Where to Start on the Promised Initiatives

Is there a right sequence for Congress to tackle the expected initiatives of the new Administration?  Consumers want growth in the economy and wages, sanity in healthcare services and costs, protection from hostile nations and hate groups, and an end to officials encouraging divisive identity politics.

The core of the President-elect’s promised initiatives was to repeal and replace the Affordable Care Act (ACA), to repeal the economic overburden of federal regulations, to rebuild crumbling infrastructure, to clear away the buildup of White House executive orders, and to reshape the tax system into a mechanism that fosters economic growth and jobs.  Each initiative is difficult, and some may be impossible if half of the Senate remains unsympathetic with an electorate who voted for the initiatives.  The initiatives will compete for time in an arena crowded with Supreme Court and Administration nominees who require Senate confirmation.

Bravado about first day repeals, or fast progress in the first hundred days is basically trash talk meant to whip up enthusiasm among the base.  Reality dictates that sequencing and time needed for enacting the initiatives will be governed by pragmatic considerations.  Government cannot be put on pause while major chunks of its operation are debated and reengineered.   Tax revenues need to flow in at a pace that matches planned expenditures.  Some parts of some entitlements cannot be disrupted (such as emergency room’s obligation to medically stabilize indigent patients), but some entitlements can be radically changed (e.g. replacing free mobile phone service and free Internet service with low priced versions of the services).

There can be no holiday from budgetary constraints.  The initiatives are not independent, and they all impinge on the federal budget.  Logically, the budget establishes intentional guiderails for revenues and expenses.  The main categories for fiscal 2016’s budgeted $3,871 billion in expenses are: Social Security ($944 billion), tax credits for ACA enrollees ($124 billion), Medicare and Medicaid ($955 Billion), defense ($615 Billion), income security ($546 billion for Food Stamps, Women/Infants/Children Program, affordable housing, unemployment compensation, earned income tax credit and other programs, and net interest ($243 billion). The net interest is likely to bloat as tranches of the national debt come due for reissue at much higher interest rates.  That leaves a mere $416 billion for everything else.\

Among the Administration’s initiatives, tax reform, pruning regulations and repeal of executive orders offer the best chance of fostering economic growth and good jobs, thus continuing a healthy flow of federal revenues.  Congress should tackle those first to establish an honest revenue estimate for the federal budget.  Of the three, tax reform is likely to have the biggest constructive impact.  By itself, the Administration could eradicate many of the noxious executive orders.  When tax reform is in hand, Congress can groom the thicket of regulations that weigh heavily on employment and investment.

The ACA’s financial design included subsidies to ACA enrollees, spending for new Medicaid beneficiaries, and cost overrun subsidies for some insurers.  ACA also included new taxes on medical equipment, prescriptions and fines for non-compliance.  The tightly clustered ACA revenue and expense makes it difficult to repeal without also adjusting Medicaid, Medicare and the tax code, so repealing undesirable parts of ACA would take time even if all elected officials wanted to do that, and of course they don’t.  To motivate progress on replacing ACA will require an alternative plan that includes a few popular ideas – namely, acceptability of pre-existing conditions and insurers from any state, and 26-year-olds on a parent’s policy.  The overly expansive mandatory treatment list needs to be aggressively trimmed. Premiums should be means tested. Government should negotiate drug prices for ACA, Medicare and Medicaid beneficiaries.

Some people are avid fans of infrastructure rebuilding.  If all the stars line up perfectly, infrastructure could be a net stimulus.  Infrastructure could add substantially to the federal debt, the contracts could be over-priced if government insists on union-wage levels for contractors. And, in the past, many “shovel ready” projects were neither ready nor needed.

If four years from now, we are still fantasizing about infrastructure projects, we have failed.

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