Warren and Sanders: Who Is Congress Really Serving?
by Elizabeth Warren and Bernie Sanders - NYT - December 17, 2017
WASHINGTON — Over the past year, Republicans have made their priorities clear. Their effort to repeal Obamacare would have left tens of millions of people without health insurance. Now Mitch McConnell, the Senate majority leader, wants to ram through an enormous tax giveaway to the wealthy before seating Doug Jones, Alabama’s newly elected Democratic senator.
The Republican agenda on health care and taxes may be popular with wealthy campaign donors, but it is widely disliked by the American people. It’s no wonder why. Despite a booming stock market and record corporate profits, workers in this country are being squeezed by flat wages, soaring household expenses and declining savings. They want Washington to start working for them and to spend tax dollars investing in our future — not bankrupting it.
With a government funding deadline looming on Friday, congressional Republicans face a choice. Will they spend this week just trying to deliver partisan tax breaks for the rich? Or will they work with Democrats to pass a budget that supports working people?
Right now Congress’s to-do list is long. Before we even get to the budget, we must take care of several urgent, overdue responsibilities that Republicans have ignored. We must fulfill our promise to 800,000 Dreamers — aspiring young Americans who will lose their legal immigration status if we don’t act. We also need to renew expired funding for community health centers and the Children’s Health Insurance Program so that tens of millions of families and nine million children don’t lose access to affordable health care.
These are basic responsibilities and they cannot wait. But our vision is bigger. We must look beyond the bare minimum, to stop lurching from crisis to crisis trying desperately to keep the lights on. This is the moment to focus on our core values and to carefully choose what we will invest in.
At a time when the American economy is rigged in favor of the rich and giant corporations, the coming federal funding bill is a chance to show that our country still respects hard work. We recognize that we cannot do everything we’d like to do before the end of the year, but there is room in the budget to take real, immediate steps in this direction — by easing household costs for working parents and students, by protecting workers’ pensions and Social Security, and by improving access to health care for veterans and for people who need mental health services.
Over the past generation, the costs of child care have jumped nearly 1,000 percent. That puts a lot of financial pressure on working parents, and it forces many to make difficult compromises on the quality of care they can afford. If Congress doubles federal support for child care in this year’s spending bill, we could guarantee high-quality care for nearly a quarter of a million more children.
Student loan debt is another major burden for many people, including those in lower-paying public service jobs, like teachers, nurses, firefighters, police officers, social workers and military personnel. Ten years ago, Congress created a program to help wipe out student loan debt for these public servants, hoping it would encourage more people to give back to their communities. But because of failures in student loan servicing and a lot of bureaucratic nonsense, many might not get the forgiveness they’ve earned. Congress can easily fix this in the funding bill and help tens of thousands of people.
To strengthen Americans’ economic security, it’s not enough to reduce basic expenses. We must also protect retirement — and that means pensions and Social Security. It was Wall Street greed that made our economy crash in 2008, not America’s truckers, warehouse workers, retirees and widows. But as a consequence of that crash, the pension funds of many workers are now on the brink of failure. Congress can use this funding bill to shore up these retirement plans and make sure nearly 1.5 million American workers aren’t left holding the bag for Wall Street’s mistakes.
For millions of others, Social Security is a lifeline in retirement. But many older people and Americans with disabilities are now struggling to get their benefits because budget cuts have forced the agency running Social Security to cut thousands of jobs and close 64 field offices since 2010. Congress should restore funding to the agency and help fill the gaps in service so that people can get the benefits they have earned.
This year’s debate over Obamacare was a powerful reminder about the enormous economic burden posed by health care in America. We must keep working to protect the availability of critical, affordable health care for families. This is a huge task, but there are a couple of specific, obvious ways we can make a difference right now in the federal budget.
Mental health care is one. Half of all Americans will experience addiction or a mental health problem in their lifetime. These problems can devastate families emotionally and financially, especially without treatment. The federal government has several programs that support mental health services, but we’re just not doing enough to ensure people get the care they need.
More mental health care is also critical to fighting the opioid epidemic, which is raging across the country without regard to politics — devastating workers and families in our home states of Massachusetts and Vermont, but also in Senator McConnell’s Kentucky. If Congress doubled its funding for key mental health priorities, an extra billion dollars would go to programs that now help support treatment for more than seven million people.
We can also protect and improve health care for America’s veterans. Our service members risked their lives to defend us all — and there is no excuse for nickel-and-diming their health and long-term care. Congress should protect the ability of the Veterans Affairs department to employ thousands of doctors and nurses and to build and maintain extended-care centers for our veterans.
The task in front of Congress over the coming week boils down to a basic question: Does Washington work for all of us or just for those at the top? Congress has a chance, right now, to take steps that will make life a bit better for millions of working people immediately and in the years to come. We should seize it.
A Tax Plan to Turbocharge Inequality, in 3 Charts
by David Leonhardt - NYT - December 17, 2017
The Republican tax bill is an audacious attempt to accelerate the economic trends of the last half-century.
If you’re a fan of these trends — rapidly rising inequality and stagnant middle-class incomes — you should love the bill. If you’re not a fan, you can at least take comfort in knowing that you’re in the majority of Americans, as polls consistently show.
Over the last few decades, the rich have not only enjoyed the largest pre-tax raises, by far. They have also received big tax cuts. The middle class and poor, meanwhile, have suffered from slow-growing incomes — and from overall tax rates that are higher today than in the mid-1960s.
The first part of that story is widely known. The rich have gotten richer, for a whole variety of reasons.
Rapidly rising pre-tax inequality
Cumulative change in income, adjusted for inflation, by income group
The second part of the story is less known. But it’s also crucial. The great tax-cutting revolution of the last half-century hasn’t actually been a tax-cutting revolution for most Americans.
True, they have benefited from a series of cuts in income-tax rates, signed by Lyndon B. Johnson, Ronald Reagan, George W. Bush and Barack Obama. At the same time, though, another tax has been rising. It is the quiet giant of federal tax policy: the payroll tax.
It funds Social Security and Medicare, and it has been rising in response to the aging of society and rising medical costs. It increased from 2 percent just after World War II to 6 percent in 1960 to 12.4 percent in 1990, where it is today. It has risen so muchthat it’s now the largest tax that 62 percent of American households pay — larger than the income tax, which gets much more attention.
The increases in the payroll tax have more than offset the declines in the income tax for most middle-class and poor families. They now face higher total tax rates than a half-century ago.
A less progressive tax code
Total tax rate, combining federal, state and local taxes, by income group
This makes no sense in an economy where wealthy households have enjoyed the largest pre-tax raises. They are bringing home many more dollars, and each of those dollars is being taxed less than in the past. The middle class and poor are on the unhappy end of both trends.
Obama tried to reverse these broad trends and had some success. The core of his domestic policy, in fact, was fighting inequality. He substantially raised taxes on the rich, while keeping the Bush tax cuts for the middle class and poor. He also expanded health care and other middle-class programs. Before Obama, there were also bipartisan efforts to expand Medicare and low-income tax credits.
But these efforts haven’t been nearly enough to make up for the soaring pre-tax inequality — or even to make the tax code more progressive than it used to be. Middle-income families face a higher rate than a half-century ago: 28.6 percent in 2014, versus 24.8 percent in 1964. The economist Gabriel Zucman notes that the increased taxes on lower-income families have made it harder for them to save and invest. “It’s part of the reason you have such high wealth inequality,” he said.
Now President Trump, Mitch McConnell and Paul Ryan are trying to widen inequality even further. Their tax bill doesn’t touch the payroll-tax rate — again, the single biggest tax that most households pay. The bill does cut income taxes for the middle class, but only modestly and only temporarily. The tax cuts benefiting the wealthy, including cuts to the inheritance tax and the corporate tax, are much larger and permanent.
Researchers at the Tax Policy Center, a vital source of independent analysis on a plan that’s been rushed through Congress, have estimated the long-term effects on each income group. Crucially, their estimates don’t ignore the bill’s impact on the deficit — and thus include the spending cuts that will eventually need to follow. Even if those cuts fall equally on each household (and, in reality, Republican leaders favor cuts that fall disproportionately on the middle class and poor), the tax bill amounts to an enormous effort to increase inequality.
