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How Republicans’ obsession with tax cuts for the rich drove their health care plan over a cliff

Paul Ryan, House Speaker, looks downcast after failing to bring his health-care bill to a vote
The Republican plan to deliver a tax cut through health care reform did not end happily
Win McNamee / Getty

A century ago, the Austrian sociologist Rudolf Goldscheid described the government’s budget as “the skeleton of the state stripped of all misleading ideologies.” His point was that we distinguish reality from spin by looking at what leaders do — by the policies they create and how they pay for those policies — not how they dress up their ideas. Major policy initiatives serve as x-rays that reveal the spine of a political coalition.

So it is with the American Health Care Act — the GOP health plan that went down to catastrophic defeat last week. Even in failure, the AHCA tells us a great deal about the recently empowered GOP coalition and why that coalition is now so embattled. And it’s not the story everyone else is telling.

Read the postmortems, and you would think Republicans are more divided than Democrats were in 2010 when the ACA passed, or than Republicans were in 2001 when the Bush tax cuts were signed into law. The problem, however, was less one of divisions (all coalitions have them) than an initiative that laid bare just how politically unattractive Republicans’ governing ambitions are.

In fact, the AHCA suggests that Republican elites remain unified (if not completely) around one goal: tax cuts for the rich. The problem for them is that this goal is shared by few outside their donor class. It is also at odds with another of their core priorities: cutting back the American welfare state. Republicans hoped to replay the productive initial pushes of the past two presidents to preside over unified government: President George W. Bush oversaw significant tax cuts, and President Barack Obama signed the Affordable Care Act.

Instead, Republicans replayed the opening debacle of Bush’s second term, when Bush’s attempt to move toward a privatized Social Security went down in flames — in part because he had left himself with no fiscal capacity to ease the transition to a new system.

A rocky start for “the dawn of a new unified Republican government”

For years, Paul Ryan has been the chief policy spokesperson for a loose but increasingly formidable Republican coalition with ambitions to fundamentally reorient the American state. For years, he and his allies have argued that if Republicans were given unified control of government, they would forge a new governing contract, embodied most concretely in a series of doomed budget bills that were the main reason for Ryan’s reputation as a serious policymaker.

These bills had three unifying features: They massively cut taxes, especially on the affluent; they massively cut spending, especially on the poor; and they hid the huge deficits they were certain to produce by using budget-scoring sleight of hand.

With Republicans’ sweep of 2016’s election, Ryan got his chance to deliver. The GOP took control of Congress and the White House for only the second time in 60 years (the first, including a brief interruption, ran from 2001 to 2006). A week after the election, Ryan boasted to reporters, “Welcome to the dawn of a new unified Republican government. This will be a government focused on turning President-elect Trump's victory into real progress for the American people.”

Note Ryan’s choice of the phrase “Trump’s victory” rather than “Trump’s agenda”: Ryan was not promising to implement all of the president-elect’s policy proposals. Trump was a very different kind of Republican than Ryan, professing a muscular populism alongside traditional GOP priorities. And yet “repeal and replace” had been among his top campaign promises, and both he and Congressional Republicans promised to move quickly.

Even with unified control, America’s fragmented political institutions do not make it easy to change the status quo. Our intensely polarized politics, combined with the rise of the filibuster in the Senate, have made it harder still. Yet each of our past two presidents proved able to seize the moment: by passing those tax cuts in Bush’s case and expanding health coverage in Obama’s.

In each of those major legislative victories, the policy packages revealed the governing coalition’s priorities: what it prized, and where it was prepared to make concessions. And in each case, the governing coalition was able to design extensive policies that navigated the shoals of public opinion and interest group opposition while producing important structural changes in the American political system.

The uncompromising stance of the Freedom Caucus, while noteworthy, wasn’t the central problem

The AHCA similarly displayed the current GOP coalition’s overarching priorities. And what it showed, first and foremost, was that those priorities were profoundly out of step with public opinion on an extremely visible issue.

Much has been made of the extremism and intransigence displayed by the Freedom Caucus, which occupies the far-right wing of the far-right GOP. And indeed, that intransigence is a serious and ongoing problem for a GOP determined to govern alone. The core problem, however, was the staggering disapproval of the bill itself, which provoked outrage among the public (a mind-boggling 17 percent approval number in a Quinnipiac poll); anger among the organized interests most engaged on the issue; and resistance among Republicans outside of Washington. Tellingly, only eight of 33 Republican governors signed a letter of support for the bill.

