Trump’s $50 Billion Tax Hike

Plus, "market forces are clearly not working"

Trump’s $50 Billion Tax Hike

Hours before another round of trade talks with China concluded without resolution Friday, the Trump administration hiked tariffs on $200 billion worth of Chinese imports, raising the rate on a subset of goods from 10% to 25%. The administration has also threatened to impose tariffs on an additional $350 billion worth of Chinese imports in the near future.

In a series of tweets Friday morning, President Trump said he was in no rush to complete a trade deal and repeated his claim that tariffs boost the U.S. economy overall. “Tariffs will make our Country MUCH STRONGER, not weaker,” Trump wrote. “Just sit back and watch!”

The president also continued to portray the tariffs as a windfall paid by China to the U.S. government.

“These massive payments go directly to the Treasury of the U.S.,” the president wrote, adding that “Tariffs will bring in FAR MORE wealth to our Country than even a phenomenal deal of the traditional kind.”

That’s not how tariffs work

Not for the first time, critics of Trump’s trade strategy accused the president of fundamentally failing to understand how tariffs work. Saying that the “level of factually wrong info from the president this morning is high,” Heather Long of The Washington Post noted that “Americans are paying tariffs, not the Chinese” and that Trump’s tariff increases are effectively a new tax on American companies and consumers. “Pretty much every economist predicts tariffs will hurt the economy,” Long said.

Updating their analysis of the economic impact of Trump’s tariffs, researchers at the conservative Tax Foundation said that the “Trump administration's 25 percent tariff on $200 billion worth of Chinese goods amounts to a $50 billion tax increase.” Taken together, Trump’s tariffs imposed on Chinese goods so far amount to a total tax on U.S. companies and consumers of nearly $72 billion.

According to the Tax Foundation’s economic model, if left in place the tariffs will cause the economy to be 0.21% smaller in the long run than it would have been otherwise, while lowering overall wages by 0.13% and eliminating about 161,000 jobs. If the Trump administration imposes tariffs on virtually all Chinese goods, as the president has threatened to do, the effects would be greater, with long-run GDP 0.45% lower than it would have been otherwise, wages 0.29% lower and nearly 350,000 jobs lost.

Trump’s tariffs could also set off a round of retaliatory tariffs by China and other nations affected by the growing trade war, including Mexico, Canada and the European Union. The Tax Foundation said that if all tariffs announced so far were fully imposed, U.S. GDP would be reduced by 0.75% in the long run — “effectively offsetting almost one-half of the long-run impact of the Tax Cuts and Jobs Act.”

Farm sector woes

The Association of Equipment Manufacturers, which represents more than 1,000 producers of farm and construction equipment, said this week that Trump’s tariffs are already hurting the U.S. agricultural sector. “Right now, farmers, workers, business owners, and families alike—all across the nation—are being hurt by tariffs,” the AEM said in a statement Thursday. “These tariffs are taxes on Americans, and they have already caused enormous pain.”

The group warned that the tariffs could cost as many as 400,000 jobs in the U.S. farm economy over 10 years if they remain in place.

Although critics have complained about the size and execution of the program, the Trump administration has authorized $12 billion in aid to farmers hurt by Chinese tariffs and has recently signaled that it plans to do more. In his tweets Friday, Trump suggested that the funds collected from his higher tariffs could be used to buy goods from American farmers hurt by the trade war, which could then be sent to “poor & starving countries in the form of humanitarian assistance.”

But Chad Bown, a trade expert at the Peterson Institute for International Economics, said that providing new federal subsidies for farmers would be problematic. For starters, Bown said that the “new federal subsidies would be massively expensive” for the U.S. (The Washington Post’s Catherine Rampell sarcastically tweeted, “why sell soybeans to China when instead we could borrow from China to pay soybean farms to NOT sell soybeans to China.”)

In addition, flooding foreign markets with U.S. agricultural goods would be illegal under World Trade Organization regulations and “would devastate farmers in poor countries and hurt those in allies (Australia, Canada, ...),” potentially sparking a global trade war. The Peterson Institute’s Bown also noted that a lot of the farm goods sold to China can’t be used to feed humans — “Right now, the soybeans sold to China are used to feed livestock, not people.”

