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Why the tax bill passed the Senate but Obamacare repeal failed

Policy design matters.

Senate Republicans Hold News Conference On Importance Of Tax Reform Chip Somodevilla/Getty Images

In the wake of the Senate passing a massive Republican tax bill, one obvious question is why the tax bill succeeded but Obamacare repeal failed.

Certainly, there are many reasons. You can blame the quirks of process and personality. You can blame the irrational dogmatic faith elected Republicans seem to have that cutting taxes for businesses and rich people will stimulate economic growth. You can even talk about the “need for a win” factor.

But here’s another reason: The tax bill creates diffuse but hard-to-trace costs alongside few but concentrated benefits; Obamacare repeal would have created concentrated easy-to-trace costs alongside few but diffuse benefits. And while both bills were deeply unpopular (no wonder, since both had few winners and lots of losers), the diffuse but hard-to-trace costs of the tax bill means that Republicans have a better chance to avoid paying a political price for that piece of unpopular legislation. By contrast, repealing Obamacare would have hurt them more politically, because it created more clear and direct losers, who could easily connect their losses to the legislation.

How distribution and traceability of costs and benefits explain politics

Let me take a moment to explain the distribution of costs and benefits.

If most people pay a little more in taxes so that a few corporate owners can get a huge tax break, that’s an example of diffuse costs (most taxpayers pay a little more) and concentrated benefits (a few corporate owners get a huge tax break).

If taxes go up on corporate owners so that most taxpayers get a small break, that’s an example of diffuse benefits (most people pay a little less) and concentrated costs (a few corporate owners pay a little more).

I borrow this concept from political scientist James Q. Wilson’s classic The Politics of Regulation, in which he tries to explain regulatory politics in terms of these patterns of costs and benefits.

Wilson calls the combination of concentrated benefits and diffuse costs (a small, narrow interest benefits at the cost of the general public) “client politics.” This is a pretty normal state of politics. Wilson describes the hallmarks of “client politics” as “backstairs intrigue, quiet lobbying, and quick passage with a minimum of public discussion.” Which sounds a lot like the GOP tax bill, come to think of it.

By contrast, he calls the combination of diffuse benefits and concentrated costs (the general public benefits; a small, narrow interest pays) “entrepreneurial politics” because it almost always depends on a political entrepreneur to bring it about. It is somewhat rare but can happen under the right conditions (i.e., a genuine entrepreneur, who mobilizes the right organizational coalition).

Often, when costs are diffuse (borne by most citizens), policymakers make them harder to trace, in hopes that citizens won’t discover them and, upon that discovery, vote to punish the lawmakers who sponsored the bill.

I borrow the idea of “traceability” from political scientist R. Douglas Arnold’s The Logic of Congressional Action, which remains one of the best books ever written on Congress because it takes policy design seriously.

Arnold argues that because most citizens don’t play close attention to policy, they have a hard time connecting small changes in their lives to changes in public policy. This means that if policies impose minimal, hard-to-trace costs on citizens, Congress can often get away with passing policies that benefit narrow interests. By contrast, if Congress wants citizens to be aware of the benefits, it needs to make them highly traceable, like Republicans did in 2001 by sending everybody a tax rebate check.

Political organization matters

One reason why so much Washington policymaking resembles Wilson’s “client politics” (narrow interests gaining at the expense of a broad public) is because the distribution of benefits has a direct relationship to political organization. There are a lot more active organizations in Washington representing business than there are public interest groups.

As economist Mancur Olson laid out in his classic work The Logic of Collective Action, when costs or benefits are narrowly concentrated, the individuals or organizations with a lot at stake have a strong incentive to engage in political action.

If you were personally facing a million-dollar tax increase, it would be worth it to hire a lobbyist or spend some of your own time and energy trying to prevent the increase. If you were potentially facing a $10 tax increase, you might think, Gee, that’s annoying, but it would hardly justify hiring a lobbyist. Maybe you’d like it if there were some group working on your behalf. But why should you personally have to donate to sustain that group? It’s just a $10 tax hike, after all.

