Archives: 04/2017

The AHCA Does Not Materially Improve ObamaCare, and MacArthur Waivers Don’t Materially Improve the AHCA

The most remarkable thing about Rep. Tom MacArthur’s (R-NJ) amendment to the House leadership’s American Health Care Act is how little the conservative House Freedom Caucus got in exchange for supporting an ObamaCare-lite bill they had previously opposed.

The MacArthur amendment would allow states to apply for waivers that would:

  1. Exempt their individual and small-group insurance markets from ObamaCare’s “essential health benefits” coverage mandates as early as 2018;
  2. Allow insurers in those markets to consider the health status of previously uninsured applicants (if the state sets up some more direct form of subsidy for people with pre-existing conditions, either within or outside the commercial market) as early as 2019; and/or
  3. Allow states to loosen ObamaCare’s “community rating” price controls as they apply to age early as 2020.

These waivers may never happen. They certainly won’t happen in time to save consumers from the AHCA’s rising premiums, or to save Republicans from the inevitable backlash against the AHCA. But even if they did happen, they would increase the penalties ObamaCare imposes on insurers who offer quality coverage for the sick, and thereby accelerate ObamaCare’s race to the bottom.

The opt-out concept is not irredeemable. But the MacArthur amendment would require dramatic changes to make it even a modest step toward ObamaCare repeal.

The Secretary Can Block MacArthur Waivers

Supporters claim the amendment prevents the federal government from blocking or forcing states to alter waiver applications because it requires the Secretary of Health and Human Services to approve any and all waivers that provide the necessary information. But this is not quite true.

The amendment requires waiver applications must “demonstrate[]that the State has in place a program that carries out the purpose described” in the parts of AHCA that create subsidy programs for people with preexisting conditions. The Secretary could deny waiver applications on the basis that a state’s program does not adequately carry out the purpose of those parts of the AHCA, and refuse to approve the waiver until the state makes whatever changes the Secretary requires. The Secretary could also reject waivers on the basis that the information provided in the application is otherwise not truthful or accurate.

Donald Trump’s HHS Secretary Tom Price might not. But Secretary Bernie Sanders would.

MacArthur Waivers: Too Little, Too Late

Though the amendment allows states to waive the EHB mandates as early as January 1, 2018, the earliest states could do so would be 2019.

So even in states that are eager to provide premium relief, consumers would still feel the pinch of ObamaCare’s rising premiums, plus the 15-20 percent premium surcharge the AHCA would impose, in 2018—a year with mid-term elections, no less.

Antidumping 101: Everything You Need to Know about the Steel Industry’s Favorite Protectionist Bludgeon

Last week, invoking a seldom-used provision of a 1962 law, President Trump launched an investigation to determine whether steel imports present a threat to U.S. national security. An affirmative finding by the Commerce Department would permit the president to impose trade restrictions in response to the threat. But the real threat to U.S. national security is not an abundant supply of cheap imported steel. The real threat is a hyper-litigious steel industry intent on isolating the U.S. economy at enormous cost to downstream U.S. industries, exporters, and consumers. 

With the Trump administration full of steel executives and their lawyers one needn’t ponder too long to get the gist: U.S. trade policy is in the hands of an industry that accounts for 0.3 percent of U.S. GDP, has never had much interest in cultivating foreign demand for its products, has limited stakes in the global trading system, and is monothematic in its demand for aggressive trade law enforcement.

The wall of tariff’s protecting U.S. steel interests is already much higher than the walls erected to insulate virtually any other industry from foreign competition. Currently, there are 151 antidumping and countervailing duty (anti-subsidy) measures in force against most types of steel from most major exporters. And that severely impairs the competitiveness of America’s far more numerous, far more economically significant downstream, steel-using companies.

Under U.S. trade remedy laws, the authorities are prohibited by statute (on account of steel industry lobbying) from even considering the impact of prospective antidumping and countervailing duties on the operations of downstream companies. Absurd self-flagellation, right? The absurdity is magnified when you grasp that the duties paid by U.S. importers (i.e., the steel users), which are big enough deterrents to doing business with foreign suppliers in the first place, aren’t even the biggest concern. Under the seriously corrupted, capriciously-administered U.S. trade remedy laws, the importers don’t even know what their final duty liability is going to be until about one year (on average) after the product is imported.  The amount of duty paid upon entry of the product is an estimate of the duties that ultimately will be owed when Commerce gets around to “calculating” the actual incidence of dumping or subsidization next year.  Imagine getting a supplemental bill today for the groceries you purchased last April.  Would you even buy those groceries in the first place, without knowing the final price tag? Of course not. And that’s the intention of the retrospective nature of the U.S. trade remedy laws.

