Republicans are finally able to say they’ve done something they promised to do during the 2016 presidential election — move forward with the process of repealing Obamacare. The House approval of the party’s newly amended American Health Care Act is the first step to getting rid of the former president’s signature legislation. The fact that Republicans went back for a second go at the bill after their initial failure to get it approved earlier this spring says a lot about how important it is to a bigger agenda — tax reform.
As the non-partisan Congressional Budget Office has already noted, the initial version of the Republican bill would leave 24m more people without health insurance over the next decade (there’s no tally yet of the effects of the amended bill, which allows for states to opt out of even more kinds of healthcare coverage, but it’s a fair bet they would be similar).
That’s something to worry about, given that about a third of the Americans who cycle in and out of poverty each year do so because of a healthcare emergency. But the bill would also result in a $337bn reduction in the deficit over the next decade — which the Republicans desperately need to make the president’s proposed tax plan, basically a one page list of tax cuts, palatable to conservatives who’ve promised not to vote for any kind of tax reform that increases the deficit.
Why is the Trump administration so eager to do tax cuts? Because they believe that slashing the corporate tax rate and lowering taxes on rich individuals will lead to higher growth, although there’s no evidence that has been the case over the last several decades.
Still, this “trickle down” orthodoxy is popular not only among a number of the administration’s key policy advisers, but among members of the business community. Businessman and former presidential candidate Ross Perot summed up this thinking at the Milken conference in Los Angeles earlier this week, saying he believed that the repeal of Obamacare and the tax savings from it, along with tax cuts and deregulation, could take American growth to between 3 and 4 per cent. “Just let the American people keep our freedom,” make the tax code as competitive as possible, “and we’ll figure it out!” he said.
Investor Bill Gross, who was sitting on the same economic panel, summed up the mainstream economic view when he called this thinking “hokey”.
Whether or not the Republican strategy will pay political dividends remains to be seen. Republicans need real economic growth and job creation to hold their congressional majority in the 2018 midterms. It’s unclear that rolling back healthcare coverage for millions of Americans, or slashing corporate taxes, will do anything but create more economic volatility and bolster the asset markets.
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