Campaign issues: a better way

Earlier this year, House Republicans announced plans for a conservative policy agenda that would provide a preview of what to expect in 2017 if Republicans fared well in the November elections. There didn’t seem to be much hope of enacting any genuinely conservative legislation under the current president so this sounded like a plan, but we were struck that there was no mention of addressing the fiscal problem (rising spending, habitual deficits, steady growth in government debt). Congressional Republicans plan a positive agenda, 2/1/16.

Now this agenda has been published, a polished and superficially impressive product, and it’s time to kick the tires – as this entry will do.

Overview – “Let’s face it,” says House Speaker Paul Ryan, “everyone knows what Republicans are against. Now, we’re going to give you a plan that shows what we are for.” There is a better way, weekly Republican address, 6/3/16, video (2:38).

The basic concept is to channel anger into constructive action. Thus, instead of “bars” that trap people in poverty, the country needs “ladders of opportunity” that will help them climb out. Six broad areas for action are identified, with videos (generally 20+ minutes) and text explanations in each case.

This effort strikes us as a mixed bag. The strongest plans are those dealing with the domestic economy, i.e., reining in the regulators and overhauling the tax code. The poverty and healthcare plans don’t come to grips with the insupportable financial commitments that have been assumed in these areas. The Constitution plan places most of the blame for current problems on regulators, while failing to discuss the dysfunctional behavior of the members of Congress that also needs to change. Many points re external and homeland security are overly general, and this plan tends to ignore the traditional primacy of the president in such matters. Discussion follows with our comments in

Poverty – The June 2016 study (full task force report) lays out some problems with the current welfare system. Currently over $1 trillion a year of spending (federal + state) on needs-based welfare programs – numerous complex and overlapping programs – over $100 billion a year in improper payments – little evidence that benefits are effectively helping people to climb out of poverty by ensuring high quality education for all, fostering marriage, etc. – states often follow counterproductive strategies designed to maximize federal funding vs. achieving optimal results for beneficiaries. In a similar vein: Tax work, subsidize idleness, and batten down the hatches, 2/17/14.

As for how to make things better, House Republicans advocate (a) instituting more effective work or preparing for work requirements for beneficiaries, (b) adjusting the phase-out of benefits in such a manner as to minimize incentives of beneficiaries to avoid pay increases that would take them off the dole, (c) consolidating duplicative programs, (d) continuing to monitor state use of federal grant money (while permitting more flexibility re the details), (e) requiring systematic and rigorous assessment of program results, and (f) adjusting programs based on empirical studies vs. politics, anecdotal evidence, etc.

The premise seems to be that a “war on poverty” is a fine idea, which just needs to be fought a little smarter, e.g., by giving Republicans more of a say in how the programs are designed and operated. Experience has shown, however, that such “compassionate conservatism” can backfire. Leviathan on the Right: How Big-Government Conservatism Brought Down the Republican Revolution, Michael D. Tanner, Cato Institute, 2007.

The Republican Party lost Congress in 2006 at least partly due to fiscal laxity, and it will not regain traction without returning to its small government principles.  “If [the American people] come to believe that the choice is between liberal Democrats who will give them lots of things and big-government conservatives who will give them a little bit less,” says Tanner, “they will choose the liberal Democrats.”

To make significant headway in cleaning up the welfare program mess, we would suggest (a) specific goals for reducing the overall amount of federal funding for welfare programs, (b) block granting of federally funded programs so that the states can be given full responsibility for running them (overlapping federal/state involvement inflates administrative costs while diluting accountability), and (c) a “hit list” of programs that can and should be axed in lieu of heroic efforts to make them work.

It might also be logical to expand the discussion to include GOP resistance to a big boost in the minimum wage (e.g., to $15 per hour as many Democrats are demanding). Such a move would reduce job opportunities for young or unskilled workers and thereby promote greater need for welfare programs.

The report ends with the following commitment: “This is the beginning of a conversation. House Republicans will continue to collaborate and solicit ideas on how best to improve outcomes for lower-income Americans, and we will continue to craft policies to ensure that no matter who you are or where you come from, if you work hard and give it your all, you will succeed.”

