Economy Cools as Trade War Bites, Tax Cuts Fizzle

Economy Cools as Trade War Bites, Tax Cuts Fizzle

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Plus, Sanders on paying for Medicare for All
Wednesday, October 30, 2019

Economy Cools as Trade War Bites, Tax Cuts Fizzle

The economy grew at a 1.9% annual pace in the third quarter, according to preliminary data released by the Commerce Department Wednesday. Although the topline number was better than expected, the report confirms that growth is slowing, down slightly from a 2% annual rate in the second quarter.

Growth was driven largely by consumer spending, which increased at a 2.9% rate, exceeding expectations. Business spending, however, saw its biggest drop since 2015, with nonresidential investment falling at a 3% annual rate, following a 1% drop in the second quarter.

“It’s the same theme: Strong consumer, weak business,” Michelle Girard, chief U.S. economist at NatWest Markets, told Bloomberg News.

Tax cuts aren’t having much of an effect: The drop in business investment once again raises questions about the 2017 tax cuts. Washington Post columnist Catherine Rampell pointed out that business investment was a key selling point for the GOP tax cuts: “Mechanism by which the GOP tax cut was supposed to supercharge growth was by supercharging business investment,” she wrote Wednesday. “Business investment instead *fell* last quarter, by 3% annualized.”

Ian Shepherdson of Pantheon Macroeconomics emphasized the point, saying the “capital spending numbers were awful and a bit worse than we expected, with structures investment -- oil rigs, offices, factories, commercial premises -- plunging 15.3 percent.”

To be sure, there were many other factors in play, with uncertainty around the Trump administration’s trade war likely playing a big role in suppressing overall investment. But that suggests that one part of Trump economic policy — the trade war — is swamping whatever positive effects might have been generated by another key part of his agenda, tax cuts.

Ernie Tedeschi, a managing director at Evercore ISI who served as an economist at the Treasury Department, said that it looks like the “2017 tax cut didn’t juice investment enough to withstand the trade war.”

Defeat is never an option: President Trump seemed unfazed by the lackluster GDP report, tweeting Wednesday morning about “The Greatest Economy in American History!”

Numerous critics pointed out the fallacy of that claim.

Others noted that Trump had said the economy was “in deep trouble” when GDP growth was at the same level in 2012 during the Obama administration. Rampell dismissed Trump’s claim, tweeting, “You spent $2T in deficit-financed tax cuts to get us to exactly the rate of growth we had before you were president.”

Boosting the case for tax hikes: The failure of the Trump tax cuts to produce the promised increase in investment and wages could strengthen the case being made by Democratic presidential candidates that Republican fiscal policies have failed and need to be replaced with more a more progressive set of policies, says Greg Ip of The Wall Street Journal.

Multiple quarters of lackluster economic growth “make it easier for Democrats to claim Mr. Trump’s policies have mostly benefited corporations and the rich rather than ordinary workers,” Ip writes. “Massachusetts Sen. Elizabeth Warren has made this case most forcefully, promising to hit big companies with a new 7% corporate tax and the rich with a 2% to 3% tax on wealth over $50 million.”

Ongoing weak economic growth, combined with growing public support for raising taxes on the wealthy, could strengthen the argument that Trump’s tax cuts, at a minimum, need to be undone. “If next year’s election turns on taxes, it’s a fight Democrats are eager for,” Ip says.

Sanders Insists He’ll Pay for ‘Every Nickel’ of Medicare for All — but Won’t Say How Right Now

In a wide-ranging interview with CNBC’s John Harwood published Tuesday, Bernie Sanders said he doesn’t think he needs to lay out a detailed plan to finance his Medicare for All proposal right now, but he insisted he will pay for “every nickel” of it and that an “overwhelming majority” of Americans would wind up saving money.

Trying to pay for Medicare for All: “You’ve identified revenue sources for about half of it. Do you think it’s important to identify revenue sources for the other half?” Harwood asked the Vermont senator. “Or do you believe, as those who subscribe to modern monetary theory believe, that we’ve been a little bit too constrained by concerns about the deficit?”

Sanders responded that he’s “trying to pay for the damn thing,” seemingly dismissing the idea of running up the deficit. But he said his current emphasis is on getting Americans to understand just how expensive the current system is compared to those in other countries.

“The fight right now is to get the American people to understand that we’re spending twice as much per capita, that of course, we can pay for it. We’re paying it now in a very reactionary, regressive way. I want to pay for it in a progressive way,” Sanders said. “You’re asking me to come up with an exact detailed plan of how every American — how much you’re going to pay more in taxes, how much I’m going to pay. I don’t think I have to do that right now.”

