Ever since Franklin Roosevelt, American Presidents have been scrutinised on their performance in the first 100 days. The measurement is often unreasonable – Roosevelt had a clear plan to hit the ground running, rooted in the belief that the Hoover administration’s inaction had deepened the Great Depression. Just over three months is often simply not long enough for a new team to leave their mark with meaningful and well considered change. A review after 200 days, on the other hand, allows more time to consider the achievements of a new administration. That period passed last week for the Trump administration.
Much of the talk in recent months has focussed on the day to day internal squabbles of the administration, and the associated leaks. Whilst some of the leaks give genuinely newsworthy information (for example, it is useful to know the President’s thought process before pulling out of the Paris Accord), many are little more than tittle tattle distracting focus from the serious issues of the day. The other main talking point has been the Russia investigation. In spite of the complexity of the investigation, the principles on this are actually fairly simple. Without question, Attorney General Jeff Sessions was obliged to recuse himself of overseeing a review of a campaign he was a major part of, as Department of Justice protocol obliged him to. As for the investigation itself, it will be a slow burner – former FBI Director Robert Mueller will go where the evidence takes him, and it will take the time that is required to investigate fully. As a result, the investigation needs to run its course and there is little point in speculating further – an attitude which President Trump would also be advised to take.
Instead of those two major talking points, we will focus here on two of the main legislative issues for the administration –proposed repeal of Obamacare and tax reform.
Health Care Problems
The Republicans have promised to repeal Obamacare ever since its inception; President Trump even promised on the campaign trail that repeal and replace would be “easy”. The President ought to have studied his history a little closer – health care has been a notorious quagmire for sundry presidents since Theodore Roosevelt. With control of the executive and both legislative bodies, the Republicans expected that they would be able to swiftly axe Obamacare; in reality, the opposite has happened.
Part of the problem is that the Republicans never put in the hard work required whilst in opposition. Railing against Obamacare is the easy part; many Democrats have reservations about the individual mandate, and the fact that insurance premiums have risen for many. What is more difficult is to come up with a workable proposal which deals with some of the problems of Obamacare and creates a more free market orientated solution (for better or worse, this is in the DNA of Republicans), whilst not resulting in tens of millions of Americans losing health care. Recent Republican controlled Congresses made no effort to come up with a practical solution; instead, they passed legislation to repeal Obamacare, knowing that President Obama would veto it and they would never have to account for the practical consequences.
At the heart of the dilemma are two conflicting principles. Most Americans, fearful of an overly controlling government, want health care policy to give as much power to individuals as possible. On the other hand, there is a general consensus that policy should support giving as many Americans as possible access to health care – even before Obamacare, this principle could be seen by tax breaks for insurance premia, and the policies of Medicare/Medicaid. In other words, health care should be governed by the free market, but it is such a crucial area that government has to have some involvement.
These two conflicting principles mean that health care traditions are often a trade-off. For example, the individual mandate is seen on the right as an unjust invasion of human rights. However, many observers (including the non-partisan CBO) see it as integral in ensuring that many Americans get healthcare coverage. Without it the risk is that young, healthy people skip insurance altogether, leaving a market disproportionately consisting of older and/or more infirm people. Without a varied range of insured people, the price of coverage would inevitably rise.
The Republicans did nothing to grapple with these basic trade-offs – instead adopting a fairly scattergun approach to bills. Whilst a significant minority of the public were against Obamacare, the Republicans proposals were hated, not least after the CBO predicted it would lead to between 20 and 25 Americans (varying according to the exact proposal) losing health care coverage. Instead of leading from the front, the President offered veiled threats to those who may vote against it, which were understandably viewed as provocative.
Having lost votes in the Senate on the matter, the Republican proposals are now in tatters as they have been unable to implement their signature proposal. They remain in control of Congress until at least the Mid Terms (November 2018), so they could resuscitate the plans. To do so, would though, mean that they would have to grapple with issues as to how to square the circle; something they have not been unable to do until now.
There is plenty of blame to go around here. House Speaker Paul Ryan, and his Senate counterpart Mitch McConnell, have taken key discussions in private rather than having an open, transparent debate, and actively trying to promote their plans to the wider population. President Trump has done almost no advocacy, even giving mixed messages. For example, he held a gathering in the Rose Garden to celebrate the passing of the original proposal in the House, only to describe it as “mean” just weeks later. All three players will need to up their game, if this issue is not to became an albatross around Republican’s necks.
One of the few areas where the Trump administration might be able to claim that they are making progress is in tax reform.
Back in April, Treasury Secretary Steven Mnuchin presented a framework plan for the tax reform, whereby personal tax rates would be reduced to three bands (from the current seven); reduce corporation tax from 35% to 15%; introduce a one-time tax on the billions of Dollars held by American companies offshore; as well as abolish most deductions.
Whilst the plan was vague in certain points, few argue that there are some good ideas here. The standard US corporate tax rate of 35% is one of the highest in the developed world, and the overall system one of the most complicated. The plan will, of course, require consent from Congress and, right now, discussions are ongoing there as to its eventual shape. Whilst few formal announcements have been made, well positioned sources, like the Wall Street Journal, report that the plan is progressing behind the scene, and a positive outcome in autumn is possible. Reports suggest though that a 15% corporate tax rate is unlikely.
The main questions will be whether the plan will be broadly self-financing and how any gains will be split between medium and high earners. The two are in some way linked. In theory a lot of the tax cuts could be financed by abolishing deductions. However, some deductions are used disproportionately by lower and middle income earners. Democrats will therefore make hay if the abolishment of deductions are used to justify tax cuts to high earners and corporates. The alternative, though, is for unfinanced tax cuts, which would be anathema to Republican budget hawks and, even if it did get through, only temporary in nature under the Constitution. The Trump administration will need to square this circle; and it can’t go quickly enough. With the fiasco of the health care policy and few legislative achievements to date, the administration desperately need positive news to stop the bleeding.