Private Insurers Pay Hospitals Much More Than Medicare Does: Study

Private health insurance plans nationwide, on average, paid hospitals about 2.4 times as much as Medicare did for the same services in the same settings in 2017, according to a new study released Thursday by the RAND Corp., a nonprofit research group.

The RAND study looked at $13 billion in payments to nearly 1,600 hospitals across 25 states from 2015 to 2017. It found wide variation in prices paid by employer-sponsored insurance plans, ranging from 1.5 times Medicare to more than four times as much. Prices paid by private health plans for outpatient services were nearly three times Medicare rates, while prices for inpatient services were about double Medicare rates, on average.

Overall, the researchers calculated that, if the private plans in the study had paid the same rates as Medicare, they would have spent about $7.7 billion less from 2015 to 2017, a savings of nearly 60%.

Why it matters: The study reportedly marks the first time pricing information on a large group of individual hospitals has been made public. As such, it sheds new light on the murky world of health care payments and builds on prior research showing that hospital prices are the main driver of U.S. health care inflation. Hospitals account for the largest share of health care spending, about 33%, and higher hospital prices for employer-provided plans ultimately result in employees paying more in premiums or out-of-pocket costs.

In addition, given the widening gap between what the federal government and private insurers pay hospitals, the study is also bound to be fodder in the ongoing debate over adopting a single-payer “Medicare for All” system. The study shows “market forces are clearly not working,” Richard Scheffler, a health economist at the University of California, Berkeley, told The New York Times.

The power of hospitals: Viewed another way, it’s also an indication of how much hospitals have at stake in the current debate over cutting health care costs and a potential transition to a single-payer system. It may also provide some indication of the leverage hospital systems now have in negotiating prices with insurers following a wave of consolidation.

In a statement, the American Hospital Association said the RAND study represented only a small portion of the 181 million Americans covered by employer-provided insurance and argued that Medicare rates should not be used as a benchmark. “In 2017, hospitals received payment of only 87 cents for every dollar spent caring for Medicare patients,” the group said. “Simply shifting to prices based on artificially low Medicare payment rates would strip vital resources from already strapped communities, seriously impeding access to care.”

But the RAND researchers essentially challenged portions of that statement. "If you ask hospitals, they will pretty commonly say that 'our prices are high because we lose money on Medicaid patients and barely break even on Medicare.' But if you kind of look at the data, that story doesn't hold up that well empirically," economist Christopher Whaley, one of the study's authors, told Modern Healthcare. "Sometimes hospitals that can charge higher prices because of market clout, reputation or must-have status do so."

Will this data make a difference? The study’s findings will be a shock to employers — and even to some hospitals. “The paper’s authors suggest that publishing this pricing data — which they collected from state databases, health plans and self-insured employers — could empower employers to demand lower prices, effectively correcting how the market functions,” Shefali Luthra of Kaiser Health News says. “But, they acknowledged, there’s no guarantee that would, in fact, yield better prices.” In many cases, employers and insurers don’t have the negotiating leverage to bring down prices.

The bottom line: “If we want to reduce health care spending,” Whaley told Kaiser Health News, “we have to do something about higher hospital prices.”

Chart of the Day: Pragmatism on a Public Option

A recent Morning Consult poll of 3,073 U.S. adults who say they support Medicare for All shows that they are just as likely to back a public option that would allow Americans to buy into Medicare or Medicaid without eliminating private health insurance. “The data suggests that, in spite of the fervor for expanding health coverage, a majority of Medicare for All supporters, like all Americans, are leaning into their pragmatism in response to the current political climate — one which has left many skeptical that Capitol Hill can jolt into action on an ambitious proposal like Medicare for All quickly enough to wrangle the soaring costs of health care,” Morning Consult said.

Your Prize for Making It Through the Week

They might be the two best words in all of sports: Game seven. So get ready for Sunday, when at least two — and possibly three — NBA playoff series get decided in a seventh game. Trail Blazers vs. Nuggets, 76ers vs. Raptors and Rockets vs. Warriors (if Houston can come back with a win tonight) should make for an exciting weekend for sports fans.

Speaking of comebacks, check out this story about an extinct bird species that came back from the dead.

Send your tips and feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please tell your friends they can sign up here to get their own copy of this newsletter.

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