Change in after-tax income under tax bill, 2027
Republican leaders have evidently decided that most Americans deserve more of what they’ve had over the past few decades — more income stagnation and more inequality. Polls have repeatedly shown that most Americans disagree, but Congress is forging ahead anyway. It’s an affront that deserves to be a defining issue in next year’s midterm campaigns.
An Obamacare Surprise in the Mail: New Insurers and New Costs
by Robert Pear - NYT - December 11, 2017
WASHINGTON — Meg and Robert Holub were surprised to receive a letter last week welcoming them to a new health insurance plan and telling them to pay $3,483 by Jan. 8.
“We have received your application for individual and family coverage effective 1/1/2018,” the letter said. The only problem: They never applied for the coverage, did not want it and could not afford it.
“I worried, did someone hack my account to sign me up for this?” Mr. Holub said. “And I wondered, what are the implications if I don’t pay for this plan? Will I be hounded by a credit agency?”
With just a few days left to sign up for health insurance under the Affordable Care Act, hundreds of thousands of consumers like the Holubs are receiving bills for health plans they did not choose. Their current health plans will not be available in 2018, they did not return to the marketplace to pick a plan, and the federal government has assigned them to other plans offered, in many cases, by different insurance companies.
The Trump administration said the process, known as automatic re-enrollment, would help consumers avoid a gap in coverage. Consumers will not be uninsured on Jan. 1 if their current insurer leaves the marketplace and they do not select a new plan in the 45-day open enrollment period, which ends on Friday.
Aetna, Anthem, Cigna, Humana and smaller insurance companies have announced that they will be exiting the Affordable Care Act marketplace in many counties, forcing consumers to look for coverage with other insurers.
The Holubs and their 10-year-old son, who live in Virginia, have coverage this year from Anthem Blue Cross and Blue Shield of Virginia, which is pulling out of the marketplace in their area. They were assigned to a plan offered by Optima Health of Virginia Beach.
“Thank you for choosing Optima Health!” said the letter informing them of the change.
The letter was dated Nov. 10, but the Holubs said they received it last week, just nine days before the end of the open enrollment period. The monthly premium of $3,483 — nearly $41,800 a year — is more than three times what they have been paying Anthem. The letter did not provide any details of the new coverage, benefits, deductible or other out-of-pocket costs.
“Everything about the letter offended me,” Mr. Holub said. “It’s as if I went to a Ford dealer to buy a Ford car, and then I get a call from Chevy saying, ‘Your Chevy truck is ready, and we need the money.’ Well, I didn’t order a Chevy truck.“
As of Monday, more than 50,000 people have been assigned to Optima from insurers leaving the health law’s marketplace, said Kelsea Smith, a spokeswoman for Optima.
“We are seeing our highest enrollment numbers since 2014, the first year Affordable Care Act plans were offered,” she said.
She also acknowledged the confusion. “We are getting calls to our call center with the kind of concerns you’ve heard,” she said.
The days leading up to enrollment deadlines have been crucial in the past. Joshua Peck, who was the chief marketing officer for HealthCare.gov in the Obama administration, said that a majority of plan selections for coverage starting on Jan. 1 of this year occurred in the two weeks just before the mid-December cutoff.
About 3.6 million people had signed up for insurance in the federal marketplace as of Dec. 2 of this year, about 22 percent more than at the same point last year. But the enrollment period this year is only half as long as the last sign-up period, which continued through January.
In a conference call on Monday, former President Barack Obama urged several hundred enrollment counselors, religious leaders and volunteers to make a final push to get people covered. The pace of sign-ups to date, he said, “is incredible, given that there’s been so little advertising or outreach from some official quarters.”
Fred Ammons, the chief executive of Community Health Works in Georgia, said he and his team of insurance counselors were seeing a surge of activity.
“We are going to come out with enrollment nearly as high as last year’s total in just half the time,” Mr. Ammons said. “Our folks have really been hustling.”
But in the rush, many consumers have been puzzled and perplexed. In Maine, Anthem, one of the nation’s largest insurers, is pulling out of the Affordable Care Act marketplace, and its customers have been assigned to plans offered by Harvard Pilgrim Health Care or Community Health Options, a nonprofit insurance cooperative. Mainers may not know what to make of the letters they are receiving from the new insurers.
“I have Verizon cellphone service,” said Steve Butterfield, the policy director of Consumers for Affordable Health Care in Maine, by way of analogy. “If I get a letter from Sprint saying, ‘You must pay us or we’ll turn off your phone,’ what would I do? What should I do?”
Consumers, he said, may not even open the letters.
Blue Cross and Blue Shield of Georgia is pulling out of the Affordable Care Act marketplace in 74 of the 159 counties in the state, and many of its customers are being automatically assigned to other insurers. Premiums for the new plans are, in many cases, much higher, but so are the tax credits that help defray the cost.
“In many cases, consumers can find a cheaper plan,” said Sarah Sessoms of Insure Georgia, a nonprofit group that helps people enroll.
For that reason, insurance counselors and federal officials strongly suggest that consumers return to HealthCare.gov to shop for insurance, update their applications and see if they can find a better deal.
Describing the process of automatic re-enrollment, the Trump administration says on HealthCare.gov that “we’ll enroll you in a 2018 plan with similar pricing and coverage to your 2017 plan.” But as the Holubs discovered, the prices may be very different. And consumers have no guarantee that their preferred doctors will be in the provider network of the new plan.
Even though President Trump has repeatedly said that the Affordable Care Act is collapsing, the federal marketplace is sending emails urging people to sign up.
“Friday, Dec. 15 is the one and only deadline to pick a plan for next year,” says a typical message. “If you miss the deadline, you will not get marketplace coverage in 2018.”
Consumers in a plan that is being eliminated may qualify for extra time — a special enrollment period. In addition, in some states that run their own insurance exchanges, consumers will have more time to sign up. The deadline is Jan. 14 in Minnesota, Jan. 15 in Washington State and Jan. 31 in California and New York.
No miracle cure for rising drug costs
by Robert Weisman and Jonathan Saltzman - Boston Globe - December 17, 2017
The two men shook hands in front of dozens of Massachusetts business leaders and politicians. One was the head of the state’s biotech trade group, the other chief executive of its biggest health insurer. They had just pledged to do something about the soaring price of prescription drugs.
“This could be landmark,” Massachusetts Biotechnology Council president Bob Coughlin said as he gripped the hand of Andrew Dreyfus of Blue Cross Blue Shield of Massachusetts. “We just agreed to solve a problem that we don’t know how we’re going to solve.”
Nearly two years after that January 2016 exchange, they still don’t.
The handshake made for good drama but turned out to be wishful thinking. How could a couple of Massachusetts health care industry leaders, by themselves, resolve a national dilemma that for years has confounded academics, economists, executives, and politicians? Since Coughlin and Dreyfus struck their informal pact at a MassBio breakfast, prices — especially those for a new crop of specialized medicines — have only zoomed higher.
The annual cost of some recently approved genetic treatments for rare diseases has more than doubled from the $300,000 level considered stunningly high only a few years ago. Spinraza, the new Biogen Inc. drug to treat the deadly disease spinal muscular atrophy,costs $750,000 per patient in the first year. And a million-dollar gene therapy to treat blindness is expected to debut early in 2018.
Any effort — or even preliminary talk — to curb the price of prescription drugs in America runs smack into a hard reality: The interests of the companies making innovative medicines remain at odds with the insurers that have to pay for them.
“We have to be honest,” Dreyfus said long after his meeting with Coughlin. “We’re still not discussing solutions that will significantly lower the rate of growth in spending on drugs.”
But that doesn’t mean people aren’t coming up with ideas. Approaches ranging from radical overhauls to technocratic fixes are under consideration by Congress, state legislatures, nonprofit health care groups, and think tanks. Here are some of the possibilities:
■ Single payer. The most sweeping reform would involve a “Medicare for all” system through which the federal government, which already insures older and poor people, would pay for drugs and other health care. The concept has historically been unpopular, but a growing number of lawmakers, including Vermont Senator Bernie Sanders, the former Democratic presidential candidate, and Massachusetts Senator Elizabeth Warren, have embraced it.