The notion that everyone in society can succeed is unrealistic, and we don’t think it deserves to be cited as a basis for setting policy. Remember the sardonic Garrison Keillor quote.

Welcome to Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.

2. National Security - The current administration is accused of allowing US defenses against external and homeland threats to deteriorate over the past eight years by experimenting with a “new foreign policy concept” of “leading from behind.” As a result, “our enemies no longer fear us and our allies no longer trust us. Terrorists and rogue regimes are stepping in to fill the void.”

Policy ideas (“67 recommendations for Congress and the president”) are offered under four headings: (a) Defeat “radical Islamic extremism”; (b) Keep terrorists out, secure the borders, and stop cyberattacks; (c) Be prepared for other threats of “our time and beyond”; (d) “Restore American influence” in the community of “free nations,” e.g., by promoting free enterprise and liberty (not necessarily synonymous with democracy).

Many of the policy ideas seem rather general, and to a large extent dependent on the specifics of implementation. For example:

•Defeating radical Islamists: “The motive power of Islamist terror is a worldview based on oppression—one that is as morally bankrupt and unsustainable as Communism or fascism. America can undermine this system of beliefs by countering it with our own.”

•Securing the border: Our response must be so overwhelming that it not only halts illicit activity but discourages it from ever happening. We will work to deploy the right assets to the right places so that dangerous individuals and illegal entrants are convinced they will be detected in real time, not after they have disappeared into our country.”

•Facing other threats: No reduction in this country’s military commitments is envisioned. Thus, US obligations under NATO are emphasized as a counter to Russian revisionist ambitions. “America cannot look the other way as Moscow seeks new hegemony. We must contest Putin’s advances and deter future actions that threaten U.S. interests. For instance, we must be assertive in responding to its actions in Syria and scrap the current policy of denying Ukrainians lethal weapons to defend themselves against Russian aggression.”

Similarly, “we cannot allow our alliances in East Asia and the Pacific to atrophy and must shore up our defense arrangements to deter China from tilting the global balance of power toward autocracy.”

•Preserving military capabilities: “To maintain the most capable fighting force in the world, we must have adequate, predictable budgets that provide sufficient resources to our armed forces and their families, and we must invest these resources wisely. This requires maintaining our current weapons systems and equipment, expanding our technical superiority over our adversaries, and developing and fielding the capabilities we need to counter future threats.”

•Presidential leadership: “History will forever remember President Reagan’s resounding demand, ‘Mr. Gorbachev, tear down this wall’—two years before it fell.” In contrast, “President Obama has wavered in opposing repression worldwide.”

More pointed suggestions might be appropriate in several cases. Instead of merely blasting the Iranian Nuclear Deal, for example, the House Republicans could have proposed abrogation of the IND in that it was never approved by Congress. And instead of a general statement about maintaining “sufficient control of the Internet to repel continued efforts by dictators and authoritarian regimes to censor, intimidate, and control their citizens,” it might be suggested that pending efforts to surrender control over the Internet machinery to an international commission should be stopped forthwith.

3. The Economy - Beginning with the familiar lament that the economic recovery since 2009 has been anemic, the House GOP report goes on to suggest that the prime solution is to streamline costly, often excessive, and in some cases counterproductive regulations issued by government agencies. An overall annual cost of $1.9 trillion in 2015 is cited, and a major reduction in this burden could obviously provide a boost for economic activity.

Responsibility for regulatory bloat is assigned principally to the regulators, who seldom trouble to eliminate old rules that have outlived their usefulness and are always on the lookout for new problems to solve. The regulatory agencies could do with “some humility,” it’s suggested, but “even Congress is complicit” for “having delegated broad authority to unelected bureaucrats.”

SAFE has made similar points in our analyses. And we would be inclined to place most of the blame on Congress, which has passed the enabling legislation over the years and failed to use its power to restore order. See, e.g., Rise of the regulatory state,

Twenty-six “case studies” are included in the report, which serve to demonstrate that the problems under discussion are widespread and deeply rooted. Among the agencies involved are the Bureau of Land Management, Commodities Future Trading Commission, Environmental Protection Agency, Federal Communications Commission, Labor Department, National Labor Relations Board, Occupational Safety and Health Administration, Securities and Exchange Commission, US Army Corps of Engineers, and US Fish and Wildlife Services.

