April 17, 2013
Editor’s Note: Last November the Health Law Society held a panel event on issues of importance in the 2012 election. Prof. Phillip Harvey spoke on unemployment and job creation. Prof. Michael Livingston discussed the differing tax policies of President Obama and Governor Romney. Prof. Sally Goldfarb considered the role that a President plays in steering the future of women’s reproductive rights. Prof. Rand Rosenblatt discussed the health insurance industry, and why medical costs are rising.
The JLPP Blog has included a transcript of the professors’ remarks below. Although the election has passed, the policies debated in it continue to have tremendous importance for the future of American society.
Professor Harvey on Job Creation
Everyone knows that there is a deep ideological divide separating the Republican and Democratic parties in the United States today. The purpose of my presentation is to briefly explain how that difference is manifest in the policies each of the parties’ Presidential candidates advocate to promote job creation.
First, it’s important to understand that both candidates’ job creation proposals are premised on the assumption that the best, and indeed the only way to address the nation’s unemployment problem is by promoting private sector investment. It is this investment that both candidates rely on to create jobs for the nation’s twelve million unemployed workers. Those of you who are familiar with my own work know that I believe that the creation of temporary public-sector jobs for the unemployed, until such time as the private sector is able to employ them again, would provide both a superior social welfare response to the deprivation they are suffering, and a better strategy to support the private sector’s full recovery. But neither candidate agrees with me on this point, and I’m not going to say anything more about it.
So, if both candidates’ job creation strategies rely on the promotion of private sector investment, how do they disagree? The answer is that they disagree about how the government needs to act in order to induce the desired increase in investment. Governor Romney argues that what is needed are policies that would reduce the cost of investment, by reducing government regulation, and increasing its profitability, by reducing taxes on income, including investment income in particular, something that is earned mainly by wealthy individuals. Hence Governor Romney’s insistence that taxes not be raised on the wealthy. These policies would in turn translate into a smaller government footprint in the economy, since governments would have less revenue to spend, and a smaller role to play in regulating economic activity. His job creation strategy can therefore be summarized as follows: (writes on dry erase board – “reduce taxes and regulation (smaller gov’t) àincreased investment àincreased jobs”)
President Obama’s job creation strategy is based on the contrary view that what businesses need to induce more investment is an increase in aggregate demand for the goods and services that businesses produce and sell, in other words: more customers. This, in turn, translates into support for increased spending by the federal government, funded in part with additional borrowing, and in part with increased taxes on the wealthy. Since they have far more money to spare than the middle class, and taxing them accordingly has a smaller impact on aggregate demand than increasing taxes on non-wealthy households. The increased government spending that President Obama advocates would take two principal forms: the first is increased purchases of goods and services by the government itself, principally in the form of infrastructure repairs and improvements. The second is increased transfer payments to individuals, principally in the form of extended unemployment insurance benefits, which currently are scheduled to expire completely on December 31st, since those benefits add to the aggregate demand when they are spent. So the Obama strategy for creating jobs looks like this: (writes on dry erase board: “increase gov’t spending à increased investment = increased jobs”). Alike in their aim, but fundamentally different in the means for reaching that goal.
Who is right? My own view is that the policies advocated by Governor Romney would actually slow and possibly reverse the economy’s currently less-than-robust recovery. If people don’t have the money to buy what you are selling, you are not going to reproduce more of it just because your tax rate has been lowered or government regulations have been relaxed. You don’t pay taxes on an investment that loses money. And if there were money to be made by expanding currently depressed levels of output, government regulations would be a minimal concern, since businesses would, for the most, part simply be ramping up already licensed and approved existing operations. There simply is no shortage of funds available for investment. The problem is that there is no one out there to buy the expanded output this investment would produce.
The proof of this can be seen in the current yield on government securities. The current yield on twelve-month treasury bills, T-bills, is currently less than two tenths of one percent. With the annual inflation rate running at just under two percent, anyone buying these T-bills is expecting to lose 1.8 percent a year on their investment. Why are business firms and individual investors choosing to lose money rather than invest it in business expansion? The answer is because they know there are no customers for the additional goods and services businesses would produce if they used that money to expand. And they’d therefore lose even more money by investing it in what economists call the “real economy” than the loss they’d suffer by, in effect, paying the federal government to store their investment funds until aggregate demand picks up. Nor is this an unusual situation in the early stages of a recovery from a recession like the one we have been through. The historical record is quite clear that the kind of policies Governor Romney advocates have almost invariably proved counter-productive when applied during a recession, or the recovery period that follows a recession. Herbert Hoover’s response to the Great Depression was cut from the same ideological cloth, and those policies not only failed, they made the Great Depression worse. Moreover, the same thing is happening in Europe right now because of similar policies promoted by conservative governments there and the conservative leadership of the European Central Bank. While unemployment has been shrinking in the United States, it has been growing in the Euro zone, up more than a full percentage point over the past twelve months, while it has dropped a similar amount in the United States.