Within DC, Republicans were only slightly more enthusiastic. The Freedom Caucus got the press, but defections among House Republicans came from across the ideological spectrum. Moreover, these problems would only have worsened in the Senate — the GOP was nowhere close to assembling the 50 votes it needed.

Some of AHCA’s unpopularity was inevitable. Besides the usual formidable barriers to legislative change, it confronted the unforgiving and long-understood political logic of social policy “retrenchment.” As a large body of political science scholarship has shown, it is devilishly difficult to impose large, visible losses on big groups of voters. Programs become entrenched as beneficiaries multiply and interest groups develop around them, making retrenchment, or cuts, difficult if not impossible. There is simply no precedent for passing a law that would strip valued benefits from 24 million people — the number of people the CBO projected would lose insurance.

Still, this is not the full story. Postmortem analyses have stressed what a mess the bill was. Somehow, Republicans managed to craft a policy that simultaneously raised premiums and out-of-pocket costs, lowered the quality of insurance plans, increased the chances of insurance market death spirals, put new pressure on state budgets, and massively increased the ranks of the uninsured.

Were these ugly outcomes evidence of sheer policymaking ineptitude? Incompetence was certainly a factor, but the main reason for the bill’s flaws was the overriding priority Republicans placed on repealing the taxes on high-income households and on health care companies — taxes that had financed the Affordable Care Act. The AHCA was, above all, intended to deliver a huge tax cut to a narrow set of beneficiaries. All else flowed from this central objective.

The choice facing Ryan: Tax cuts or side payments to ease the path toward reform? Guess which he chose.

Imagine an alternative scenario, in which Ryan’s team had used the majority of that roughly $1 trillion in tax cuts to grease the wheels for structural reforms in American health care, instead of returning it to the well-off. Taking benefits from people is easier if policymakers compensate some of the losers, and if they delay the most negative effects. Republicans could have made the cuts in Medicaid more gradual, in the process buying greater support from GOP governors and the health care industry.

They could have offered bigger subsidies to Americans buying insurance on their own and, in particular, increased the subsidies for older voters, and for voters in rural areas (where health care tends to be costlier). The goal would not have been to shore up Obamacare, but to transition people out of it and into a system that, in the long run, exposed them to more of the direct cost of care — the outcome that many conservative policy thinkers believe is the key to containing costs (wrongly, but that’s another piece). They could, in short, have softened the immediate pain in return for cementing a long-term policy victory.

Whether Republicans could have gotten the Freedom Caucus on board for this jujitsu approach is an open question. They certainly could have attracted more support from the party’s least conservative wing. Moreover, pressuring legislators is far more effective when the legislation itself is not astonishingly unpopular. As it was, House leaders lost both the coalition’s most and least conservative members, along with many in between. It’s hard to believe a strategy of structural reform would have fared worse.

Instead, high-end tax cuts trumped all other considerations. For all the disagreement among House Republicans about other ramifications of the AHCA, there was virtually no disagreement on this element — even though it made the GOP legislative task near-impossible.

What’s more, in acceding to Ryan’s priorities, Donald Trump showed that his populism was as phony as his university. When push came to shove, he was willing to sacrifice the people who voted for him on the altar of tax cuts for the rich. Perhaps the most surreal moment in the whole surreal debate came in an exchange with Fox’s Tucker Carlson, who asked Trump whether he understood that the “counties who voted for you will do far worse under your plan." Trump’s reply? "Oh, I know." (Trump professed to believe such problems were small and could be fixed in the Senate, but they lay at the heart of the bill.)

Lest there be misunderstanding, very few Americans share the GOP political class’s obsession with marginal tax rates on the affluent — excepting the affluent who donate to the GOP political class. Even a majority of Republican voters oppose new tax cuts for wealthy households.

But being spectacularly out of step with the public on this issue is nothing new for the Grand Old Party. At the outset of the Iraq invasion, Tom DeLay famously said: “Nothing is more important in the face of war than cutting taxes.” Republican leaders from Gingrich to Bush to Ryan have consistently placed the battle to cut taxes for the wealthiest at the top of their to-do list.

Indeed, the priority of high-end tax cuts dictated Ryan’s grand strategy. Health care reform — or, rather, tax cuts under the banner of health care reform — was to be round one. Round two has been structured around a Border Adjustment Tax that would raise a trillion dollars to fund additional tax cuts targeted (surprise!) even more on the wealthy than the 2001 cuts achieved under President Bush.