The basic solution suggested is “smarter” regulation. “We need to take a smart approach that cuts down on needless regulations while making the rules we do need more efficient and effective, particularly for our small businesses that shoulder a disproportionate share of the federal regulatory burden.”

Other ideas are to (a) deliver affordable and reliable energy, (b) end cronyism and “put an end to Wall Street bailouts,” (c) cut red tape that complicates life for students and workers, (d) minimize Internet regulation, and (e) crack down on lawsuit abuse (e.g., the “sue and settle” pattern that some regulatory agencies have encouraged).

As for how Congress could ensure that regulators cooperate, one possibility is to not only require cost/benefit analyses for new regulations but also require affirmative congressional approval before big cost regulations go into effect. To this end, serious consideration is suggested for the “Regulations from the Executive in Need of Scrutiny” (REINS) Act.

Other ideas include sun-setting of existing regulations (requiring periodic reviews to continue them in effect) and the creation of an administrative cost budget.

In our view, the benefits of sunsetting have never been demonstrated in practice and an administrative cost budget would quickly degenerate into a make-work exercise. We would favor passing the REINS Act, and also making the Office of Management and Budget (OMB) responsible for cost/benefit analyses instead of allowing the agencies concerned to do their own. (The EPA has been shameless, for example, in skewing such analyses in favor of its proposed regulations.)

4. The Constitution - It is suggested that Congress has been allowing its constitutional powers to atrophy by failing to exercise them, which is contrary to the intentions of the founders and is depriving Americans of a real voice in what goes on in Washington. In a similar vein: Listen up Congress, because you are in trouble, 3/2/15.

To get the system running properly, it’s suggested that Congress must (a) effectively exercise its power of the purse by passing detailed appropriation bills before the start (Oct. 1) of each successive fiscal year; (b) rein in the authority delegated to regulatory agencies, which are effectively making most of the nation’s federal laws at this point (see Section 3 on the Economy, infra); and (c) beef up congressional oversight in ways that range from friendly (more informal consultations with agency personnel) to exacting (end Department of Justice discretion re whether or not to enforce congressional subpoenas, require courts to expedite hearing of congressional challenges to agency actions). In other words, “use it or lose it.”

These ideas seem sensible, and we agree with them, but a major piece of the puzzle has been left out. As experience has shown, certain members of Congress are able to leverage their prestige and influence by disrupting the orderly development and consideration of legislation, the conduct of congressional hearings, etc. So long as this kind of thing is allowed to happen, Congress cannot and will not get its act together.

As a case in point, consider how Senate Democrats filibustered appropriation bills in 2015, thereby ensuring that a “continuing resolution” would be required to avert a government shutdown and leading in due course to an ill-conceived omnibus spending and tax package. Some thoughts about the omnibus budget package,

One idea that deserves consideration is to do away with the filibuster rule (60 votes required to invoke cloture) in the Senate, which has been used with increasing frequency to block (not simply delay) controversial legislation. Something’s got to give in the US Senate,

5. Healthcare - The starting premise is that the Affordable Care Act (ACA) cannot work because it is based on government top-down controls that restrict choices and increase costs; it must therefore “be fully repealed so we can start over and take a new approach.” Rather than restoring the status quo ante, however, the proposals constitute “a step-by-step plan to give every American access to quality, affordable healthcare.”

This report is the beginning of the conversation, not the end. In contrast to Obamacare, our plan will serve as the foundation for multiple pieces of straightforward legislation, not a comprehensive, overly complex, and confusing 3,000-page bill. Successfully transitioning these ideas into action requires a step-by-step approach. There is still time to fix what is broken in healthcare without undermining what works.

Approximately two dozen proposals are outlined, under four upbeat headings. Who wouldn’t want (a) more choices and lower costs, (b) real protections and peace of mind, (c) [to] lead the world in cures and treatments, and (d) [to] protect and preserve Medicare?

