The most important legislative priorities of the Trump administration--tax and health insurance reform--will be enacted within a matter of months. Both of these measures will greatly impact the working class whites who propelled Trump to the White House--either for better or for worse.
Preliminary assessments of the proposed tax reform indicate that taxes for the middle class will drop about a couple hundred dollars. One percenters can look forward to many thousands in tax savings. This isn't exactly what folks in small town America were hoping for. To make up for the loss of income tax revenues from these cuts, the President may endorse a border adjustment tax (basically, a tariff on imports that would likely increase the prices of the inexpensive food and goods that low and moderate income Americans rely on). To many, this might feel like another kick in the teeth.
Health insurance reform is turning out to be a very tough nut to crack. President Trump has said he wants to preserve the protections that many low and moderate income Americans count on--guaranteed acceptance, coverage against pre-existing medical conditions, and subsidies for those unable to pay full freight. But these conditions are very expensive. How will the President cover the costs? There seems to be little consideration of progressive taxation of the wealthy or increasing the federal debt. Yet there's no free lunch. One possible "solution," so to speak, would be to offer low cost policies with skimpy coverage--prior medical conditions would be covered but total coverage might go only up to $25,000 or $50,000 a year. This would be expedient, but would effectively deprive people of coverage when they needed it the most.
On top of this, the President's desire to turn Medicaid into a program of block grants for the states has significant potential to reduce coverage for the low income. Many of these people voted for him. Where will they go for care without health insurance? Medicaid covers around 74 million Americans--almost 1 in 4. Cuts to this program could mean many millions of people mad at the President.
President Trump's problems are exacerbated by his proposal to increase military spending by $54 billion. Where will this money come from? The Republicans in Congress won't agree to more deficit spending. So the President can either raise taxes, or piss off many millions of voters by cutting other federal programs.
Donald Trump is President at a time when stark choices are necessary. He was elected as an insurgent. But he's stacked his cabinet with establishment Republican types, people who have no demonstrated concern or sympathy for his core constituents. The Republicans who control Congress gave him scant and faint-hearted support during his campaign. But today they stack the legislative agenda with bills that would make the rich richer and offer the working class hardly more than a crumb or two--and stale ones at that.
If the President really wants to help his constituents, he'll have to be a traitor to his class. He'll have to offer substantial improvements in life to the working class, and sorry to say, but wealthier people will have to pay for them. America got itself into its current mess by believing that somehow everyone can get more of everything all the time at no cost to anyone else. The last two large nations to subscribe to this notion--the Soviet Union and Communist China--had to abandon their illusions and now struggle with the consequences of the their wishful thinking.
Franklin Delano Roosevelt, the greatest President of the Twentieth Century, was labelled a traitor to his class. And he was. He endorsed legislation like Social Security and a strengthening of protections for workers and labor unions that uplifted many millions of ordinary Americans out of poverty and into the middle class. The cost was born to a large degree by a sharp increase in federal income taxes paid by the well-to-do. The rich grumbled and plotted against him. But he ushered in the prosperity of the 1950's and 1960's, now viewed as a golden age in America. America's perceived decline from those days also correspond with ever increasing inequality of wealth and income. If Donald Trump really wants to make America great again, he'll have to make it great for the working class. That isn't the direction he's been going in since his inauguration. The next few months, when his most consequential legislative initiatives will be enacted, will likely make him both a traitor--either to his core constituents or to his class--and a hero--to the wealthy, many of whom didn't support him but are glad to free-ride on his policies and program, or to the working class that vaulted him into office. The choice is his.
Showing posts with label Medicaid. Show all posts
Showing posts with label Medicaid. Show all posts
Tuesday, February 28, 2017
Tuesday, July 30, 2013
From the Fed: Short Term Gain, Long Term Pain
As the Fed's ultra low interest rate policies grind on for a fifth year, we can see ever more clearly that there is no such thing as a free lunch, even when it comes to central bank policies. The benefits of the Fed's low interest rate policies were easy to see at first: cheap credit, stimulus to housing, a boost to the economy. The costs didn't seem so great.
However, by persistently favoring borrowers and heaping mulch on income-seeking investors for five years, the long term costs of the Fed's policies are emerging--and painfully so. Detroit is in bankruptcy, and other cities teeter on the brink. Corporate defined benefit pension plans are becoming less common than the ivory-billed woodpecker. It's no wonder why. Pension funds rely on safe long term investments that provide solid returns. U.S. Treasury notes and bonds used to be crucially important components of pension fund portfolios. AAA-rated corporates, which would have to pay slightly better than Treasuries, also were favored investments. But pension plan returns came under stress as the returns on these low-risk investments nosedived. And pension fund deficiencies, calculated on the basis of long term returns, balloon when returns fall. Plan sponsors have to increase contributions--sometimes enormously--to keep the plans solvent. Corporate executives intent on making the big score with their stock options see little upside to signing off on these contributions. Shrinking cities like Detroit have little ability to make them. Something has to give, and pensioners seem to be doing a lot of giving these days. Detroit's problems go well beyond low long term interest rates. But the city really didn't need the Fed to push it closer to the abyss.