The constraints Republicans imposed on themselves by cutting Democrats out of the process

Republicans need new revenues, and new spending cuts — cuts like those they’d hoped to extract from Medicaid in their failed bill — because they are hemmed in on two fronts. Unlike in 2001, the federal government is facing substantial deficits. And while Republicans have certainly quieted down about fiscal rectitude now that they are in charge, there is a limit to how much they are willing to worsen the situation.

In addition, Ryan’s ambitious and partisan agenda means he is committed to producing tax cuts through the so-called reconciliation process, which requires only 50 Senate votes. That process, however, requires the numbers to balance after a 10-year budgetary window. This turned out to be the Achilles’ heel of Bush’s 2001 strategy: His tax cuts had to “sunset” in order to make reconciliation work.

Had a Republican been in the White House in 2011, he might have continued the cuts in full, but President Obama was there instead. After a two-year extension and much debate, his cuts in income tax rates were continued — for most Americans but not for the highest tax bracket (covering income above $400,000 for single filers); other provisions benefiting very high-income families were also phased out.

Republicans like Ryan regard that 2011 showdown as a profound defeat, even though roughly four-fifths of the Bush tax cuts remained intact. The ones that went away, however, were the ones that really mattered to them — that is, the cuts for the rich.

Republicans have multiple reasons for focusing on the wealthy. They believe that tax cuts at the top produce big job gains by increasing investment and work effort (despite considerable evidence that gains are far more modest); they believe that high taxes on the affluent are punitive; and they know that the wealthy (and corporations) are an important and resource-rich part of their coalition. Our point isn’t about the merits of the goal; it’s about the way in which that goal drives the rest of the GOP agenda — in ways that aren’t always favorable for the GOP.

The other big goal: cutting down the “hammock” in which recipients of federal aid supposedly lounge

While the siren call of tax cuts drove Ryan’s agenda, the choice of where to get the money for those cuts made clear the other big GOP priority — reducing social programs benefiting the poor and middle class. When talking about the devastating cuts in Medicaid in the AHCA to the National Review’s Rich Lowry, Ryan blurted out: “We’ve been dreaming of this since we were drinking from kegs.” This may not have burnished his reputation as the GOP’s most wonkish politician, yet it certainly revealed a great deal about how Ryan views public benefits for the least advantaged: as just more wasteful spending typical of a bloated government. The speaker may have publicly disavowed his 2012 claim that the safety net was being transformed into a “hammock that lulls able-bodied people into complacency and dependence,” but once again, actions spoke louder than words.

As we’ve tried to show, the Republican health care legislation was mostly a tax-cut bill masquerading as health policy. Even with regard to health policy, however, it wasn’t so much an attack on Obamacare as on one important element of it: The ACA’s upgrading of Medicaid, which accounts for the majority of those newly insured since 2014.

Indeed, the main aim of the GOP health bill was to undo the three-decades-long expansion of Medicaid that had transformed a legislative afterthought passed alongside Medicare into a program with more beneficiaries and spending than Medicare itself. The failed House bill would have radically restructured Medicaid, changing it from an individual benefit backed primarily by the federal government into a capped program where state governments would carry more of the load and face relentless pressure to scale back benefits over time.

Which brings us to a final parallel to the Bush administration. Though more moderate than Ryan, President Bush was also driven by an animus toward core programs of the American welfare state — an animus (like its twin, a love of high-end tax cuts) that unites Republican elites, although not their voters. Mostly forgotten today, the signature initiative of President Bush’s second term was a push to partially privatize the nation’s most popular social program, Social Security.

In the end, Bush’s Social Security reform met the same dismal fate as Ryan’s health care reform, and for much the same reason. Having declared that he “earned political capital” in his successful reelection effort and now intended “to spend it,” Bush instead learned he had nowhere near enough. His plan went down to a humiliating defeat, foreshadowing the string of policy and political debacles that would define his second term.

What Bush had really needed was financial capital to invest in the politically perilous task of taking on Social Security — side-payments of the sort that Ryan needed (and lacked) as he fought to phase out the ACA. But Bush had already spent it all: on high-end tax cuts. Bush’s ambitions in 2005 of remaking the American welfare state along conservative lines, like Ryan’s in 2017, had been sacrificed for the GOP’s eternal priority: making sure that the wealthiest Americans paid as few taxes as possible.

Jacob S. Hacker and Paul Pierson, professors of political science at Yale and Berkeley, respectively, are the authors of American Amnesia: How the War on Government Led Us to Forget What Made America Prosper


The Big Idea is Vox’s home for smart, often scholarly discussion of the most important issues and ideas in politics, science, and culture — typically written by outside contributors. If you have an idea for a piece, pitch us at thebigidea@vox.com.

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