Olson’s insight was that narrow interests facing high-stakes public policy outcomes would have an easier time mobilizing politically, both because the costs and benefits of public policy would be so large for them that it would justify participation and because the social pressure of small groups makes such groups easier to organize and sustain. Large groups, by contrast, struggle from the free rider problem. We all want clean air, but we think other people should pay for groups that lobby for clean air.

More than anything else, this basic logic can help explain why Washington has many narrow business lobbying groups but few broad public interest groups.

The plausible politics of tax reform

The politics of tax reform is classic “client politics”: A small number of well-organized political actors representing corporations and very wealthy individuals benefit. Many taxpayers will pay more, especially several years out. But they might not even really notice.

The process of tax reform was also classic “client politics” — the bill was done quickly and privately, with lobbyists representing some very narrow interests having a very clear role in shaping the legislation.

The costs could be harder to trace, in part because they will be further down the road, whether because most of the benefits are temporary, because it will take at least a few years to maybe blow up the deficit and cause interest rate hikes, or because it will take at least a few years to show that cutting taxes for corporations that were already making record profits was never going to create more high-paying jobs when labor bargaining power is low. Or, most likely, because somewhere down the road, we will likely have to figure out a way to finance the tax cuts.

Presumably, Republicans are also banking on the fact that they can take the almost-certain campaign donation windfall from passing this bill and plow that money into messaging that further blurs the costs and benefits of this legislation and further undermines traceability.

Or, more darkly, they can also plow that money into political organization and messaging that keeps the national political focus on divisive cultural issues, making it unlikely that no matter what happens economically as a result of this legislation, they can still somehow cast Democrats as the out-of-touch elitist party that wants to undermine American greatness through its diabolic globalist plan of secularization and diversity.

In theory, Democrats could benefit by using the tax bill as the economic messaging device that they were unable to come up with on their own — an unpopular tax cut for corporations and the very rich, rushed through at the last minute, full of a few terrible loopholes that can stand in as visible signs of the whole rotten bill. If so, they’d be engaging in Wilson’s “entrepreneurial politics.”

But the bottom line is that “client politics” is the normal way of doing business in Washington, a function of the imbalance of organizational resources. So it’s no surprise that a tax bill that is shaping up as classic “client politics” passed. And it’s no surprise that Republicans designed the costs to be less than traceable, to make it harder for voters to hold them accountable.

The impossible politics of Obamacare repeal

By contrast, the politics of Obamacare repeal had some real clear and present losers. Anybody who lost their health insurance would make the immediate connection, including many Republican voters. But there were also many governors and hospitals and doctors and patients groups that wanted to keep the existing system as it was, given that they could see the clear concentrated losses coming their way. These were influential lobbying interests. The opposition to reform was also aided by some clear and highly sympathetic victims, individuals dealing with medical conditions whose lives would be ruined if they lost Obamacare health care coverage they relied on.

By contrast, Obamacare repeal had no narrowly concentrated winners. None of the major health care industries was advocating for repeal. Yes, wealthy individuals would have benefited, but not quite in the same specific narrow ways many will benefit with the tax bill. Compared to Obamacare repeal, the tax bill created many, many more specific and identifiable winners, who can now be expected to share some of their financial windfall with Republican Party campaign committees and supportive super PACs.

Yes, it’s true that an Obamacare individual mandate repeal may ultimately wind up in the Republican tax bill, which may have the effect of bringing down Obamacare after all. Here, again, the issue of traceability is relevant. As a way to bring down Obamacare, removing the individual mandate in a larger tax bill is as slow and indirect as possible.

Policy design matters

The bottom line is that policy design matters. It’s hardly surprising that both the Republican tax bill and their Obamacare repeal bill were deeply unpopular, since both bills have few winners and a whole lot of losers. But while the Obamacare repeal bill made the costs clear and visible, the tax bill makes the costs smaller and harder to trace.

Yet despite Republicans’ attempts to conceal the costs of the tax bill, they are still there. And if Democrats are clever, they have an opportunity to develop strong and consistent narratives to make the costs bigger and easier to trace, turning “client politics” into “entrepreneurial politics.” If they succeed, they will have likely have a winning campaign issue.