But single-payer remains a long shot politically. “We have to work within the parameters of the possible,” said Susan Dentzer, president of the Network for Excellence in Health Innovation, or NEHI, a Boston nonprofit that has been trying to forge a consensus on drug pricing. “We live in a capitalist economy.”
■ Gene therapy carveout. At a policy summit earlier this year sponsored by the nonprofit Institute for Clinical and Economic Review, or ICER, participants discussed making the federal government, rather than private insurers, pay for a particularly expensive class of medicines — one-time treatments called gene therapies that could replace defective genes and cure diseases.
Despite the huge cost of these drugs, which are just starting to come onto the market, their champions say that in the long run, they could save the health care system money.
For example, someone with the worst form of sickle cell disease who lives into his or her 50s will rack up almost $9 million in medical bills, according to a 2009 study in the American Journal of Hematology. The disease causes red blood cells to deform into a sickle shape and stick to vessel walls, depriving tissues of oxygen, resulting in severe pain and often requiring blood transfusions.
“I’m always sick,” said Dima Hendricks, a 35-year-old life coach and mother of two in Brockton. Hendricks says she has been hospitalized hundreds of times since being diagnosed with sickle cell as a baby, at a cost of more than $1 million to MassHealth, the Medicaid program in Massachusetts. To her, a gene therapy cure would be a bargain at hundreds of thousands of dollars. “It would make sense for them to invest in something like that,’’ she said.
■ Transparency. So-called transparency bills filed in more than a half dozen states would require drug makers to disclose data on the cost of research, manufacturing, and advertising before they set the price of a new drug or raise the price of an existing one. The first such bill was enacted in California in October over drug industry objections. The goal is to pressure drug makers to lower prices by forcing them to publicly justify what they charge.
In Massachusetts, a health care affordability bill passed by the Senate in October would empower a state watchdog agency to assess drug industry data, though it wouldn’t have any power to prevent price increases. The measure, backed by insurers but opposed by drug makers, still must pass the House and be signed into law by Governor Charlie Baker.
■ Pay for performance. Experiments are underway to pay drug makers based on how well medicines work for patients. The efforts rely on data from groups such as ICER and the Duke University Margolis Center for Health Policy, which is headed by a former commissioner of the Food and Drug Administration.
Steven Pearson, ICER’s president, said it’s not easy to determine whether a drug like Spinraza is overpriced because it helps a relatively small number of patients who have no other options. Earlier this year, the group published pricing guidelines for orphan disease drugs that treat fewer than 200,000 people. It pegged a fair range at $100,000 to $150,000 annually in “quality-adjusted life years” — an economic measure of the value of added years to a patient’s life.
Last month, ICER offered guidelines for medicines that treat “ultra-rare diseases,” such as Spinraza for spinal muscular atrophy, which afflicts about 10,000 Americans. The range is broader — from $50,000 to $500,000 a year.
Some health insurers, notably Harvard Pilgrim Health Care of Wellesley, have pioneered “value-based” contracts for drugs that treat high cholesterol and other conditions. But insurers and payers often can’t agree on how to define value. For drug makers, a medicine that improves health even incrementally could be a good value. Insurers typically want to see meaningful improvement that saves money by keeping patients out of the hospital.
■ Drug mortgages. MIT’s Center for Biomedical Innovation is testing ideas that include payment plans similar to a home mortgage. That would allow insurers, employers, and patients to finance their share of costs over years or decades.
As these and other strategies get discussed, dissected, and reshaped, one thing is almost certain: the demand for medicines is going to swell as baby boomers age.
“When you start thinking about the aging population, more and more people are entering the user pool,” said Susan Garfield, a life sciences consultant at Ernst & Young in Boston who advises companies on pricing. “We’re not set up for $1 million drugs. That’s where the system really breaks.”
Why New Blood Pressure Guidelines Could Lead to Harm
by Aaron Carroll - NYT - December 18, 2017
In the week before Thanksgiving, the American Heart Association and the American College of Cardiology released new guidelines for the diagnosis and management of high blood pressure. This, probably more than anything else, made my blood pressure go up over the holiday.
The problem was not the guideline itself but some of the news coverage it prompted, with pronouncements that millions more Americans would need to lower blood pressure or that nearly half of Americans now had high blood pressure. A lot of the coverage made it sound as if something drastic had happened overnight.
Nothing had. We just changed the definition of hypertension.
High blood pressure, in general, is not something we should ignore. It’s a major risk factor for heart disease, second perhaps only to smoking, and people with hypertension often need to make changes to reduce their risk of a heart attack or stroke. But, as is so often the case with medical news, matters are more complicated than the headlines or TV summaries.
The new data that led to this guideline revision came from the Sprint study, a large randomized controlled trial of blood pressure management that was published in The New England Journal of Medicine in 2015. More than 9,300 patients were put into one of two groups.
The first received standard care, which involved trying to keep systolic blood pressure (the higher of the two blood pressure measures) under 140. The second group got more intensive care, which meant trying to keep systolic blood pressure below 120. Achieving the latter, of course, required more therapy, mostly pharmacologic in nature.
The results were significant, with fewer patients in the intensive therapy group having an acute cardiovascular event or death. The evidence was so compelling that the trial was stopped early, so the results could be announced sooner rather than later. This decision itself brought a fair amount of media attention to its findings. The fact that those in the intensive therapy group also had more adverse events, like hypotension, syncope and acute kidney injury, got less attention.
Regardless, this is a significant trial, and we should treat it seriously. To generalize its results, however, we have to pay attention to the details of its methods. To be eligible for this study, in addition to having a systolic blood pressure from 130 to 180, patients had to be at particularly high risk of disease. They had to be at least 50 years old. They had to have one of the following health problems: another subclinical cardiovascular disease, chronic kidney disease or a Framingham 10-year risk of cardiovascular disease of 15 percent or more. Or they had to be 75 years or older.
They also had to have their blood pressure confirmed in three separate readings in which patients were left alone in a room for five minutes. This is important, because patients often have elevated blood pressure just from being nervous when it’s being measured in the office. There’s even a name for it: white coat hypertension.
Because of white coat hypertension, guidelines for checking blood pressure in both children and adults recommend that after multiple readings in the office, worrisome findings should be confirmed by 24-hour measurement outside the office. This happens far too rarely. Instead, people get their blood pressure measured quickly in the office, are labeled hypertensive, and are then put on treatment pathways.
The Sprint study essentially showed that people truly at high risk should have their blood pressure managed more aggressively than we thought. But that has not been the message of news on the new guidelines. That has focused far more often on the many newly reclassified people with mild blood pressure, who were not the focus of the Sprint intervention.
In fact, almost none of the newly labeled hypertensive people (those with systolic blood pressure between 130 and 140) should be placed on medications. These people should be advised to eat right, exercise, drink responsibly, and not smoke.
That’s exactly what physicians would have been advising people before these changes. Is there anyone left who doesn’t know those things are important for good health?
So why alter the guideline at all? The conclusion of an accompanying article argues that the guideline “has the potential to increase hypertension awareness, encourage lifestyle modification and focus antihypertensive medication initiation and intensification on U.S. adults with high” cardiovascular disease risk. In other words, much of the goal is to make news and potentially scare people into changing their behavior.
Unfortunately, this is a tactic that has not been shown to work, at least not for all diseases. A 2015 meta-analysis in the journal Psychological Bulletin looked at all the research on fear messaging. The authors found that fear appeals could change attitudes, intentions and behaviors, but mostly on issues with a high susceptibility and severity. With respect to hypertension, it’s hard to believe we’re not already oversaturated with worry.
Fear messaging also works better when it’s intended to change one-time-only behaviors, not lifestyle or long-term activities. Most “new” people with high blood pressure should focus on how they live. The truth, unfortunately, is that it’s just easier to put people on medication than try to get them to modify their long-term behavior.
More people will probably be prescribed drugs because they’ve been told to be afraid and because they can’t get their blood pressure low enough with diet and exercise.
