • Elimination of deduction for employers who receive a subsidy from Medicare for offering retiree prescription drug coverage;
  • Limitation on medical expenses as an itemized deduction;
  • Medicare tax on “high-income” individuals;
  • Tax on tanning services;
  • Net investment tax;
  • Limitation on deductibility of salaries to insurance industry executives; and
  • Economic substance doctrine.

These provisions are all substantially similar to Sections 209 through 222 of the 2015/2016 reconciliation bill.

Refundable Tax Credit: Creates a new, age-rated refundable tax credit for purchasing health insurance. Credits total $2,000 for individuals under age 30, $2,500 for individuals aged 30-39, $3,000 for individuals aged 40-49, $3,500 for individuals aged 50-59, and $4,000 for individuals over age 60, up to a maximum credit of $14,000 per household. The credit would apply for 2020 and subsequent years, and increase every year by general inflation (i.e., CPI) plus 1 percent. Excess credit amounts can be deposited in individuals’ health savings accounts.

By creating a new refundable tax credit, the bill would establish another source of entitlement spending at a time when our nation already faces significant fiscal difficulties.

The credit may be used for any individual policy sold within a state (although apparently not a policy purchased across state lines) or unsubsidized COBRA continuation coverage.

Individuals may not use the credit to purchase plans that cover abortions (although they can purchase separate plans that cover abortion).

The credit would be advanceable (i.e., paid before individuals file their taxes), and the Treasury would establish a program to provide credit payments directly to health insurers.

Individuals eligible for or participating in employer coverage, Part A of Medicare, Medicaid, the State Children’s Health Insurance Program, Tricare, or health-care-sharing ministries cannot receive the credit; however, veterans eligible for but not enrolled in Veterans Administration health programs can. Only citizens and legal aliens qualify for the credit; individuals with seriously delinquent tax debt can have their credits withheld.

Some conservatives may be concerned that, by creating a new refundable tax credit, the bill would establish another source of entitlement spending at a time when our nation already faces significant fiscal difficulties.

Cap on Employer-Provided Health Coverage: Establishes a cap on the current exclusion for employer-provided health coverage, making any amounts received above the cap taxable to the employee. Sets the cap, which includes both employer and employee contributions, at the 90th percentile of group (i.e., employer) plans for 2019. In 2020 and subsequent years, indexes the cap to general inflation (i.e., CPI) plus two percentage points. Also applies the cap on coverage to include self-employed individuals taking an above-the-line deduction on their tax returns. While the level of the cap would be set in the year 2019, the cap itself would take effect in 2020 and subsequent tax years.

An unlimited exclusion for employer-provided health insurance encourages over-consumption of health insurance, and therefore health care.

Excludes contributions to health savings accounts and Archer Medical Savings Accounts, as well as long-term care, dental, and vision insurance policies, from the cap. Exempts health insurance benefits for law enforcement, fire department, and out-of-hospital emergency medical personnel from the cap.

Some conservatives may be concerned that this provision raises taxes. Economists on all sides of the political spectrum generally agree that an unlimited exclusion for employer-provided health insurance encourages over-consumption of health insurance, and therefore health care. However, there are other ways to reform the tax treatment of health insurance without raising taxes on net. Given the ready availability of other options, some conservatives may be concerned that the bill repeals all the Obamacare tax increases, only to replace them with other tax hikes.

Health Savings Accounts: Increases contribution limits to HSAs, raising them from the current $3,400 for individuals and $6,750 for families in 2017 to the out-of-pocket maximum amounts (currently $6,550 for an individual and $13,100 for a family), effective January 2018. Allows both spouses to make catch-up contributions to the same health savings account. Permits individuals who take up to 60 days to establish an HSA upon enrolling in HSA-eligible coverage to be reimbursed from their account for medical expenses.

Abortion Coverage: Clarifies that firms receiving the small business tax credit may not use that credit to purchase plans that cover abortion (although they can purchase separate plans that cover abortion).

This post was originally published at The Federalist.

No, Medicare Recipients Haven’t Earned All Their Benefits

In his interview with 60 Minutes that aired Sunday night, Speaker of the House Paul Ryan made a compelling case for reforming Medicare. But in trying to make a political point about the need to maintain the status quo for beneficiaries in retirement, Speaker Ryan actually understated the problems the program faces:

We have to make sure that we shore this program up. And the reforms that we’ve been talking about don’t change the benefit for anybody who is in or near retirement. My mom’s now enjoying Medicare. She’s already retired. She earned it. But for those of us, you know, the X-Generation on down, it won’t be there for us on its current path. So we have to bring reform to this program for the younger generation, so that it’s there for us when we retire, and so that we can keep cash flowing to current generations’ commitments. And the more we kick the can down the road, the more we delay, the worse it gets.

There’s just one problem with this explanation: the benefits Ryan claimed his mother’s generation “earned” don’t begin to match the money paid into the system.

Money In Doesn’t Equal Money Out

In its 2015 document highlighting the long-term budget outlook, the Congressional Budget Office (CBO) conducted an analysis of average payroll taxes paid and benefits received. It found the latter exceeded the former by a wide margin—a margin that will grow over time:

Under the assumption that all scheduled benefits are paid, real average lifetime benefits (net of premiums paid) for each birth cohort as a percentage of lifetime savings will generally be greater than those for the preceding cohort. For example, benefits received over a lifetime are projected to equal about 7 percent of lifetime earnings for people born in the 1940s, on average, but 11 percent for people born in the 1960s. By contrast, real average lifetime payroll taxes relative to lifetime earnings will rise from 2 percent in the 1940s cohort to almost 3 percent for the 1960s cohort.

Both the text and accompanying chart (below) come with a significant caveat: Medicare payroll taxes fund only a share of overall Medicare spending, and that share has declined significantly in recent years—from 67 percent in 2000 to about 40 percent last year. General revenue covers a growing (currently about 47 percent) percentage of Medicare’s finances; individuals do pay a portion of the federal government’s general revenue through income taxes, but it’s harder to differentiate what portion of an individual’s income taxes fund Medicare in any given year.

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We Have To Fix Our Medicare System

No matter the details, the fact that most seniors receive more in benefits than they paid in payroll taxes speaks to the urgent need to right-size our entitlements. Regardless of how we do it, our nation will be much better off if we confront these problems sooner rather than later. Because continuing our Lake Wobegon system—in which everyone receives more than they paid in—will guarantee a fiscal crisis of epic proportions.

This post was originally published at The Federalist.