•Americans without access to employer coverage, Medicare or Medicaid would qualify for “a refundable tax credit to help buy health[care] insurance in the individual market.”

•Expand use of health[care] savings accounts

•Cap “the open-ended tax break on employer-based premiums,” which is contrasted with the ACA’s “Cadillac tax” that is said to represent “a tax on workers.”

•Allow purchases of healthcare insurance (HCI) across state lines.

•Facilitate pooling of small businesses and individuals to negotiate more favorable terms for acquiring HCI.

•Reduce “red tape” for employer programs that reward employees who stay healthy (stop smoking, lose weight, sign up for exercise classes, etc.).

•Limit medical malpractice awards by establishing “reasonable limits” for damages while ensuring “plaintiffs can recover full medical costs.”

•Preserve ACA ban on denying HCI based on pre-existing conditions, and ACA rule that dependents can remain on their parent’s HCI plans until they are 26.

•Prohibit refusals to renew HCI policies “simply because [the insured] may be sick.”

•Establish “new patient protections so that individuals are not charged more than standard rates – even if [they are] dealing with a serious medical issue. This would supposedly encourage Americans “to enroll in coverage and stay enrolled,”
although we’re not sure why it would have that effect.

•Give states more flexibility to lower HCI premiums for younger (and typically healthier) people, versus being expected (under the ACA) to subsidize below cost coverage for their elders.

•Provide a “one-time open enrollment period for individuals to join the healthcare market if they are uninsured.”

•Empower states to “design Medicaid programs that meet their needs” rather than compelling them to meet federal standards.

•Make the Weldon Amendment permanent, thereby giving all healthcare providers “the freedom to exercise their conscience.”

•Assure the National Institute of Health of “a robust, steady level of discretionary funding” while “increasing accountability for taxpayers and supporting scientists working on cutting-edge research.”

•Facilitate research collaboration by “breaking down barriers to sharing and analyzing health data.”

•Accelerate drug discovery and development by streamlining Food and Drug Administration requirements re clinical trials, etc.

•Ensure that “our regulatory system keeps pace with the state of science so that [patients can be treated] based on their genetic makeup.”

•Improve the use of electronic health[care] records by “[spurring] innovation and [improving] partnerships between the technology and healthcare sectors.”

•Strengthen Medicare Advantage and repeal “the most damaging Medicare provisions in Obamacare including the unaccountable Independent Payment Advisory Board.”

•Adopt “bipartisan reforms that [would make] Medicare more responsive to patients’ needs, while at the same time updating payment models that are outdated and inefficient.”

•Starting in 2024, allow Americans enrolling in Medicare “the opportunity to choose from an array of competing private plans [subsidized] alongside traditional Medicare.”

There are some constructive ideas in this plan, but overall it wouldn’t do a great deal to simplify the current laws or reduce the role of government in the healthcare sector. If all Americans are to be ensured access to “quality, affordable healthcare,” someone will have to pay for it, and many of the proposals seem more cosmetic than substantive.

Providing refundable tax credits for individuals who would otherwise go without insurance is simply an off budget way to subsidize HCI coverage, and the same goes for the current tax treatment for employer-provided HCI (premiums deductible for employers, benefits not taxable to employees). In principle, the right answer would be to eliminate the tax subsidy for employer plans versus extending it to the self-employed and those whose employers don’t provide HCI.

If HCI premiums for younger and healthier people were reduced to encourage their participation, premiums would presumably go up (or be more heavily subsidized) for older and sicker people.

Basic change for Medicare would not kick in for new participants in the program until 2024, which seems like an unnecessarily long time to wait. And while giving the states more control over the details of Medicaid coverage within their respective borders may be a good idea, it wouldn’t necessarily reduce costs unless federal funding was cut back.