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A Climate of Science Deception

Former Energy Department Undersecretary Steven Koonin caused quite a stir yesterday in an interview with Mary Kissel of The Wall Street Journal when he stated Federal scientists purposefully misled the public about climate change. He recounted that the 2014 National Assessment of Climate Change Impacts in the United States emphasized a dramatic increase in Atlantic hurricane power beginning in 1980. However, this conveniently chosen segment of the historical record does not tell the entire story—the narrative that hurricanes are right now getting more frequent and intense due to climate change just does not stand up to scrutiny.

The offending figure is on Page 42 of the document (reproduced here). It is in Chapter 2 of the report, which is called “Our Changing Climate.”

These are graphs of something called the Power Dissipation Index (PDI) for Atlantic and Eastern North Pacific hurricanes. Note that the data begins in 1970 and ends in 2009. The text explains the beginning date by saying “there is considerable uncertainty in the record prior to the satellite era (early 1970s).”

This is true, but phenomenally disingenuous. Another hurricane scientist, conspicuously absent from the author list, is Chris Landsea of the National Hurricane Center, who developed the Center’s historical hurricane archive, known as HURDAT2. According to Landsea, the problem in the early record (which should be obvious) is that some storms will be missed, not the other way around! In his words, in a 2013 article in Monthly Weather Review, “Some storms were missed, and many intensities are too low in the pre-aircraft reconnaissance era (before 1944 in the western half of the basin) and in the pre-satellite era (before 1972 for the entire basin).

Therefore, prior to 1972, any history is likely to underestimate the PDI rather than overestimate it.

The Case for Pulling the U.S. Out of the Paris Climate Accord

EPA Secretary Scott Pruitt has argued that the Paris Agreement on Climate Change is a bad deal for the U.S. because it doesn’t bind China and India. But that implies it could be fixed by imposing the same ruinous terms on developing countries—which would in fact just spread the damage. The real reason for pulling of the Paris Accord is that it is a futile gesture based on empty and dishonest premises.

The first thing to note is that the same computer models that say global warming is a problem also say that Paris will not fix it. If one were to graph the standard warming projections over the next century with and without Paris, the two lines overlap almost exactly. Whatever greenhouse gas (GHG) concentration we would have reached in the year 2100 without Paris, we will reach it shortly thereafter with. For all its costs, the Paris treaty will have almost no effect on global warming, and by depleting global income it will make it harder for countries to adapt and innovate in response to whatever changes occur. Thus not only does Paris not solve the problem, it arguably makes it worse.

This, by the way, was equally true of the earlier Kyoto Protocol: all cost and no benefit. Under current technology and economic realities we have only two options: do nothing and adapt to whatever changes the climate will undergo over the next century, or take a lot of costly and futile actions today and adapt to whatever changes the climate will undergo over the next century. There has never been a third option involving costly actions today that stop the climate from changing.

Trump’s Tax Reform Proposals

The Trump administration has released proposals to guide the Republican push for major tax reform. The proposals are mainly supply side in nature, meaning cuts to marginal tax rates and other changes designed to increase economic growth. Major tax reforms are needed desperately, so kudos to Trump for taking charge and thinking boldly, particularly on business tax reforms. There are, however, a few misguided parts in his new plan.

Here are thoughts on the proposed business tax reforms:

  • Cutting the corporate tax rate from 35 percent to 15 percent would have a huge positive effect on the U.S. economy over time. It would encourage more capital investment and hiring, and it would reduce the incentive for corporations to avoid and evade taxes. Such a rate cut would cause the income tax base to expand automatically and substantially over time.
  • Cutting the tax rate on “pass-through” businesses to 15 percent, however, is a mistake. Policymakers should aim to equalize the overall rates on income earned by each type of business. So if the corporate rate is 15 percent, corporate income would face a combined tax rate of 15 percent plus the individual dividend rate of, say, 15 percent under tax reform, for a total of about 28 percent (0.15+0.85*0.15). Thus, the top rate on pass-through income should be cut to the same 28 percent.
  • Switching from a worldwide to a territorial system for corporations would encourage multinationals to move their headquarters to the United States. It would reverse the trend toward reincorporating abroad.
  • Ditching the misguided “border adjustment” provision the House proposed is a good move. Paul Ryan and Kevin Brady need to drop it so that tax reform can move ahead.

Here are thoughts on the proposed individual reforms:

  • Reducing the number of tax brackets from 7 to 3 (10, 25, and 35 percent) is a good reform. Cutting marginal rates reduces distortions, increases incentives to engage in productive activities, and reduces avoidance and evasion.
  • Repealing the special 3.8% investment tax is a good reform.
  • Eliminating itemized deductions—such as the state/local tax deduction—is a good reform. But we should also eliminate, or at least cap, the mortgage interest deduction.
  • Expanding child care benefits is a mistake. It would add complexity and distortion to what should be a private area of activity in the economy.
  • Ending the alternative minimum tax and the estate tax are both long overdue reforms.

