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Gripes About Excessive Regulations And Taxes Often Are Baseless

Gripes About Excessive Regulations And Taxes Often Are Baseless

By Dean Baker, Tribune News Service (TNS)

WASHINGTON — In the last couple of months we have seen the country whipped up into near hysteria over the virtually nonexistent threat of Ebola.

While the only people who contracted the disease in this country were those who treated a man who died of the disease, tens of millions of people became convinced they were in danger on airplanes and public buses and even routine visits to the supermarket.

Politicians have sought to exploit the same sort of fears with their rants about regulations and high taxes sinking the economy. These complaints have as much foundation in reality as the Ebola threat.

The regulation screed usually focuses on the number of pages in bills like the Affordable Care Act and the Dodd-Frank financial reform bill. While lengthy bills are unfortunate from the standpoint of the trees cut down for the paper, the length bears no relationship to the amount of regulation.

To take one example, the Volcker Rule, which prohibits banks with government insured deposits from engaging in risky speculation, ended up more than three times its original length as the industry carved out an array of exceptions. The greater length was associated with less regulation, not more.

Dodd-Frank was about curbing the sorts of abuses that gave us the financial crisis. Is the argument that we need corrupt banks to foster growth?

The screams over the ACA are equally misguided. The rules have little impact on large firms, the vast majority of whom already offered insurance that met ACA requirements. It might have been expected to affect mid-sized firms that did not previously offer insurance, but none of the complainers has yet presented any evidence that these mid-sized firms have been especially hard hit in the last few years.

The tax complaints require some serious amnesia. Tax rates were higher for most people in the 1990s when we saw the strongest growth in almost three decades. We then lowered taxes in 2001 and saw a weak recovery followed by the collapse in 2008.

The explanation for the continuing weakness is not a surprise to those of us who warned of the housing bubble before the crisis. The bubble had been driving the economy both directly through its impact on construction and indirectly through the impact that $8 trillion of housing bubble wealth had on consumption. When the bubble burst, the economy lost its driving force.

The building boom of the bubble years lead to enormous overbuilding of housing. When the bubble burst, construction didn’t just fall back to normal. It fell to the lowest levels in 50 years, costing the economy more than four percentage points of GDP, amounting to $700 billion annually in lost demand. The loss of housing wealth meant that consumption fell back to more normal levels.

While both housing and construction are up from their low-points in the recession, they are not going to return to bubble peaks, at least not without another bubble. This means that the economy continues to have a huge shortfall in demand. Cutting taxes and reducing regulation will not magically fill this gap in demand.

There are essentially two ways to increase demand. One is directly through more government spending. This is currently taboo in Washington since we are all supposed to hate budget deficits.

The other is by reducing the trade deficit. The way to reduce the trade deficit is to make U.S. goods more competitive with a lower-valued dollar. Talk of a lower dollar is also taboo in political circles.

In short, it is not difficult to find ways to boost the economy; the problem is that politics prevents them from being discussed. Instead we get silliness about taxes and regulation.

Dean Baker is a leading macroeconomist, co-founder of the Center for Economic Policy and Research (cepr.org) and earned a Ph.D. in economics from the University of Michigan in 1988. Readers may write him at CEPR, 1611 Connecticut Avenue, NW, Suite 400, Washington, DC 20009

Photo via Wikimedia Commons

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Campaigning Democrats Must Tell Voters: Obamacare Is Working

Campaigning Democrats Must Tell Voters: Obamacare Is Working

By Dean Baker, McClatchy-Tribune News Service

WASHINGTON — Most people don’t like to discuss their failures. The Democrats, however, seem unwilling to discuss their successes. This is the story of Obamacare.

For those who have forgotten, the Affordable Care Act was pushed through Congress almost entirely with Democratic votes. The Republicans objected, insisting the bill would destroy the health care system and the economy.

On the health care side, the Republicans issued dire warnings that the bill would lead to rationing of services, socialized medicine and death panels.

On the economics, they called the bill a massive job killer. It would deter businesses from hiring workers and the workers they did hire would be part time. Exploding health-care costs would both break the budget and the economy. The deficit would explode and insurance premiums would soar.

The widely predicted disaster did not happen.

In the data available so far, enrollment in the exchanges and Medicaid was higher than projected.

Over 8 million people enrolled in the exchanges through the first four months of 2014, far more than the 6 million that had been projected. Almost 5 million more benefited through the expansion of Medicaid. The percentage of people uninsured fell to the lowest level since 1997 in the first quarter of 2014 and is virtually certain to fall much further as enrollment continues to rise.

And costs have been far lower than expected. The Congressional Budget Office has repeatedly lowered its cost projections for the ACA and health care more generally. The savings for Medicare alone are projected to be well over $1 trillion in the next decade.

Private health-care costs have also risen at their slowest pace on record in the last five years, saving most families thousands of dollars on costs. All of the savings cannot be attributed to the ACA, but can anyone doubt that if cost growth had accelerated the Republicans would blame the ACA regardless of the actual cause?