The potential upside from this change is that because of “awareness,” more people might make lifestyle changes that lead to lower cardiovascular risk in the future. The potential downside is that more people may receive a diagnosis of high blood pressure, be overtreated with me
dication, and endure side effects or adverse outcomes. It’s not irrational to fear that these new guidelines might lead to more of the latter than the former.
https://www.nytimes.com/2017/12/18/upshot/why-new-blood-pressure-guidelines-could-lead-to-harm.html?
Hospital Giants Vie for Patients in Effort to Fend Off New Rivals
by Reed Abelson - NYT - December 15, 2017
It’s all about the patient.
Or at least about keeping patients and the revenue generated for their medical care.
As health care is rocked by deals aimed at shattering traditional boundaries between businesses, some of the nation’s biggest hospital groups are doubling down on mergers that seem much more conventional. Skeptics say some of these hospital deals are more of the same: systems seeking to increase their leverage with insurance companies and charge more for care.
In just the last few weeks, several of the nation’s largest nonprofit hospital systems have announced plans to become even larger behemoths. Dignity Health and Catholic Health Initiatives said they planned to become a national chain of Catholic hospitals and clinics that spanned 28 states. Two Midwestern systems want to combine to become one of the country’s largest nonprofits, and Ascension, which is already the nation’s largest nonprofit health system, is said to be in talks to become even bigger, according to The Wall Street Journal. Ascension declined to comment.
But the frenzy of mergers and other alliances taking place also reveals a frantic attempt to court and capture patients as people have more choices about where to go for care. Patients are increasingly relying on walk-in clinics, urgent care centers or an app on their cellphone to check out a nasty rash or monitor their diabetes, and they are looking for places that are both less expensive and more convenient than a hospital emergency room or doctor’s office.
The battle is over “the control of the patient,” said Rob Fuller, a heath care lawyer at Nelson Hardiman and a former hospital administrator. As hospital executives see the continued decline of care being delivered within a hospital’s four walls, he said they want to make sure they still have a say over where patients go after a hospital stay or to get treatment for a chronic condition.
Hospitals competing for patients is a game of musical chairs, and “there might not be a chair for you,” agreed Kenneth Kaufman, chair of Kaufman Hall, a firm that consults with hospitals. Hospital executives are realizing that someone else, including an insurance company employing the nurse at a walk-in clinic or the doctor at a surgery center, wants to take over their relationship with patients — and the potential revenue that those patients represent.
And the move by the insurers into their traditional territory is making some institutions very nervous. UnitedHealth Group, the giant insurer, is viewed as the greatest threat, underscored by its recent purchase of DaVita Medical Group. The company, which has a diverse portfolio of health care businesses, already has a roster of some 30,000 doctors under its Optum unit, and a chain of surgery centers. The company “has moved out ahead from a competitive perspective and a model perspective,” Mr. Kaufman said.
The proposed merger of CVS Health, which operates drugstores and a large pharmacy benefit manager, with Aetna, an insurer, also promises to reinvent care by transforming CVS’ roughly 10,000 drugstores into “health care hubs,” where patients can easily seek advice or treatment for anything from a sore throat to heart disease. There is also the rumor that Amazon, which has already upended retailers like book stores and grocery chains, could enter the pharmacy business.
“Hospitals are very nervous about being small fry in the changing health care landscape,” said Leemore S. Dafny, a professor at Harvard Business School. Consumers frequently pay more when hospitals combine in the same market because the larger entity has more clout, she said, and there is some evidence that prices rise even when the hospital groups are in different markets in the same state.
But these combinations will create more than large chains of hospitals. The hospital systems already include medical clinics, employ doctors and provide services ranging from imaging to care at home. Dignity and Catholic Health Initiatives say their proposed deal would create a system that would consist of 139 hospitals, more than 700 sites of care and employ more than 25,000 doctors and other clinicians. The two systems will have annual revenue of roughly $30 billion a year.
The mergers allow these systems to become much larger “and have much stronger tentacles into the patient population they are trying to reach,’ said W. Kenneth Marlow, a health care lawyer with Waller Lansden Dortch and Davis.
The Affordable Care Act masked some of those underlying challenges facing hospitals by supplying a new source of insured patients, and the relative lull in merger activity since the law took effect reflected better financial footing. But the industry is now back to looking at shrinking profit margins and a decline in their core revenues. The Republicans’ proposed tax overhaul could make it even worse by forcing cuts to government programs like Medicare and Medicaid.
“Coming together will allow us to be better prepared to weather the storms,” acknowledged Jim Skogsbergh, the chief executive of Advocate Health Care, which had been foiled by antitrust officials in its earlier attempt to merge with another Chicago-area health system before deciding to combine with Aurora Health Care.
The changing industry dynamics have also caused some of the nation’s largest chains of for-profit hospitals, like Tenet Healthcare and Community Health Systems, to struggle. In addition to shifting their focus to outpatient care, those groups have been shedding some of their weakest hospitals.
In talking about the most recent mergers, much of the reasoning sounds familiar, including the promises around how being bigger will allow the hospital systems to achieve cost savings. Dignity and Catholic Health Initiatives, for example, estimate about $500 million in efficiencies through their merger, and many of the groups point to a larger scale being necessary to pay for the sophisticated computer systems needed to better oversee patients.
But many point to the promises of past mergers as reason to doubt whether the hospital mergers allow much more than an ability to demand higher prices from insurers. After the last wave of mergers that took place a few years ago, the hospitals didn’t use that opportunity to bring their costs down, said Bret Schroeder at PA Consulting Group. They “still aren’t that much more efficient than they were,” he said.
Getting hospitals to change as a result of these mergers will remain difficult, Mr. Schroeder said. “It’s very hard for an industry that has been fairly monopolistic within a region to think way outside of the box,” he said.
Although all of the mergers and acquisitions will have to pass muster with federal and state antitrust officials, the recent combinations, even among hospitals merging with hospitals, generally involve facilities that are not direct competitors. Advocate, based in Illinois, is merging with a system in the neighboring state of Wisconsin. Dignity, which is based in San Francisco, and Catholic Health Initiatives, from Englewood, Colo., both products of earlier mergers, also say their locations do not overlap.
The systems also insist they are not looking to get bigger for the sake of being able to throw their size around. “It’s a very old model of thinking about size and higher price,” said Dr. Nick Turkal, the chief executive of Aurora.
They say they are already investing in new ways to deliver care at less expense, and the combinations will allow them to intensify those efforts. “We’re going to be focusing on becoming more efficient, certainly, and creating products that can be sold very competitively,” said Mr. Skogsbergh of Advocate.
In announcing their planned merger earlier this month, Dignity and Catholic Health Initiatives, which declined requests for interviews, said they plan to use the merger to amplify their investments in “community-based care,” which they describe as “a variety of outpatient and virtual care settings closer to home” as well as programs aimed at people with chronic health conditions.
“We believe together we can build a stronger platform to foster healthier communities,” Lloyd Dean, the chief executive of Dignity, said in speaking about the deal earlier this year.
Hospitals will have no choice but to use these mergers to reinvent themselves rather than simply raise prices, said Thomas Cassels, a consultant at the Advisory Board, which was recently acquired by UnitedHealth Group’s Optum unit. They know patients can go somewhere else, he said.
“Health systems are considerably more concerned with being convenient and not unaffordable than they are making services less desirable because they are more expensive and on the hospital campus,” he said.
The fundamental question is whether hospital groups have what it takes to use their increased scale to radically change, Mr. Cassels said. Advocate and Aurora have been making strides to improve how they oversee care to reduce costs, and larger systems will be able to invest in the sophisticated technology and other changes necessary, he said.
But the challenge cannot be underestimated in asking these massive institutions to come together and change into something radically different. “You’re taking a zebra and a zebra,” Mr. Cassels said. “What they want to become is a unicorn.”
GOP tax bill also manages to needlessly screw up the healthcare system
by David Lazarus - LA Times - December 19, 2017
It would be easy to devote an entire column to the vicious provisions of the bill, such as making corporate tax cuts permanent but relief for individuals only temporary, or running up well over a trillion dollars in debt to make the rich richer.
But the part that strikes me as most galling, and which has become almost an afterthought amid all the other damage the bill will do, is its incongruous and completely unnecessary repeal of the Affordable Care Act 's individual mandate.