Neither did a lot of corporate employees whose retirements are less secure after losing their defined benefit pensions or seeing the plans capped. Most people aren't skilled at managing their finances. When fewer have defined benefit pensions, more are likely to end up with just Social Security, even if they start retirement with good-sized 401(k) account balances. When people have fewer or no private resources, cutting benefits from the government becomes political anathema.
Low interest rates hurt older folks in other ways. As income from their interest-bearing investments dries up, fear drives them to become serial economizers. That's a hard habit to break even after rates rise again (assuming they do). Consumption may be impaired for a long time. In addition, long term care insurance is getting scarce and expensive. While poorly conceived estimates by insurers of the cost of care have much to do with that, the inability of insurers to obtain decent, safe returns on investments has added to the problem. Fewer people are able to afford such policies. So we have a ticking demographic time bomb, with lots of uninsured elderly likely to need Medicaid in a decade or two or three instead of being able to rely on their own resources. Low interest rates are beneficial to the federal government's borrowing costs right now, keeping the budget deficit lower. But positioning a lot of people to need Medicaid in decades to come means we'll have pressure toward an increased deficit in the long term.
The Fed is taking a page from corporate America: focus on short term returns at the risk of increasing long term costs. The great corporate success stories don't follow this plot line. But there's not much chance the narrative will change. The Fed's easy money merry-go-round keeps the stock market buoyant. With mid-term Congressional elections coming up next year, the Obama administration needs to keep the market feeling chipper. Ultimately, everything in Washington happens for political reasons. And politics dictates that Janet Yellen, a monetary dove, will be Obama's nominee as the next Chairman of the Fed.
However, by persistently favoring borrowers and heaping mulch on income-seeking investors for five years, the long term costs of the Fed's policies are emerging--and painfully so. Detroit is in bankruptcy, and other cities teeter on the brink. Corporate defined benefit pension plans are becoming less common than the ivory-billed woodpecker. It's no wonder why. Pension funds rely on safe long term investments that provide solid returns. U.S. Treasury notes and bonds used to be crucially important components of pension fund portfolios. AAA-rated corporates, which would have to pay slightly better than Treasuries, also were favored investments. But pension plan returns came under stress as the returns on these low-risk investments nosedived. And pension fund deficiencies, calculated on the basis of long term returns, balloon when returns fall. Plan sponsors have to increase contributions--sometimes enormously--to keep the plans solvent. Corporate executives intent on making the big score with their stock options see little upside to signing off on these contributions. Shrinking cities like Detroit have little ability to make them. Something has to give, and pensioners seem to be doing a lot of giving these days. Detroit's problems go well beyond low long term interest rates. But the city really didn't need the Fed to push it closer to the abyss.
Neither did a lot of corporate employees whose retirements are less secure after losing their defined benefit pensions or seeing the plans capped. Most people aren't skilled at managing their finances. When fewer have defined benefit pensions, more are likely to end up with just Social Security, even if they start retirement with good-sized 401(k) account balances. When people have fewer or no private resources, cutting benefits from the government becomes political anathema.
Low interest rates hurt older folks in other ways. As income from their interest-bearing investments dries up, fear drives them to become serial economizers. That's a hard habit to break even after rates rise again (assuming they do). Consumption may be impaired for a long time. In addition, long term care insurance is getting scarce and expensive. While poorly conceived estimates by insurers of the cost of care have much to do with that, the inability of insurers to obtain decent, safe returns on investments has added to the problem. Fewer people are able to afford such policies. So we have a ticking demographic time bomb, with lots of uninsured elderly likely to need Medicaid in a decade or two or three instead of being able to rely on their own resources. Low interest rates are beneficial to the federal government's borrowing costs right now, keeping the budget deficit lower. But positioning a lot of people to need Medicaid in decades to come means we'll have pressure toward an increased deficit in the long term.
The Fed is taking a page from corporate America: focus on short term returns at the risk of increasing long term costs. The great corporate success stories don't follow this plot line. But there's not much chance the narrative will change. The Fed's easy money merry-go-round keeps the stock market buoyant. With mid-term Congressional elections coming up next year, the Obama administration needs to keep the market feeling chipper. Ultimately, everything in Washington happens for political reasons. And politics dictates that Janet Yellen, a monetary dove, will be Obama's nominee as the next Chairman of the Fed.
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