The policies pursued and advocated by the Obama administration are based, I believe, on a more sophisticated, albeit counterintuitive understanding of how market economies work. The policies his administration has implemented and which he proposes to continue have lessened the severity of the Great Recession, and they are promoting the economy’s recovery from it, albeit slowly. As I said at the outset, I think there are weaknesses in the Obama administration’s response to the so-called Great recession, but those weaknesses would only be aggravated if the policies advocated by Governor Romney were adopted. At least that is my opinion, and I think my five minutes are up.
Prof. Livingston on Taxing and the Budget
Well I’m supposed to deal with what tax and budget policy in five minutes? Well, I’ll do it best, the problem now is a simple problem in terms of tax and budget – the government takes in a lot less than it spends and it’s getting worse rather than getting better. You can go back to the whole history of the Reagan tax cuts, and the tax reform act, and so on, but that’s the gist of it. The most immediate example, that’s a long-term problem, the most immediate example is called the fiscal cliff. What does that mean? Well it means that, since everybody realizes that the budget situation, the deficit situation is out of control, Congress sort of reigned itself in by agreeing to automatic changes that would take place if they didn’t act. They created rules for themselves to force themselves to act.
At the end of this year if nothing happened tax rates would go back up. President Bush cut the top tax rate to thirty-five and about forty percent, dividends were taxed at only uh dividends and capital gains at only fifteen percent, uh the various other changes. Those tax rates would start to balance up if nothing else were done, but there would also be very draconian cuts to domestic programs and most interestingly to defense. And while at least one of the two parties, that is the Republicans, would probably be perfectly happy to see the draconian cuts to domestic programs, probably nobody is going to be happy to see the draconian cuts to the defense budget. So nobody really thinks that’s going to happen or be allowed to happen. The question is what would we do about that, and they have two different theories.
Let me start with Romney because he has the more radical theory. He wants to cut tax rates somewhat more. Cut them I think from the top rate of thirty-five – certainly not end the Bush tax cuts. He actually wants to double down on them by reducing tax rates to about twenty. He wants to balance the credit rates down to twenty-eight percent and the capital dividends the same or even more. You might say how can you have lower rates and raise the same amount of money, and he said you can do it by completing the Tax Reform Act of 1986 and eliminating deductions, and actually on some level that’s true. If there were no deductions you probably could. The problem is that the deductions you would have to eliminate are things like pensions, health care, mortgage interest, etc.; they’re big things and nobody wants to eliminate them. So there is a little bit of a shell game because he is not sure what he wants to eliminate.
Obama wants to repeal the Bush tax cuts for at least the highest earners, and bump up that tax rate back up to forty percent, and take dividend rates up to fifteen or twenty percent. But again for all the talk about Obama being a kind of socialist radical that’s actually a pretty small change. The problem with both of these people is that neither of their proposals really works. Some people think Romney’s would actually make it worse, but it is certainly true that neither one of them would come close to closing the deficit or putting the country on the road to some kind of more solid fiscal future. And that leads to the kind of dysfunction of the overall political system.
We now have a political system in which basically only one state is really in play. There are like six swing states, but pretty much everyone agrees, in most scenarios, whoever wins Ohio is going to win the election so effectively forty-nine states don’t really matter. They might as well not bother to vote, and nobody you know, – and that’s odd. We face a very good chance that the second out of four elections where the popular vote winner will lose the election. It could happen or it could not, but there is a very, very good statistical chance – that’s odd. The political system can’t really deal with these big issues unless it adopts rules to kind of force itself to. And so you have to see the tax thing and the budget thing as part of this kind of quasi, maybe small “c” constitutional crisis. By Constitutional I mean things in the actual capital “C” of Constitution, and in the ways that people behave politically during the campaign – finance rules, gerrymandering, etc. that have tended to make the system kind of dysfunctional. And the problem is that people only want to deal with that when they are losing.