That's the aspect of Obamacare that basically makes the rest of the system work — and it does work, regardless of the lies conservative politicians tell to dupe followers into thinking the healthcare reform law is a "disaster" and a "catastrophe."
A recent report from the Commonwealth Fund found that "the Affordable Care Act has put access to healthcare in reach for millions of Americans." It said fewer people are putting off doctor visits or struggling with medical bills.
In California alone, the percentage of uninsured working-age adults has plunged to 10% from 24%, according to the report. Nationwide, the uninsured rate fell to a record low 8.8% last year.
After President Trump took office and cast uncertainty over insurance markets, the uninsured rate rose this year to a three-year high. Which means the only disaster for Obamacare has been Trump calling it a disaster.
And now Republicans are all but ensuring failure of the law by eliminating the requirement that most people have health insurance. They say they're protecting personal freedom, giving people the choice of whether or not to buy coverage.
All they're really doing is showing they have no clue how insurance works.
"Premiums will certainly increase without an individual mandate," said Erin Grinshteyn, an assistant professor of health policy at the University of San Francisco.
Every single healthcare expert I spoke with said the same thing: You need a mandate to get younger, healthier people into the risk pool, thus making coverage affordable for everyone.
"If only sick people enroll, the market falls apart," said Dana Goldman, director of USC's Schaeffer Center for Health Policy and Economics. "Imagine what would happen to homeowners' insurance if only people in the canyons bought policies. The mandate is designed to make sure the market doesn't fall part."
This isn't a question of ideology — it's economics, pure and simple. Moreover, it's ludicrous for anyone to say they don't need health insurance because they don't plan to use it.
Nobody plans to have a serious illness or accident. Insurance is all about being prepared for the unexpected.
That's why you insure your car. It's why you insure your home. It's why you pay into Social Security.
"You may be healthy now, but later on you could get very sick and require costly treatment," said Vivian Ho, director of the Center for Health and Biosciences at Rice University's Baker Institute for Public Policy. "When that happens, it's not OK to just shrug your shoulders and say, 'Oh well,' and expect taxpayers to pay the bill."
Republican politicians, who have campaigned on repealing Obamacare or, if not that, getting rid of the mandate, seem comfortable displaying their economic ignorance.
"Wouldn't it be great to repeal the very unfair and unpopular individual mandate in Obamacare and use those savings for further tax cuts," Trump tweeted last month.
What he was referring to is a notion that without a mandate, millions of people would skip buying insurance, which means the government wouldn't have to spend so much on Obamacare subsidies. That money, apparently, could be better spent cutting taxes for corporations and the rich.
The Congressional Budget Office estimates that about 13 million fewer people will be insured by 2027 after the mandate goes adios. In some cases, this will be because they don't want insurance. In others, because they can't afford it.
Average premiums will rise 10% as the risk pool grows sicker, the CBO says.
On the other hand, the drop in subsidies paid out will mean an extra $338 billion for tax cuts.
Michael French, a health economist at the University of Miami, called this coverage-for-tax-cuts tradeoff "shortsighted and selfish."
"Any serious health economist will tell you that the individual mandate was a good move for health insurance markets," he said.
"Allowing people to wait until they become sick before they buy insurance just makes the market unsustainable. It means the only people covered are sick people, and that make insurance too expensive."
Some Republican lawmakers have proposed creating a "reinsurance" program that would make billions of dollars available to stabilize insurance rates. But such a system would be required on a perpetual basis, and conservatives so far are unwilling to appropriate more than a few years' worth of funding.
So along with all the other problems with the tax bill, it manages to take genuine progress under the Affordable Care Act and drive it off a cliff.
Trump said last week he was looking forward to providing "a massive tax cut for the everyday, working Americans who are the backbone and heartbeat of our country."
It's probably just a coincidence he cited two body parts that, if anything goes wrong, will wipe you out financially.
Charles Lawton: In Maine counties losing population, the challenge is fiscal right-sizing
by Charles Lawton - Portland Press Herald - December 19, 2017
For much of Maine, the primary challenge of economic development is confronting the dilemma of employment growth outstripping growth of the labor force. How can employers maintain the employment growth they have exhibited since about 2010 when the labor force is growing so slowly or even diminishing? How can they meet next year’s growth targets (or even fill next year’s expected retirement losses) when the pool of workers from which they might draw is declining?
For some of Maine’s more rural areas, the challenge is drastically different. Instead of worrying about how to maintain growth, they have to address the issue of continued overall economic contraction. Consider an area one might call the Northeastern Rim – Piscataquis, Aroostook and Washington counties. Between 2010 and 2016:
n Resident employment (people who live in the three-county region and have a job) fell by 3 percent (about 1,600 jobs);
n The civilian labor force fell more than twice as much (7.5 percent, or about 4,300 people).
n Payroll employment (the number of jobs provided by employers in the three-county region, regardless of where their workers lived) fell by 3 percent, or about 1,300 jobs.
In short, the region’s economy has been contracting throughout the period of overall national recovery.
Over this same period, these economic indicators were accompanied by the following regional demographic metrics:
n The number of deaths exceeded the number of births by nearly 2,400.
n Although 259 more people moved there from abroad than left for another country, 3,359 more people moved away from the region than moved there from another region or state – resulting in a net migration loss of 3,100 people.
n The median age of the population rose from to 46.5 to 49.4.
Based on population projections provided by the Maine Office of Policy and Management, the three-county region’s demographic structure will change in the following ways:
n The population under age 16 will fall by 10 percent (nearly 2,000 people).
n The population age 16 to 64 will fall by 13 percent (nearly 10,000 people).
n The population age 65 or older will grow by nearly 26 percent (just over 6,500 people).
Careful examination of these numbers shows a region struggling not to find ways to fill jobs that are now going begging, but rather to adjust to a drastic shift in the very nature of the people living there. This region’s economic challenge is less about how to create or attract jobs and more about how to “right-size” its community development strategies. How is it going to organize and pay for the education of a school-age population facing a continuing decline? How are its health care providers going to plan and pay for the level of staffing needed to meet demand that will certainly continue to grow as its population continues to age?
The best way to answer these questions revolves around investing in housing, transportation and broadband infrastructure designed to strengthen internal hubs where a local service economy can more effectively serve its surrounding populace. And this is a strategy that demands cooperation with Augusta and the state’s urban areas. Right-sizing rural Maine will help the entire state, but it will not be accomplished by grousing about shares of a diminishing pie of potential social investment dollars.
The best current example is the debate about how to fund Medicaid expansion. The “fight over shares of the pie” strategy quickly devolves into a debate over adjustments to existing budgets. The “right-size service provision” strategy requires a longer and broader view. It demands a more thorough enumeration of current costs – those that do not appear in existing or proposed budgets.
These are the costs of last-minute use of expensive emergency room services by those who have not had ongoing health care – be it because of bad habits or low income. These costs are borne as unpaid bills by health providers, and as higher health insurance premiums for everyone else. An effective investment analysis demands not immediate payback from a current budget, but long-run expenditures designed to reduce costs in the future.
The same social return investment analysis needs to be applied to the formulation and delivery of education services, broadband investment, transportation policy and tax reform. Adjusting to changing demographic structure affects each of the state’s regions differently, but it must be addressed by the state as a whole if we are to avoid its otherwise fiscally, politically and socially debilitating effects.
Episode 13 of the Constitutional podcast: ‘Taxes’
by Lillian Cunningham - The Washington Post - December 18, 2017
In 1913, America ratified the 16th Amendment to the Constitution—explicitly granting Congress the power to tax incomes. Ever since, the income tax has been the main source of revenue for the U.S. government.
"The entire trajectory of the United States in the 20th and now into the 21st century is completely different than it would have been otherwise," says Joseph Fishkin, a law professor at the University of Texas at Austin. "When you think about fighting World War II, the Cold War—none of this would have been possible if not for the revenue from the income tax."
Today, as Congress is poised to pass a bill that would significantly overhaul the tax code, it's particularly illuminating to look back at the period in American history when this modern tax system came into being. It, too, was a time when technological advancements were transforming industries and the nature of work itself, and when the gap in wealth between top earners and average citizens had dramatically widened.