Other observers have reached similar conclusions. See, e.g., The surprise in the Republican healthcare plan: A nod to Obamacare, Paige Winfield Cunningham, Washington Examiner,

Instead of eliminating the tax break for employer-sponsored coverage, [the plan] would simply cap the exclusion. Rather [than] providing a tax deduction to buy coverage, it would supply Americans with tax credits, an option that would ensure poor people getting Obamacare subsidies would continue getting help, but would also cost the government more. And instead of immediately scrapping the Affordable Care Act's Medicaid expansion, it would allow states to shift those dollars to a higher-needs population while gradually reducing the extra funding.

6. Tax Reform – Likening current circumstances to those before the Reagan era tax reform bill in 1986, the House GOP report suggests that it’s high time for tax reform to promote fairness and boost economic growth.

Our tax code is a mess, and that’s putting it lightly. Multiple brackets. High rates. Special interest breaks everywhere. Rules and regulations that are too complicated to understand. It costs more and more each year just to do your taxes, let alone pay them. All of this drags people down and leaves businesses buried in paperwork and compliance problems. So instead of promoting growth, our tax code is pushing jobs overseas. And the agency charged with overseeing all of this—the IRS—has repeatedly violated the trust of the American taxpayer.

For corporations: the top rate would be cut in half, the alternative minimum tax would be eliminated, and all investments would be currently deductible rather than being capitalized and amortized. The US would switch to a territorial basis for income taxation, ending the US taxation of foreign earnings on a going forward basis, with a relatively modest tax on currently un-repatriated foreign earnings. The deduction for interest expense would be ended for nonfinancial businesses.

“Special interest deductions and credits” would be “generally” eliminated, e.g., the domestic production deduction. The only exception noted in the report is a tax credit for US-based R&D;
there is no mention of a slew of corporate tax credits that were extended as part of the year-end budget package in 2015. Some thoughts about the omnibus budget package, 1/11/16.

To level the playing field for US-made versus foreign-made products, it is proposed to institute “border adjustments” that exempt exports and tax imports.
What this means, according to a Tax Foundation analysis published on 7/5/16, is that profits on export sales would be exempted from US tax while “purchases from nonresidents” would be nondeductible.

Border adjustments are routinely used for value added taxes, which most major countries (other than the US) impose – and they work in that context because all of the amounts involved are based on sales value. We find it hard to understand why imported products should be fully nondeductible by US firms, which would amount to a “buy America” provision that could seriously disrupt global trade patterns. Perhaps our understanding of what’s involved is faulty, but this proposal needs to be much better explained than it has been to date.

For individuals, current tax brackets would be cut from seven to three, the top rate would be reduced from 39.6% to 33%, the standard deduction would be increased by a major amount, and “work would be rewarded” by “improving” the Earned Income Tax Credit. Most tax deductions would be eliminated except for charitable deductions and mortgage interest. The child and higher education tax credits would remain in effect. Tax preferences would continue re healthcare and retirement income. The alternative minimum tax and estate & gift taxes would be abolished.

In harmony with reductions in corporate taxes to reduce economic drag, individual taxpayers would be allowed to deduct one-half of investment income (dividends and capital gains). Also, there would be a top rate of 25% on the income of taxpayer-owned businesses taxed only at the owner level, which compares to a 20% corporate tax rate plus partial tax on investment income.

Most individuals could calculate their income tax liability on a 14-line form:
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The proposed tax changes are envisioned as revenue neutral on a dynamic scoring basis, meaning that they would not increase or reduce the deficit after factoring in positive economic effects. The previously cited analysis by the Tax Foundation concludes that this result would be achieved.

The plan would reduce federal revenue by $2.4 trillion over the first decade on a static basis. However, due to the larger economy and the broader tax base, the plan would reduce revenue by [only] $191 billion over the first decade.

Half of the projected revenue loss on a static basis (and well over 100% on a dynamic basis, a timing effect due to the current deduction of an increasing flow of investment) would result from reduced corporate tax collections.
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This tax plan is just a proposal, and a lot of doing would be required to get it enacted. But subject to the reservations noted above – eliminate as many special interest tax preferences as possible, especially the wind production tax credit, etc., and demonstrate the suitability of the “border adjustment” feature – this is a package that SAFE could enthusiastically support.

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