The problem is if your side wins, Republicans in ‘04, for Democrats in ‘08, you tend not to want to fix the things. And of course the problem with that is that you know that would be true also if you decided elections by a roll of the dice, you know that would also be true. Everybody would say well that’s not really a very good way to deal with elections, to roll dice, but if everybody only wanted reform when their side was losing, you wouldn’t get it and I think the consciousness hasn’t yet developed that the overall system is malfunctioning in a way that is damaging to the collective interest, and until that happens it is going to be very difficult both to separate the fiscal issues from the Constitutional issues and to deal with the Constitutional issues.
Prof. Goldfarb on Reproductive Rights
Thank you. I’ve been asked to speak about reproductive rights issues as they pertain to the election, and I include under that topic everything from abortion rights to contraception, sex education, access to prenatal care, and medical care during childbirth, as well as the ability to choose to have a child knowing that you have the financial ability to do so. Unlike some other issues where perhaps the contrast is not so pronounced, this particular presidential election presents us with two dramatically different candidates, as well as two dramatically different parties.
Starting with the individual candidates, President Obama has consistently taken a strong position in favor of reproductive rights. He championed the Affordable Care Act, which includes insurance coverage for maternity and prenatal care as well as contraception. He supports medically accurate sex education, and supports keeping abortion safe and legal. By contrast, Mitt Romney’s position on reproductive issues has shifted significantly over the years, but at the moment, he positions himself as a pro-life candidate. He has expressed his support for a constitutional amendment that would define life as beginning at conception. He has vowed to end government funding for Planned Parenthood, which many women rely upon for contraception, cancer screenings, and preventive medical care.
Now, it actually makes a very big difference which of these two men becomes president, because the nature of presidential power is such that whoever wins the election will have the opportunity to directly affect the reproductive rights of all individuals in this country. Here are just a few examples of the ways that the President’s power will shape the reproductive rights climate in the future. First, of course, is the power to make judicial appointments to the U.S. Supreme Court, as well as the lower federal courts, and that could make the difference in whether or not Roe v. Wade is overturned. It could also shape the way in which current legal doctrines like the undue burden standard get interpreted in the lower federal courts. Then there’s the issue of executive branch appointments. For example, the President will appoint the Secretary of Health and Human Services, who is responsible for overseeing health care and family planning programs. The President also appoints the Attorney General and the Solicitor General, who will determine the legal positions taken by the administration on reproductive rights issues. The President uses executive orders to promote a pro-life or pro-choice agenda, makes budget recommendations to reflect those priorities, and of course exercises veto power. So, we have two very different candidates who I think will bring about a very different outcome on these issues.
Now turning to the two different parties that we are confronted with. They have very different platforms. Let me read to you from the official Democratic platform: “The Democratic Party strongly and unequivocally supports Roe v. Wade and a woman’s right to make decisions regarding her pregnancy, including a safe and legal abortion, regardless of ability to pay. We strongly and unequivocally support a woman’s decision to have a child by promoting affordable health care and ensuring the availability of and access to programs to help women during pregnancy and after the birth of a child.” Contrast that to the Republican platform: “We support a human life amendment to the constitution and endorse legislation to make clear that the 14th amendment’s protections apply to unborn children. We oppose using public revenues to promote or perform abortion or fund organizations which perform or advocate it and will not fund or subsidize health care which includes abortion coverage.” The Republican platform also calls for the appointment of judges who “respect traditional family values” and supports legislation requiring parental consent for young women to have an abortion. So you have a very clear choice.
The Republican Party has been recently engulfed in controversy over the comments of two Republican candidates for the United States Senate who each made comments on the issue of pregnancy resulting from rape. Republican Senator Todd Akin of Missouri stated that a woman is unlikely to become pregnant if she was the victim of “legitimate rape,” and Richard Mourdock of Indiana stated that he opposed abortion rights even in cases of rape or incest because “life is [a] gift from God and I think even when life begins in that horrible situation of rape, that is something that God intended to happen.”
The issue of whether there should be an exception to an abortion ban for cases of rape and incest has therefore come into focus. The official Republican platform does not recognize any exception. But it’s important to realize that even if such an exception were in place, very few women would qualify for it. Rape and incest are grossly underreported for many reasons, and the rape and incest exception to an abortion ban would presumably require that the crime had been properly reported. Also, criminal law defines rape and incest very narrowly, such that many women who have been victims of coercive sex would not be covered by a rape and incest exception. And of course, a rape and incest exception does nothing to address reproductive rights of women who experience unwanted pregnancy due to contraceptive failure or any number of other reasons.