The story of the ACA as a job killer also doesn’t hold water. No one can be happy about the current state of the labor market — we still have a long way to go to recover from the collapse of the housing bubble — but the weak economy can’t be blamed on the ACA.

In fact, job growth has accelerated to a pace of more than 2.5 million a year since the exchanges became operational in January. The faster job growth was almost certainly not caused by the ACA but again, if job growth had slowed the Republicans would be pointing their finger at the ACA.

The part-time story also turns out to be the exact opposite of what the Republicans predicted. The number of people who involuntarily work part time has fallen by more than 20 percent since the bill’s passage. However the number of people who chose to work part time is up.

In particular, the number of people with young children who now have the freedom to work part time because they don’t have to rely on their job for insurance is up by more than 11 percent since 2013.

Republicans used to tout family values, but apparently they no longer think it’s a good thing that parents get to spend time with their children, since it was Obamacare that made this possible.

By any reasonable measure the ACA has been far more successful than expected. However, most people don’t know the successes because the Democrats are too scared to talk about the ACA. They only hear the Republican horror stories, some of which are true and some of which are pure invention.

The reality is that the ACA is a massive program. As with any massive program there will be some bad stories, just as there are some bad stories with Social Security and Medicare.

We have the data to show these bad stories are the exception, but if the Democrats don’t start talking about the successes, most people will only hear the bad stories.

Dean Baker is a leading macroeconomist, co-founder of the Center for Economic Policy and Research (cepr.org) and earned a Ph.D. in economics from the University of Michigan in 1988. Readers may write him at CEPR, 1611 Connecticut Avenue, NW, Suite 400, Washington, DC 20009.

LeDawna’s Pics via Flickr

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GOP Using Whacky Strategies To Derail Affordable Health Care

GOP Using Whacky Strategies To Derail Affordable Health Care

By Dean Baker, McClatchy-Tribune News Service

WASHINGTON — Ever since its passage in 2010 the Republican Party has made it clear that it will do everything in its power to obstruct the implementation of the Affordable Care Act.

The Republican-controlled House of Representatives has voted 54 times to repeal the ACA. Among other ploys, they have:

-Made up fantasies about ACA created “death panels.”

-Come up with nonsense stories about the law creating a “part-time” nation and being a job-killer.

-Promoted stories about an explosion in insurance prices even as economists struggle to explain the sharp slowing of healthcare costs.

There is zero truth to most of the Republicans’ stories on the horrors of the ACA, but that has little relevance to their efforts to derail the program. They apparently believe that there is no more pressing problem facing the country than making sure that people do not get health insurance.

This is the backdrop that must be kept in mind when considering the Halbig v. Sebelius case that is currently moving through the court system. Most recently the anti-ACA forces got a 2-1 favorable ruling from a panel of the DC appellate court. The same day a Virginia panel ruled 3-0 against Halbig, arguing that the law can remain as is.

The issue in this case is fairly straightforward: there was a mistake in writing the law. The wording of the law says that subsidies in the exchanges are only available in the exchanges that were established by the states.

If interpreted literally, people enrolled in the federally run exchanges would not be eligible for subsidies. This would exclude people in the 34 states that chose not to establish their own exchanges. Only the people in the states that established exchanges would be allowed to receive subsidies.

There is zero doubt that this wording was a mistake. There is no record of any member of Congress, anyone connected with the administration or anyone involved in health care policy advocating that subsidies be restricted to people enrolled in the state exchanges.

Even the Congressional Budget Office assumed without question that the subsidies were intended to apply to people in the federal exchanges when it analyzed the budgetary impact.

In spite of efforts to be careful, there are sometimes mistakes in the writing of a law. Usually courts try to interpret a law in a way that makes sense even if is not literally what the law says.

If the rules on food stamps say beneficiaries can get $250,000 a month in benefits, instead of $250, judges usually would not insist that we give beneficiaries three quarters of a million dollars every month.

However the Republican efforts to sabotage the law have been joined by their allies on the courts, so normal legal rules do not apply. It is likely the case will eventually be decided by the Supreme Court and it is anyone’s guess how they will rule.

While the Republicans are obviously hoping to throw another monkey-wrench into the workings of the ACA, it is not clear this would really work to their advantage.

The people who would be losing subsidies are mostly in Republican-controlled states. They will be losing their subsidies because their governors and/or legislators didn’t want to cooperate with the ACA.

Taking away subsidies from these people will probably be about as popular as taking away Medicare from people in these states. But hey, the Republicans think it is important to keep people from getting insurance.

There are many problems with the ACA. There should be a Medicare-type public option available to people. The program could pay less to the drug companies, saving hundreds of billions of dollars.

But it will only be possible to address these and other issues when the Republicans accept that the ACA exists and stop trying to find whacky legal theories to undo it.

Dean Baker is a leading macroeconomist, co-founder of the Center for Economic Policy and Research (cepr.org) and earned a Ph.D. in economics from the University of Michigan in 1988. Readers may write him at CEPR, 1611 Connecticut Avenue, NW, Suite 400, Washington, DC 20009.

Photo: Speaker Boehner via Flickr

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