On Leadership newsletter
Conversations about management and leadership.
What's more, then as now, policy debates over taxation represented even bigger debates over the role of government, how best to "promote the general welfare" and what kind of society America should be.
This episode of The Washington Post's “Constitutional” podcast examines these questions and the history of the 16th Amendment with Fishkin and W. Elliot Brownlee, author of "Federal Taxation in America: A History."
Transcript of “Episode 13: Taxes”
LILLIAN CUNNINGHAM: The gap between the rich and the poor is wider than it’s ever been in American history--and the rapid pace of technological change is further widening that gap.
Some people at the bottom of the social ladder are seeing their jobs disappear, replaced by new machines that can do the work faster and cheaper.
A handful of people at the top--bankers, heads of industry--are making more money than the rest of the population combined.
And a really important tax bill that has implications for every American’s income--rich, poor, middle-class--just recently passed Congress. One New York Times report called the bill “odious” and “unpopular.”
The year is 1894.
I’m Lillian Cunningham with The Washington Post, and this is Constitutional.
[INTRO MUSIC]
CUNNINGHAM: Taxes have always been a feature of America. They power the government by helping to pay its operating costs, whether those are external (like financing wars) or internal (like constructing highways). But the type of taxes that Americans pay hasn’t stayed the same over the country’s history.
It wasn’t until the early 20th century that the United States established the tax system it has today--an income tax system. That’s where every year, the federal government takes a certain percentage of money from each citizen based on his or her income.
The income tax is considered a “progressive” tax--because the tax rate progresses. People with lower incomes tend to pay a lower tax rate, and people with higher incomes tend to pay a higher tax rate.
America came to rely on this as its main source of revenue after 1913, when the 16th Amendment to the U.S. Constitution was ratified. Because it was the 16th Amendment that gave Congress the explicit power to collect income taxes.
JOSEPH FISHKIN: And the entire trajectory of the United States in the 20th and now into the 21st century is completely different than it would have been otherwise.
CUNNINGHAM: This is Joseph Fishkin, a law professor at the University of Texas at Austin.
FISHKIN: When you think about fighting World War II, the Cold War--none of this would have been possible if not for the revenue from the income tax. And the entire American Century was basically financed by the income tax.
CUNNINGHAM: This fight for a constitutional amendment to allow Congress to collect income taxes came about during the Gilded Age in America, at the turn of the 20th century, when inequality was rapidly growing and when the new railroad tycoons and oil barons and financiers were amassing extreme wealth in this newly industrial America.
FISHKIN: The constitutional fight over the income tax is one that's incredibly revealing and resonant today because it's about what the shape of the economy ought to be and what the Constitution has to say about that. So I think today when inequality is back up to the levels it was in the Gilded Age, it's especially useful to look back and think about what this fight was about.
CUNNINGHAM: And why the arrival of the 16th Amendment--the income tax--so dramatically transformed the contours of America as we know it.
Taxes, more broadly speaking, were of course nothing new to the United States. Back in the 1700s, the colonies had operated within England’s taxation system. That originally meant they paid taxes on trade (and the English government set those tax rates); but that each colony could decide for itself what other taxes it wanted to collect from its own citizens.
W. ELLIOT BROWNLEE: They give the Americans a lot of flexibility in deciding what taxes to impose on themselves internally.
CUNNINGHAM: This is W. Elliot Brownlee, a professor of economic history at UC Santa Barbara and author of the book “Federal Taxation in America.”
BROWNLEE: American colonies could and did enact property taxes, sales taxes on domestic consumption. They imposed something called a head tax--a tax that would just be distributed among the citizens of a colony on an equal basis. Every citizen would pay the same level of taxes.
CUNNINGHAM: It’s not really until the 1760s that England starts to meddle more with taxes in the colonies. England quits its hands-off approach of letting the colonies mostly manage their own taxes, and it starts imposing more taxes of its own on them.
BROWNLEE: At that point England significantly expands domestic taxation and runs into the problem that the Americans had gotten very used to managing their own taxes and to a fairly low level of internal taxes.
CUNNINGHAM: So they are not happy with these additional costs. This eventually becomes one of the main reasons the colonies declare their independence and fight the Revolutionary War--which, when it’s over, frees them from having to pay those taxes to England, but also introduces a new set of fiscal problems.
BROWNLEE: The American Revolution was probably the most expensive war in American history, as a share of national product.
CUNNINGHAM: The war cost is estimated at about 2.5 billion in today’s dollars--but that would account for much, much more of America’s GDP back then than it does today.
BROWNLEE: So the challenge became enormous and it was a challenge that the former colonies had difficulty meeting initially.
CUNNINGHAM: Until the framers drafted the U.S. Constitution in 1787, the young United States didn’t really have a strong structure in place for collecting money to pay off these debts or for making any future infrastructure investments it needed in order to grow the nation.
BROWNLEE: So they had a new society which had high aspirations but lacked the means to fulfill those aspirations through taxation.
FISHKIN: It was a very, very weak central government. Basically all it could do is ask the states for money, and the states tended to not pay. So a big part of the Constitution was an effort to give the federal government the power to collect some taxes. This immediately became embroiled in questions about slavery, in relation to which states should pay what. And a compromise was reached--a famous compromise, the three-fifths compromise--which was about both political power and about taxes.
CUNNINGHAM: Political power--because counting each slave as three-fifths of a person affected the population numbers in the South and, consequently, the number of representatives those states had in Congress. And taxes--because this population count was also the basis for how much in taxes each state would pay into the federal system.
FISHKIN: In other words, if they're going to get extra political power, they also should have to pay extra tax.
CUNNINGHAM: So while there’s a tendency to think of taxes as a dry, dense topic today; from the very beginning in this country, taxes have been tied into some of our most important moral decisions--like whether certain people’s humanity and welfare counts more than others’ in America.
The main language about taxation comes in Article I, Section 8, which outlines the powers that Congress has. And the very first power it lists is that: “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”
BROWNLEE: So the result was a very straightforward and broad definition of the taxing power of the new Congress. The power the Constitution gives is very robust. The Constitution did limit taxation in one way and I think only one way, and that was in section 9 of Article 1. It specified that no capitation or other direct tax be imposed on states except according to the distribution of population.
CUNNINGHAM: Direct taxes were a particular category of taxes that included things like poll taxes and some kinds of property taxes. So what was this one line about?
BROWNLEE: So this provision sits in the Constitution in a very odd place without much definition, but a definition and purpose that was very clear to the founders. It was a limitation designed to protect slavery from the possibility that future federal governments could try to attack slavery by taxing slave property, to the point where it would make owning slaves financially impossible. So this was a provision of the Constitution in which the founders were engaged in sectional politics, trying to keep the union together rather than carefully considering financial policy. It's not really part of the financial strategy. This is a tactic intended by the Founding Fathers to accommodate to the political power of slave owners and thereby hold the new union together.
CUNNINGHAM: Okay, so just remember they stick this one technical line in there for that reason. But otherwise, the Constitution gives Congress almost unlimited power to tax as it sees fit for the health of the country.
BROWNLEE: The Americans adopted what was essentially the model of the British fiscal state. And this is primarily because American financial leaders, especially Secretary of Treasury Alexander Hamilton, had acquired intimate familiarity with the British fiscal state, had studied it thoroughly through reading economic literature.
CUNNINGHAM: And they knew that broad taxing powers were key to building up a robust nation. It first helped America to pay off its Revolutionary War debt. Then one of the next big uses of tax revenue in early America was to pay off the debt that President Thomas Jefferson borrowed to pay for the Louisiana Purchase.
BROWNLEE: The tariffs also funded subsidies for roads, canals, lighthouses, river and harbor improvements, internal improvements. And much of the money eventually was turned back to the states in the form of a kind of revenue sharing.
Jefferson turned out to be in practice not so far different in terms of tax policy from Alexander Hamilton. Both believed in taxation according to the ability to pay.
CUNNINGHAM: That is, both thought that citizens who made more money and spent more money should pay more taxes. But the concept of an income tax wasn’t even on their radar at the time, so they did their best to spread out the tax burden in other ways.