What about the effects of tax reform on the deficit? Policymakers should put that concern aside for the corporate rate cut portion of Trump’s plan because the automatic expansion of the corporate tax base would mean that the government would lose little if any revenue over the long term. Exhibit A: Canada and Exhibit B: Britain.

However, policymakers should be concerned about the deficit effects of individual tax changes. Optimally, the budget impact of reduced individual tax rates should be offset by eliminating deductions and credits, spending cuts, and dynamic growth effects.

All in all, the Trump proposals push tax reform in a good direction. Trump, his advisors, and House leaders seem to understand the urgency of passing major tax reforms. But we need Republican senators to step up to the plate and think boldly as well. Republicans have an opportunity this year to pass reforms that would generate large and lasting benefits in terms income and opportunity for every American family.

Takeaways from Trump’s First 100 Days

For foreign policy wonks, Trump’s first hundred days have been a bit like a roller coaster ride. In just over three months, the new administration has veered from one crisis to another, from Syria to North Korea, China to Canada. Sudden Trumpian reversals on various foreign policy issues have been sharp enough to produce whiplash. Meanwhile, a dizzying barrage of strange foreign policy choices and statements makes it difficult to guess what’s coming next.

Nevertheless, amid all the confusion, there are a couple of big takeaways from these first 100 days that may help us better understand where Trump’s foreign policy approach is headed:

1. There really is no such thing as the Trump Doctrine

Trump’s reversals on issues like NATO have been hailed by some as bringing him closer to a “normal” presidency. Indeed, it is not always obvious from a President’s campaign what his broad foreign policy approach will end up being, or the obstacles and inertia that he will face in trying to alter American foreign policy. Yet even by these standards, Trump’s approach to the world remains unclear. A recent attempt by White House Chief of Staff Reince Preibus to outline what he sees as the Trump Doctrine merely adds to this confusion:

Trump is “reshaping our position in the world,” Priebus said, and “really establishing, I think, a Trump Doctrine in setting some certain lines of where we’re not going to allow people like [Syrian President Bashar al-Assad] to go, but at the same time making it clear that we’re not interested in long-term, you know, ground wars in the Middle East, but obviously focusing in on ISIS and what we’re doing in the Middle East to protect us here in the United States, working with China on ongoing issues with North Korea that are very real and are serious issues that takes cooperation within the region to handle appropriately.”

Another official “added that Trump’s status as ‘an incredible negotiator’ is also central to the doctrine.” As these statements suggest, Trump’s foreign policy so far has been highly reactive – responding to crises – but with no indication of an overarching strategy. 

2. Trump is escalating the War on Terror

Though the most visible indicator of this escalation was the use of a MOAB (Massive Ordnance Air Blast bomb), affectionately known as the ‘Mother of all Bombs,’ in Afghanistan, the new administration has chosen to escalate conflicts in a number of countries. More troops are being sent to the greater Middle East, in particular to join the fight against ISIS in Syria and Iraq, and U.S. Special Operations Forces are now engaging in ground actions against Al Qaeda in Yemen.

The administration has also loosened the rules of engagement in Yemen, Afghanistan, Somalia and elsewhere, and has increased the number of bombing raids and drone strikes. According to at least one watchdog group, Trump’s choice to give his generals a free hand in these conflicts has resulted in a massive increase in civilian casualties in these areas.

3. Brinksmanship may be back  

The new president appears to have a gift for raising tensions around the world. Though his administration did certify that Iran is complying with the Obama-era nuclear deal, they also announced a 90-day review of the deal. Various officials are using increasingly tough rhetoric towards Iran. The administration has also indicated that it intends to step up support for the GCC campaign in Yemen against the Houthis, a group often described as an Iranian proxy.

Trump is also taking an increasingly hard line towards North Korea, with Vice President Mike Pence warning the DPRK that “all options are on the table” in the case of further missile or nuclear tests. Tensions around the peninsula are high, with joint U.S.-South Korean drills, and a North Korean live fire exercise taking place this week. Whether the new administration’s statements are accurate indicators of their position, or merely heated rhetoric, such statements can easily raise the potential for conflict.

4. Advisors really matter

Political science research has shown that even experienced advisors cannot substitute for an inexperienced president. Unfortunately, Trump is anything but experienced on foreign policy. And while some of his appointments have been reassuringly experienced (such as James Mattis, now Secretary of Defense), others are either inexperienced (such as Jared Kushner) or have disturbing worldviews (i.e., Steve Bannon).

