Donald Trump Has a New Tax-Reform Idea, and It’s Very Bad

Donald Trump Has a New Tax-Reform Idea, and It’s Very Bad

Donald Trump Has a New Tax-Reform Idea, and It’s Very Bad

Millions would go without insurance to fund tax breaks for the wealthy.


As Republicans in Congress put finishing touches to their still-secret tax plan Wednesday, President Donald Trump had an idea, which he immediately tweeted out:

More accurately, Senator Rand Paul had an idea, which he conveyed in a CNN interview that Trump was apparently watching, since he sent those tweets not long after the segment concluded. Paul told the host that “we should repeal the individual mandate…. if we repeal it, it allows us to give the middle class more of a tax cut.” He added that “repealing the individual mandate is something in the Senate that is gaining some momentum.”

If that’s true, it would be a terrible outcome for millions of Americans. The CBO has studied what would happen if the Affordable Care Act’s mandate for individual insurance were repealed, and the result would be 15 million more uninsured Americans by 2026. And the money saved by the government would, in all likelihood, finance tax cuts for the very wealthy and big corporations.

Since the individual mandate exacts a tax penalty for failing to have health insurance, it encourages a lot of people seek out coverage through either Medicaid, taking a health plan offered by an employer, or buying it on the individual market. In December, the CBO estimated (based on a theoretical individual mandate repeal that would take effect in 2018) that by 2026 2 million fewer people would have employer-based coverage, 6 million fewer people would buy a non-group plan, and 7 million fewer people would have coverage through Medicaid.

The conservative response to these figures is typically that those 15 million people would simply be choosing not to have health insurance and would thus be liberated from the yoke of Big Government. That’s fine if your goal is very theoretical libertarian freedoms that encourage people to put themselves at risk of financial calamity if sudden illness hits. But it’s not good public policy.

CBO modeling of Americans’ responses to the individual mandate found that, aside from the financial motivations, the mandate encouraged people to get insurance because people tend to comply with laws and are much more averse to penalties as opposed to subsidies. Social norms also play a key role; CBO researchers noted that “decision[s] to obtain coverage [are] influenced by peers and the prevailing social norm that directs everyone to obtain health insurance.” In particular, the mandate reduces stigma around Medicaid and creates greater public awareness of the insurance subsidies available through the ACA. This tends to have the biggest effect on people with incomes below $50,000—they paid 58 percent of the individual-mandate tax penalties in 2015. Only 14 percent was paid by people with incomes over $100,000.

The mandate also reduces premiums for millions of other people. The CBO found that repeal “would result in higher premiums for coverage purchased through the nongroup market,” meaning it would affect even people who get insurance through their employer. Since the ACA’s provisions prohibiting discrimination based on preexisting conditions would remain, people would simply not seek health insurance—and not pay into the system—until they were sick and needed expensive care, which would put tremendous stress on health-insurance companies and force premiums to skyrocket.

That’s all to say the individual mandate is positive social engineering. It strongly encourages people to make a smart choice and insure themselves against calamity—particularly those who can least afford to withstand the costs of a medical crisis. It also lowers everyone’s costs by getting more people into the system. (A single-payer model would be a much more effective way to do this, but that’s for another day.)

This is what Trump and Paul propose to destroy in order to finance their tax bill. The government would indeed save $416 billion by 2026 by repealing the mandate, according to the CBO, which Paul and Trump both claimed would go towards tax benefits for the “middle class.” Since Republicans have in recent months embraced outlandish theories about how estate-tax repeal or slashing the corporate rate is really a middle-class benefit, Trump’s claim that savings from an individual-mandate repeal would go to the middle class should be treated with a high degree of skepticism. Outlines of the GOP legislation reveal a plan heavily weighted towards corporations and the very wealthy, and at this stage of the negotiations Republicans are desperately looking for revenue to pay for this massive giveaway, not additional middle-class tax cuts. They want people to forgo insurance so the very wealthy don’t have to pay as much every April.

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