FISHKIN: The federal government for the entire first century basically of its existence relied almost entirely on indirect taxes, what are called excises and tariffs. We still have excises today. If you ever buy a pack of cigarettes, you pay a federal excise tax. It's like a dollar a pack. Or if you buy gasoline, there's a federal gasoline tax. Those are excises. Tariffs are taxes on imports from abroad. And so for pretty much the whole 19th century, the federal government subsisted on those taxes, which is not enough for a modern 20th century state. In fact it wasn't enough to fight the Civil War. And so during the Civil War the federal government briefly imposed an income tax.
CUNNINGHAM: President Abraham Lincoln and the Congress authorized it around the start of the war in 1861. The rate varied a bit over time, and depending on how much you made (if you were very poor, you didn’t have to pay it at all), but for most people it was around 5 percent--a 5 percent tax on their income. Collecting that income tax helped the government raise the funds it needed for the Union Army’s war effort.
FISHKIN: There's this kind of frightening quote from a radical writer around the first World War who said war is the health of the state. I think anyone should find that a little chilling but it's also sort of true, which is that nothing builds up a robust government like war. And so the story of the income tax is largely a story of the government needing more revenue to fight wars. That’s how we end up with it in the Civil War. Because if you're going to have a state with a powerful army, you're going to need more revenue than you're going to get from taxing, you know, tobacco and whiskey and imports.
CUNNINGHAM: In the years and decades following the Civil War, the country went through some rapid and radical changes. The federal government had grown in size and scope because of the war. And society itself was also dramatically transforming. Cities were growing bigger, companies were growing bigger. Industrialization was taking hold. And the Gilded Age was on the horizon, flashing with gold.
FISHKIN: So the end of the 19th century was this moment in American history in which for the first time ever you had nation-spanning corporations. You had railroads and steel companies and other big monopolies that were more powerful than state governments, and their owners were building fortunes that were bigger than anything America had ever seen. And meanwhile you had the emergence of an industrial workforce who were very poor, and who were agitating for unions, and who were beginning to express radical ideas in opposition to this new Gilded Age economic order.
BROWNWELL: The economy grew but also economic inequality grew. The unequal distribution of income and wealth became more intense. The gap would be comparable to the kind of gap that exists now between the top 1 percent and the bottom 50 percent of the American population. It's a very similar kind of distribution.
CUNNINGHAM: The Civil War income tax had ended and the country was back to a system that relied mostly on tariffs for its revenue. But these tariffs were falling out of favor among some people, especially in the West and the South. The tariffs--or taxes on imports--were driving up demand for domestic products, which was disproportionately benefiting manufacturers in the Northeast of the country. And, because everyone paid the same tariff on goods that they bought, regardless of what their income level was, it meant that poor and working-class families would feel the loss of that money to tariffs much more than wealthy families did.
BROWNWELL: A nationwide movement grew to enact federal taxes that conformed more closely to the ideal of taxing according to the ability to pay.
CUNNINGHAM: That’s how the idea of an income tax, like there was during the Civil War, gets revived--that way the people who earn more, pay more. Especially since, in addition to taxing salary income, this new income tax would also apply to income someone generates from other sources, like property or, importantly, stocks or interest or corporate profits.
FISHKIN: They thought in this new era, with huge new fortunes being built up in the Gilded Age, it would be better to start taxing those huge new fortunes and not just taxing ordinary people.
BROWNWELL: It also became part of a larger movement attacking monopoly power, the new concentration of power in the hands of corporations and the special privileges of the wealthy. The income tax movement is designed to improve the distribution of income and reduce monopoly power, hopefully increasing economic opportunity for all Americans.
CUNNINGHAM: There was enough momentum for it that the U.S. Congress passed a bill in 1894 to institute the first peacetime income tax. And one of its biggest champions was a young congressman from Nebraska by the name of William Jennings Bryan.
FISHKIN: He recognized that there was just enormous popular unrest out in the hinterlands of America about the fortunes that were building up in New York and in the other sort of centers of power at the expense of ordinary Americans, or so they thought.
CUNNINGHAM: And so Bryan, with his particular gift for oratory, helped push this new bill through the House of Representatives and into law. It was a tax of 2 percent--only 2 percent--on incomes over $4,000 dollars (so that’s like an income of $90,000 today).
FISHKIN: The initial tax was not big, but everyone could see that this tax had a lot of potential. It had the potential to completely transform the federal government by providing it with vast revenue, and it also could potentially actually take a big bite out of large fortunes.
CUNNINGHAM: That is, until the Supreme Court struck it down as unconstitutional.
FISHKIN: The story of how the income tax became one of the most polarizing issues in American politics, and kind of the central axis around which so much political fighting happened at the turn of the century, is really a story of the Supreme Court's unexpected intervention in the debate about taxes.
CUNNINGHAM: In 1895, the year after the income tax bill passed, a case--Pollock vs. Farmers Loan and Trust--went before the Supreme Court. Charles Pollock was a man from Massachusetts, and he was challenging the constitutionality of this income tax.
FISHKIN: And the Supreme Court, which everyone pretty much expected to uphold this tax as they had upheld a century of previous modest innovations in taxation by the federal government, instead decides to strike it down.
CUNNINGHAM: And their rationale here is a bit complicated but they do this by saying it should count as a “direct tax”--and remember there was that one line in the Constitution about how direct taxes need to be apportioned to the states according to population.
BROWNLEE: So the court picked up an artifact of the controversy over slavery that was embedded in the Constitution and used it in a totally different context.
FISHKIN: And this meant that an income tax couldn't be enacted at all, because it would be crazy to say we're going to have an income tax but each state has to pay according to its population, whether it's a rich state with tons of income or a poor state with very little income. What that would mean in effect is much higher tax rates for people in poor states than people in rich states. And the Supreme Court was completely aware that that would make it impossible to ever enact an income tax. And the reason they decided this was basically a fear of socialism.
The Supreme Court in the late 19th century was very unusually almost entirely populated by members of the elite bar who had been the lawyers of the new railroads monopolies, steel companies and other sort of high powered corporate forms of the Gilded Age.
CUNNINGHAM: One of those justices was Stephen Johnson Field. Just to give you a visual, he had a long beard and curly hair that circled his head--he was bald on top. He had a piercing gaze behind his small glasses.
FISHKIN: So Field is a New York lawyer who'd moved out to California in the gold rush in 1849 and made money speculating on land in the really rough environment of California in the mid 19th century. He became a politician. He then became chief justice of the California Supreme Court. Along the way he fought a duel with another judge. And in fact he survived an attempted assassination by the previous chief justice of the California Supreme Court, whom Field had ruled against in a divorce case and Field's bodyguard ended up shooting and killing him.
He was however a believer in the Union during the Civil War. And for that reason, and to get some Western representation, Lincoln ended up putting him on the Supreme Court during the middle of the Civil War. So Field believes strongly in free enterprise. He was associated with the elite railroad lawyers and other lawyers of the emerging monopolies of the West. He became a trustee of Stanford University, Stanford being a famous railroad baron, and Field saw the income tax as a form of socialism.
CUNNINGHAM: He wrote in his Supreme Court opinion, explaining why the income tax should be struck down, that: “The present assault upon capital is but the beginning. It will be but the stepping stone to others larger and more sweeping till our political contests will become a war of the poor against the rich, a war constantly growing in intensity and bitterness.”
FISHKIN: So that's pretty dark.
The question of what is the relationship between the federal government and individuals making money--that was a hot area of constitutional debate in the late 19th century. Both the left and the right thought that the question of exactly how does the government regulate the economy, what kind of economy are we going to have, what kind of inequality are we going to have, what kind of redistribution are we going to have--those questions were hot constitutional questions at this time, even though today they don't feel like constitutional questions at all. So issues like anti-trust, issues like the gold standard, the income tax, these were all major constitutional debates, both in the courts and in politics.
I mean the original conception of how the political economy was going to work in the United States if you read people like Thomas Jefferson was we were going to be a land of small producers and they weren't going to be dependent on others. And then as the 19th century rolls along, we get this massive economic upheaval, and it quickly becomes clear in the late 19th century that in fact we don't have an economy of small producers. It's not the case that every hireling is going to become an owner or a small proprietor. In fact what we have is an industrial revolution in which we are going to have large-scale corporate capitalism with huge enterprises and many, many workers and the workers are going to live on wages.
