Democrats Set to Strike a Blow to Obamacare

Plus, drugmakers are 'winning' in Washington

Pelosi Aims to Seal a Budget and Debt Ceiling Deal by the End of the Week

House Speaker Nancy Pelosi (D-CA) said Wednesday that she hopes to seal a deal by Friday evening to raise the debt ceiling and fix spending levels for the next two years. The goal is to send a bill to the Senate by next Thursday, just before the House leaves town for its six-week August break, giving the upper chamber a week to pass the legislation before it begins its own break.

After speaking with Treasury Secretary Steven Mnuchin, who is in France for a meeting of G7 finance ministers, Pelosi and Senate Minority Leader Chuck Schumer (D-NY) said they were optimistic that they were close to a deal. “We were on the phone with Mnuchin and we’re making progress,” Schumer said. “I’m very hopeful, ok? That’s all I can say.”

Asked about the delay in completing the deal, which reportedly revolves around how to account for $22 billion in funding for a Veterans Administration health care program, Pelosi said simply, “It’s all about money, right?”

House Set to Strike Down a Key Part of Obamacare — and Democrats Are On Board

The House is expected to deliver a blow to Obamacare Wednesday evening by voting to repeal the so-called Cadillac tax, the law’s yet-to-be-enacted levy on high-cost health insurance plans.

The provision, a 40% excise tax on the value of certain insurance plans, is a key cost-containment measure in Obamacare, and one of the main ways the law was supposed to pay for itself.

After being delayed twice, the tax is set to take effect in 2022, hitting insurance plans valued above $11,200 for individuals and $30,150 for families.

But the tax has faced stiff opposition from the start, with both labor groups and employers lined up against it. The measure being voted on Wednesday evening is co-sponsored by more than 80% of House members.

The House vote may mean the tax never gets enacted, dealing a disappointing loss to both deficit hawks and economists who contend that it would help curb the rise in health-care costs. Supporters also said it would reverse some of the favorable tax treatment of employer-provided health insurance, which does not get taxed like regular income does, thereby helping raise worker pay.

“[W]ith neither party showing much concern for the government’s rising tide of red ink, the House will move to permanently block the tax from taking effect — and balloon deficits by $168 billion over the next decade,” The New York Times’s Abby Goodnough says.

Budget watchers urge lawmakers to reconsider: “The Cadillac tax is one of the most important tools we have to control health care cost growth in the private sector,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement. “Repealing it will drive up health care costs while adding more than $1.2 trillion to the debt over the next two decades.”

Why Democrats are against the tax: “At first glance, it seems odd for House Democrats to pass a roughly $200 billion tax cut that removes an ACA plank. It is a tax cut without the revenue-raising offsets Democrats say they favor, and it is a strike against Obamacare while Democrats defend the law,” The Wall Street Journal’s Richard Rubin and Stephanie Armour write.

But lawmakers argue that workers stand to get hit by the tax, including union members who, because of the tax treatment afforded such plans, have negotiated for more generous benefits packages instead of pushing for higher wages. Rep. Joe Courtney (D-CT), the bill’s sponsor, argues that the tax has just driven companies to raise deductibles and says that repealing it won’t undermine Obamacare.

A Kaiser Family Foundation analysis published last week found that, unless employers change their benefit plans, the tax would affect 21% of employers that offer health coverage in 2022, or 31% when worker contributions to Flexible Spending Accounts are considered. By 2030, 37% of employers would be affected, or 46% including FSA contributions. “It is likely many such employers would modify their plans to avoid the tax — for example, offering lower-cost plans, raising deductibles or otherwise shifting costs to workers to avoid the threshold,” Kaiser’s Chris Lee wrote.

Liberal economists also contend that the tax doesn’t address the real driver of growing health-care costs. “To put it simply, the tax aims to reduce patients’ utilization of health care. But the glaring problem of U.S. health costs is not excess utilization; instead it is high and rising prices for health care,” Thea M. Lee, president of the Economic Policy Institute and a former leader of the A.F.L.-C.I.O., and economist Josh Bivens wrote, according to The New York Times. “Smart cost containment policy should address these prices, not seek to ratchet down how much care patients seek.”

What’s next: Sen. Chuck Grassley (R-IA), the chairman of the tax-writing Senate Finance Committee, is reportedly open to considering a repeal bill, and the Senate version of the legislation has 42 co-sponsors — 21 from each party, including Democratic presidential candidates Kamala Harris and Elizabeth Warren, the Journal says. And if Congress does repeal the Cadillac tax, a couple of other unpopular Obamacare taxes — on medical device makers and health insurers — might be next, the Journal’s Rubin and Armour write.