Infighting between advisors inside the administration has been notable during these first hundred days, and Trump’s policies seem to vary depending on which individuals he is listening to on any given day. If you are interested in the internal dynamics of the Trump administration, you can check out my recent article at War on the Rocks, which explores the civil war in the White House. The Cliffs Notes version? Advisors really matter, and it’s still unclear which faction – if any – will triumph in the struggle for influence between Trump’s teams of rivals.

5. Competence is key

Some of Trump’s foreign policy decisions appear to be trending closer to a traditionally hawkish Republican line, while some of the problems that he faces – such as Turkish-Kurdish tensions in Northern Syria, or the intractable conflict in Afghanistan – have been around for far longer than this administration. Yet it is worth noting that the new administration’s response to various crises has often been less than competent. Some of this is the result of inexperience and a lack of appointed officials in key positions at the Departments of State and Defense, but others are self-inflicted wounds. The administration’s immigration bans and TPP withdrawal are cases in point.

Other foreign policy incidents have been frankly bizarre. Trump’s first National Security Advisor, Mike Flynn, was forced to resign after only 25 days for misleading the administration on his lobbying and ties to Turkey and Russia. In an oval office meeting, Trump refused to shake Angela Merkel’s hand, later claiming that he didn’t hear the request. He phoned Turkish premier Recep Tayyip Erdogun to congratulate him on a questionable referendum victory that consolidated his dictatorial power. Moreover, the administration misplaced an aircraft carrier, announcing that the USS Carl Vinson was heading for the Korean Peninsula as a show of force, when in fact, it was near Australia, moving in the other direction.

Taken alone, these incidents are concerning. But when considered in the broader context of Trump’s tendency to bluster and saber-rattle, his support for escalating the war on terror, and his inability to articulate any coherent strategy for U.S. foreign policy, they raise even bigger questions. If Trump’s first hundred days are truly representative of his foreign policy approach, it’s going to be a bumpy four years.

Senator Cruz’s Border Bill Cannot Pay for the Wall

Senator Ted Cruz (R-TX) recently introduced the Ensuring Lawful Collection of Hidden Assets to Provide Order Act, also known as the “El Chapo Act,” to fund President Trump’s proposed border wall.  The media reports that Cruz’s bill is similar to one introduced by Representative Jim Sensenbrenner (R-WI) in February.  Cruz’s bill would apportion some money seized from drug lords like El Chapo to the construction of a border wall. 

There are several problems with this idea.

First, cash seizures cannot pay for the border wall.  The inspector general at the Department of Justice found that the DEA, ATF, and FBI only seized assets and cash worth $5.36 billion from 2007 through 2016.  A raid in Mexico in 2007 yielded $205 million in seized cash.  The agencies spent those funds, gave them to local or state law enforcement, or returned some of them to victims.  As my colleague David Bier and I wrote, building and maintaining a border wall over the next decade will cost about $44 to $99 billion.  If 100 percent of the seized funds from 2007 to 2016 went toward border wall construction, then 126 to 310 miles of it would have been built by now along the roughly 2000 mile long border.  That amounts to an average of 14 to 35 miles a year. 

Even if the federal government seized all $14 billion from El Chapo (it won’t), that would at most cover a third of the decade-long cost of the border wall and likely no more than a seventh.         

Second, just because money seized from Mexican drug dealers is funneled to paying for the wall doesn’t mean that Mexico would be paying for the wall.  That money was going to be seized anyway by the federal government and mainly spent by U.S. law enforcement agencies.  By redirecting the flow toward the construction of a border wall, this bill will make those U.S. law enforcement agencies pay for it in foregone revenue.  A redirection of revenue that was already coming in cannot be a new stream of revenue to pay for a border wall.  At best, it is an accounting trick to make it look like Mexico is paying for the wall.  I am not endorsing the government’s seizure of drug money, the War on Drugs, or even the current budgets of other U.S. law enforcement agencies – I am merely pointing out that other U.S. agencies will be foregoing these funds.  I doubt that Congress or the Trump administration will let their revenues shrink, so taxpayers will likely plug any spending gap caused by the redirection of funds toward a border wall.

Third, much of the disagreement over the cost of the border wall concerns the cost of eminent domain.  Most of the land that the government will need to seize through eminent domain to build the border wall is in Texas where most of the land along the border is privately owned – which is one reason why 61 percent of Texas adults oppose the border wall.   

Fourth, the stock of illegal immigrants is at its lowest point in a decade and annual cross-border apprehensions are at or near a 17-year low.  Even if a border wall was a cheap and effective way to stop illegal immigration, the sustained collapse in cross-border apprehensions makes it a silly expenditure.  It’s like a perfectly healthy person putting their formerly broken-but-now-healed arm in a cast 9 years after the injury healed.

In essence, Cruz’s bill would redirect seized drug money in order to fund further seizures of private property along the border and to pay for an expensive wall that is unnecessary.