And the question is: What does that do to our ideas about citizenship and the ideas about how our economy is supposed to work under our Constitution? So that was the sort of underlying economic driver of this constitutional debate.
CUNNINGHAM: The Supreme Court decision was 5-4 against the income tax. And much of America, even some of its wealthiest citizens, couldn’t believe the court had ruled to strike it down.
FISHKIN: But what do you do with that? I mean what do you do when you disagree with the Supreme Court?
CUNNINGHAM: The Supreme Court’s strike down of the income tax in the Pollock case in 1895 added fuel to the populist fire.
FISHKIN: Pollock absolutely electrified American politics and in particular populist politics. It was opposed fervently by millions of people. Chief Justice Taft, who was no lefty, later said nothing has ever injured the prestige of the Supreme Court more than that than the Pollock case.
BROWNLEE: The movement on behalf of income taxation grew over the next two decades, and in particular it won growing support from middle class and urban areas. Support previously had been largely from farmers and small-town Democrats in the South and the West. More Republicans joined and more middle-class and urban people joined as well.
FISHKIN: Some people thought--and in fact William Jennings Bryan thought--Congress should just enact the federal income tax statute again and this time the court should recognize its error and uphold that it. And that wasn't actually so crazy, because after Pollock there were some signs that the Supreme Court was backing off. There was an inheritance tax that was enacted by Congress that the Supreme Court upheld a few years after they'd struck down this income tax. And there were a couple of other less important cases where the Supreme Court upholds some taxes following Pollack. So it was possible that you could just enact another income tax and the Supreme Court might change its mind.
CUNNINGHAM: In 1896, William Jennings Bryan ran for president and he gave a speech at the Democratic convention that has become one of the best-known speeches in American politics. It’s referred to as his “cross of gold” speech.
FISHKIN He said: “When I find a man who's not willing to pay his share of the burden of the government, which protects him, I find a man who is unworthy to enjoy the blessings of a government like ours.” You know we should all be willing to pay this tax. We should enact it. The Court should uphold it.
He said in that speech: “Upon which side shall the Democratic Party fight, upon the side of the idle holders of idle capital or upon the side of the struggling masses?” And famously his speech ended with this peroration:
ARCHIVAL RECORDING: “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”
CUNNINGHAM: Bryan didn’t win the presidential election, but support for an income tax became more and more mainstream over the coming decade. Fears about inequality and corporate power kept increasing, at the same time that government wanted to make more and more infrastructure investments and was finding that it couldn’t generate enough revenue under the current tax system.
BROWNLEE: In 1909, some of the most fervent advocates of income taxation, many of whom were now Republicans, believed that Congress should just move forward and restore the income tax. The leading proponent this point of view was representative Cordell Hull, of Tennessee.
CUNNINGHAM: Taft was president by this point (he would later serve on the Supreme Court himself) and he worked with Congress on a two-step process to usher in the income tax. First:
BROWNLEE: Congress enacted a partial income tax and this was a tax on corporate incomes alone. They called it an excise tax meaning it was like a sales tax. But Congress actually adopted a tax on corporate income before the personal income tax. The second part of this deal was that Congress sent to the states a proposal to amend the constitution to specify that Congress had the power to tax incomes from whatever source derived without apportionment among the several States and without regard to any census or enumeration.
CUNNINGHAM: This was the language of the 16th Amendment. And what it’s saying between the lines basically is--forget that bit in the Constitution about direct taxes that had to do with slavery. Congress can in fact tax incomes however it wants. An income tax is absolutely, and in any form, constitutional. That’s the 16th Amendment. It took four years for the states to ratify this 16th Amendment, but:
BROWNLEE: This process of ratifying the 16th Amendment turned out to solidify a national consensus behind the importance of income taxation.
CUNNINGHAM: Here’s some proof of how overwhelming the consensus had become for an income tax. In the 1912 presidential election, all four presidential candidates from different parties endorsed it. It was endorsed by the Democratic candidate, Woodrow Wilson, who won the election; by the Republican incumbent, President Taft; by the progressive candidate, Teddy Roosevelt, who was trying to reclaim the presidency; and by the socialist candidate, Eugene Debs.
By 1913, the fate of the income tax was sealed. Enough states had ratified that it became the 16th Amendment to the U.S. Constitution. This finally clarified Congress’s income taxation power and, as a consequence, it permanently overturned the Supreme Court decision from now two decades earlier in Pollock that had struck the income tax down.
CUNNINGHAM: I asked Joe Fishkin and W. Elliot Brownlee what America would look like today if we hadn’t ever passed the 16th Amendment--if we hadn’t switched over to a tax system in the 20th century that allowed for, and came to rely on, income taxes as the main way to fund the American government.
FISHKIN: I think there's almost no way to imagine how different the government would be. We would stop having the United States as we know it, and would be back to a small confederation of states. It would be a completely different country.
That familiar story of a United States with the world's largest military and the United States leading the world during the Cold War? All of that could only have been done with the revenue from the income tax. So the income tax I think changed the course not only of American but of world history.
CUNNINGHAM: No sooner had the 16th Amendment passed, in 1913, than the U.S. government needed it to raise funds to fight in World War I.
FISHKIN: And quickly within not very many years the federal income tax becomes the primary source of revenue for the federal government. By the time we reach the depression, and FDR’s efforts to fight the depression, the income tax is central to the federal government's revenue base. And then even more so when we get into World War II.
BROWNLEE: What changed most dramatically I think with the introduction of the income tax was increased the ability of the federal government to expand its spending on national defense without facing significant popular resistance. And it increased the ability of the federal government to respond more effectively to popular demand for large scale programs that promoted social welfare. So you got a more flexible, supple tax instrument.
CUNNINGHAM: It was so flexible, in fact, that at a certain point during World War II, the tax rate on some of the wealthiest Americans reached about 90 percent--to help the government pay for the war.
FISHKIN: The inequalities of the Gilded Age were essentially erased by a combination of the depression, the war and the income tax to fund the war, so that in the 1950s and 60s you had just a much more equal society than the United States had ever been.
BROWNLEE: But the progressive effects have been dramatic only during wartime and they've been consistently eroded since World War Two, with the most significant erosion coming during this century: the 21st century.
That reason is a kind of a political flaw in the highly progressive tax system is creating significant incentives for the wealthiest Americans to lobby for the carving out in the tax codes of exemptions.
FISHKIN: The question of how progressive it should be is a question of political economy. Just how much do we want to bring the fortunes of the rich lower or how much do we want to allow people to enjoy the fruits of what they build and produce? And so these are tough questions then and today.
The fight about whether to have an income tax or not was a fight about what kind of state we want to have--that in a way we're still having.
When you have a fight today about something like the estate tax we need to think of it as in part a constitutional fight, because it's a fight about what kind of economy we're going to have. Are we going to have large dynastic fortunes that are passed down through generations or are we going to have something more like equality of opportunity, where in each generation people are going to have to work and make money for themselves?
We think about the Constitution today as a document that basically inspires litigation in court. But the Constitution isn't just that. It's also a document that puts obligations on the political branches. And one of the political branch’s highest obligations is to maintain a political economy in which people have the wherewithal to fulfill their role as citizens in a republic--and that means that people need to be able to maintain a secure foothold in middle class. That's what Social Security was about. And that's what a lot of tax policy is about.
CUNNINGHAM: If we think back to the preamble of the Constitution, and the idea the framers put forward of “promoting the general welfare,” we realize that the constitutional power to tax is one of the greatest tools that Congress can use to shape that general welfare and to write the American story.
FISHKIN: The way I think about congressional powers there are really four big ones. There's the power to tax, the power to spend, the power to regulate commerce among the several states, and the reconstruction powers. So those are the four. And one interesting piece of the story, taking it all the way up to the present, is that in recent years in significant ways all of those have been pared back. There's one power that has not been pared back at all. And that remains just as robust as ever when it the amendment first came into effect, and that's the power to tax.
No comments:
Post a Comment