Chart of the Day

From Morning Consult:

Drugmakers Are ‘Winning in Washington,’ New Report Says

The pharmaceutical industry has been the focus of intense political criticism, with President Trump targeting drugmakers on Twitter and lawmakers taking aim at lowering prescription prices through legislation. Yet despite all the anger and rhetorical attacks drug companies face, the industry “is still winning in Washington,” STAT’s Nicholas Florko and Lev Facher write in an in-depth special report:

“In the past month alone, drug makers and the army of lobbyists they employ pressured a Republican senator not to push forward a bill that would have limited some of their intellectual property rights, according to lobbyists and industry representatives. They managed to water down another before it was added to a legislative package aimed at lowering health care costs. Lobbyists also convinced yet another GOP lawmaker — once bombastically opposed to the industry’s patent tactics — to publicly commit to softening his own legislation on the topic. ...

“Even off Capitol Hill, they found a way to block perhaps the Trump administration’s most substantial anti-industry accomplishment in the past two years: a rule that would have required drug companies to list their prices in television ads.

“To pick their way through the policy minefield, drug makers have successfully deployed dozens of lobbyists and devoted record-breaking sums to their federal advocacy efforts. But there is also a seemingly new strategy in play: industry CEOs have targeted their campaign donations this year on a pair of vulnerable Republican lawmakers — and then called on them not to upend the industry’s business model.”

Florko and Facher go on to explain that the industry has been helped in its quest to avoid having its business model torpedoed by both a splintered Congress and Trump administration infighting. But they detail how the industry has flexed its lobbying muscle — and used its money — to shield itself from legislative threats thus far. “Big Pharma has replaced Big Tobacco as the most powerful brute in the ranks of Washington power brokers,” Sen. Dick Durbin (D-IL) told STAT. (PhRMA, the drug industry’s largest lobbying group here, declined comment to STAT.)

The drug-pricing battles aren’t over yet — and industry representatives insist that they’re getting killed — but Florko and Facher provide a worthwhile look at the drugmakers’ aggressive maneuvering to fight the sweeping changes being discussed on Capitol Hill.

Read their full piece here.

Blue States Sue Trump Administration Over SALT Tax Rule

New York, New Jersey and Connecticut filed a lawsuit against the Trump administration Wednesday as part of their effort to overturn the federal cap on state and local tax deductions.

The 2017 tax law, which passed without any Democratic support in Congress, placed a $10,000 limit on the so-called SALT deduction. Some lawmakers from Democratic-leaning states have charged that the provision unfairly affects their residents, who tend to pay higher state and local taxes.

New Jersey’s Democratic governor, Phil Murphy, on Wednesday called the SALT cap “a complete and utter politicization of the tax code” that targeted blue-leaning states in order to cover some of the cost of the GOP tax cuts. Earlier this year, New York Gov. Andrew Cuomo charged that the “SALT policy is an economic civil war that helps red states at the expense of blue states.”

The suit, which names the IRS and Treasury Secretary Steven Mnuchin, claims that the SALT deduction limit had a specific political purpose: “The cap would ‘send a message’ to states with generous social welfare programs that their tax and spending policies would need to conform to those of the administration and the Republican Congress.”

The bottom line: Lawrence Zelenak, a tax law professor at Duke University School of Law, told Bloomberg News that the case is a “long-shot” that is unlikely to succeed.

Top Economist Defends a ‘More Relaxed Attitude on Public Debt’

Renowned macroeconomist Olivier Blanchard made waves in fiscal policy circles with his recent work that finds that government deficits and debt are less harmful than many experts have assumed, and in some cases may be appropriate and even necessary.

Blanchard, an emeritus professor at MIT and senior fellow at the Peterson Institute for International Economics who served as the chief economist at the International Monetary Fund from 2008 to 2015, has received some pushback on his analysis, and this week responded to some of his critics in a short piece written with his colleague Ángel Ubide.

The authors address two primary points:

Criticism: Governments are “naturally spendthrift” and shouldn’t be given an excuse to “misbehave.” Blanchard and Ubide say that it makes no sense to pretend debt is catastrophic when it is not. Instead, economists should analyze the limits and opportunities inherent in each country’s fiscal situation and provide advice accordingly. For example, the authors say that Japan should maintain its primary deficit in order to sustain domestic economic demand, while their advice to the U.S. is to gradually reduce its primary deficit as it moves toward a more optimal fiscal trajectory.

Criticism: Low interest rates may not last, so there’s no reason to deviate from the orthodox goals of smaller deficits and lower debt. The economists argue that long-term projections for interest rates have moved steadily downward for decades, and there is little reason to think rates will rise anytime soon. At the same time, there is always some chance that rates will rise, but since “nearly all policy decisions imply risks,” that is insufficient reason to start reducing debt – a policy choice that would generate its own risks, including the increased likelihood of higher unemployment and weaker economic growth.

In the end, the authors reiterate their view that the fiscal outlook has changed in ways that suggest that policymakers should increase their tolerance for public debt:

“We believe the trade-off between debt consolidation and activity has dramatically changed, and that taking all the risks into consideration, it should tilt fiscal policy in a more expansionary direction. In this new environment, being too fiscally conservative and not supporting demand is in fact a risky strategy. It does increase the risk of permanently depressing activity with potentially adverse political implications, as we have already seen in some countries. If we turn out to be wrong and interest rates sharply increase without a simultaneous increase in growth, then the strategy should, of course, be reassessed again, just as we argue for a reassessment today.”

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