I would just add that in addition to the Presidential election, keep in mind that the states are increasingly becoming a focus of legislative activity concerning access to reproductive rights. Every year, literally thousands of bills are introduced in state legislatures to limit rights to abortion, contraception, and sex education. So state elections are very important in this area as well.
Professor Rosenblatt on Healthcare
To understand the presidential candidates’ positions on healthcare, it is helpful to understand the chart that I am going to put on the board. The vertical axis is healthcare expenditures by dollars. The horizontal axis is arranging the population by low cost, people whose healthcare is low cost who do not spend that much on healthcare, all the way up to people who spend the most. And if you plot our distribution of national healthcare expenditures, it looks something like this [points to chart]. That is, most of the population has relatively low expense health problems. Most of us, until we get into our 60’s are pretty healthy. We don’t have to spend a lot on healthcare. But there is a relatively small part of the population, I think it’s about 10% of the population that accounts for 70% of the national health expenditures. Some of these are people who at birth have expensive healthcare issues. Obviously if you’re hit by a bus or develop some disease, you move from here to here [low expense to high expense].
There’s actually a famous story, back in 2009 about Nikki White, a 30 year old woman. She went to college, she had a good job, and she played by the rules. When she started out in her work she was down here in the low cost people, she got employment based healthcare from her employer, and then she developed, through no fault of her own, a serious disease, which was treatable.
It shouldn’t have killed her. It was a serious disease that disabled her. She lost her job. And because of the disease of course, she migrated over to this end of the spectrum and now she had a high cost medical situation. Because she lost her job, she lost her health insurance associated with the job. She went out into the individual market. She went to buy individual health insurance and no company would sell her the individual insurance because she had now, quote, a pre-existing condition. So, what happens in this market, unregulated individual insurance market, and not much regulated employer insurance market, is employers know that the easiest way to make money is to insure these people here who don’t have much expense. The problem with these people is, they can’t afford these expenses, they’re very high. So they don’t want to insure those people. There is a whole variety of devices not to insure them. And Nikki White actually died, she delayed treatment, couldn’t get insurance, she actually died. And she died, not because of her sickness, her illness didn’t kill her, what killed her was our insurance system. The fact that she couldn’t – if she had been in most advanced countries she would have lived. That’s what killed her.
So, how do the candidates respond to this kind of story. Well, President Obama’s solution, and it’s the solution that every advanced industrial country has developed is to say, we’re all in this together. That is the pool for the insured should be everybody, the high and the low cost, and that way we can spread these costs here among the whole population and the average would be somewhere here [points to chart]. Now, not everybody can afford this average. So President Obama – this is all in the Affordable Care Act – would give subsidies to try to help people spend up to that level. Governor Romney says he wants to repeal the Affordable Care Act. He is against this idea that we are all in the same pool. He wants to basically go back to the prior system of leaving the insurance market unregulated. So what he wants to do is allow the marketing of cheaper products, that is, lower cost insurance that provides less benefits and more out of pocket cost sharing. He says, that’s the way for people to get access to the system. He also wants patients to pay more out of pocket. He thinks that will help the cost problem and the quality problem.
If you know that you have to pay out of your own pocket, not insurance, you have to pay for ‘X’ thousand dollars a year, you really care a lot about whether it is necessary and whether it is good quality. That’s true for certain kinds of discretionary care. Now I can have a Doctor prescribe some skin ointment for me and that would have to be covered by insurance and I would have to pick it up from the pharmacy where I would get a bill. When the pharmacy gave me a bill for that two ounce tube of cream which cost the insurance company $300 I had to pay $15 copay. Well because I’m an altruistic good citizen, although it’s only $15 out of my pocket, I went to another doctor and said, does this make sense? Should I really ask my insurance to pay $300 for this tube of cream, so he went on the Internet and he said no, this doesn’t make sense, you can use a much cheaper product. So presumably, if we all had paid that $300 out of our own pocket and we all had friendly doctors who would go on the Internet for us and spend their time doing that, to help us research this, we could save the system some money. But just think about it. Obviously for any major complex thing in which you’re really ill, you’re not going to be in a situation where you can do that kind of cost shopping around, so they’re huge problems with the Romney plan.