When Sanders introduced his Medicare for All bill earlier this year, he also released a list of what he described as “options” for paying for the plan and called for “vigorous debate” about the best way to finance the legislation. The options Sanders presented — including a wealth tax and higher income taxes on people making above $10 million a year, a 4% tax on families earning over $29,000 and a 7.5% tax on employers — would only cover about half the cost of his health plan, as Harwood said. And Sanders hasn’t made clear which options he would choose and how he would raise the trillions more he’d likely need to fully fund a transition to a government-run system.

On the budget deficit: Harwood also asked Sanders about how the deficit might or might not grow if he becomes president. “Under Trump, what we have seen is a huge increase in the deficit. I think I will do a lot better than Trump,” Sanders responded. “Every major proposal that we have brought forth — whether it’s Medicare for All, dealing with climate change, transforming our energy system, making public colleges and universities tuition-free and eliminating all student debt in America — that’s all paid for.”

Why it matters: Rival Democratic candidates (and the media) have been pressing Elizabeth Warren for more details on how she’d fund Medicare for All. Some have also offered faint praise for Sanders’s honesty in acknowledging that middle-class taxes will have to go up. In that context, the Vermont senator’s comments will open him up to fresh criticism just as Warren prepares to issue a more detailed financing plan.

“Sanders wants to sell Americans on something that covers everyone for everything but not explain how that is possible,” The Washington Post’s Jennifer Rubin writes. “That, frankly, is no different that President Trump promising in 2016 that he had a fabulous health-care plan to replace the Affordable Care Act but was not going to share what it was.”

Why it matters, part 2: It’s also worth noting that, given the opportunity to openly embrace Modern Monetary Theory, a school of economic thought challenging some conventional notions about deficits and constraints to government spending, Sanders steered clear, as he has in the past, and insisted he’d pay for all his major policy proposals.

Read the full interview at CNBC.

Survey of the Day: 60% of Americans Favor Dem Approaches to Health Care

Americans are evenly divided when asked to pick their favorite health-care reform approach from three options resembling leading proposals, according to a new survey from The New York Times, the Commonwealth Fund and the Harvard T.H. Chan School of Public Health.

The survey asked 2,005 adults to pick their favorite among three choices: Medicare for All, a more incremental plan like those supported by some Democratic presidential candidates or a Republican plan to reduce the federal role in health care and give more autonomy to states.

Each of the options got about 30% support.

“That means that most Americans support Democratic approaches to changing the health care system,” writes Times reporter Margot Sanger-Katz. “But that group is about evenly split between an expansive set of changes under the Medicare for all proposal favored by Senators Elizabeth Warren and Bernie Sanders, and a less sweeping overhaul that would simply move the country closer to universal coverage, such as those from Joe Biden and Pete Buttigieg.”

Among the poll’s other findings:

  • Nearly 80% of respondents said that Americans should have a right to health care regardless of their ability to pay.
  • Large majorities said the government should require insurers to cover Americans with pre-existing medical conditions. “Protection for people with pre-existing conditions is the status quo, and it can’t be taken away except at a huge political cost,” David Blumenthal, the president of the Commonwealth Fund, told the Times.
  • 53% of respondents said they would pay more in taxes so that everyone could have health care, though only 23% of those who preferred the Republican plan said they would do so.

Read more at The New York Times.

Number of Uninsured Children Up 400,000 Since Trump Took Office

The number of uninsured children in the U.S. increased by more than 400,000 between 2016 and 2018, according to a new report from the Georgetown University Health Policy Institute.

Some key findings from the report:

  • The number of uninsured children rose above 4 million by the end of 2018.
  • Insurance coverage losses are concentrated in 15 states: Alabama, Arizona, Florida, Georgia, Idaho, Illinois, Indiana, Missouri, Montana, North Carolina, Ohio, Tennessee, Texas, Utah and West Virginia.
  • States that have not expanded Medicaid, as allowed by the Affordable Care Act, have seen much larger increases in uninsured rates. Children in non-expansion states are nearly twice as likely to be uninsured compared to states that have expanded Medicaid.
  • White and Latino children saw the largest increases in the uninsured rate.
  • Households with low to moderate income — $29,000 to $53,000 per year for a family of three — were the hardest hit.

The report’s authors said it’s no coincidence that the increases in the number of uninsured children have occurred since President Trump took office in 2017.

“This serious erosion of child health coverage is likely due in large part to the Trump Administration’s actions that have made health coverage harder to access and have deterred families from enrolling their eligible children in Medicaid and CHIP,” they wrote in their conclusion. “These actions include attempting to repeal the ACA and deeply cut Medicaid, cutting outreach and advertising funds, encouraging states to put up more red tape barriers that make it harder for families to enroll or renew their eligible children in Medicaid or CHIP (or ignoring it when they do), eliminating the ACA’s individual mandate penalty, and creating a pervasive climate of fear and confusion for immigrant families.”


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