Is the Affordable Care Act progressive in the most effective way?
In a very fine study, Henry Aaron and Gary Burtless at Brookings have looked at the ACA’s potential effects on income inequality and have preliminarily concluded that the ACA redistributes income—largely in the form of health benefits
fits—to the poorest one-third of Americans. Most of the law’s additional subsidies—the expansion of Medicaid and subsidies for those buying insurance on the exchange—are highest for those with the lowest incomes. Offsets, such as some new taxes, tend to be concentrated less at those lower income levels.
What the Aaron and Burtless’ study was never intended to assess—and a lingering 21st century concern with almost all government health policies—is the ACA’s effectiveness and efficiency, both for the public in general and those with modest means in particular. For instance, many rewards of our government health policy have traditionally been captured by health industry providers, who are able to charge consumers higher prices. A program can be progressive, but still end up charging the public an additional $2 for $1.50 or $1 worth of care.
The ACA does at times attempt to deal with some of these issues and includes several experiments. But it was mainly directed at improving access, not reducing health costs. Reforms beyond the ACA still are required on that front regardless of which political party accedes to power.
In a recent Washington Post article, I characterized any forthcoming budget deal as two parties who had dug a hole for themselves deciding to stop throwing shovels at each other. Despite this skepticism, I must admit that this December 2013 agreement is certainly better than throwing shovels—or, more formally, threatening another government shutdown, along with its attendant costs on the workings of government, the well-being of citizens, and economic growth.
This budget agreement also takes a couple of baby steps forward. For the first time in a while, it includes modest reforms to mandatory programs, not just discretionary programs. It cuts back slightly on the silly sequester. Perhaps more important, it gets the two budget committees functioning again. Traditionally, members of these committees have had to fight with the rest of Congress as much, if not more, than with their opponents within the committees—partly because committee members, regardless of affiliation, shared the objective of getting the budget into some sort of order.
If the committee members have really decided to restore their status, and if they are constrained by other congressional leaders from making significant headway on the budget in the months leading to the next election, I hope at least they will start working on bipartisan budget process reforms, such as reducing the game-playing in future budget agreements. One example is greater constraints on future legislation that increases long-term deficits. A trick still possible (but not used in this deal) is to avoid scoring or counting costs against a bill when they fall outside an arbitrary ten-year budget window.
A few years ago I visited a history museum in an Eastern European nation that had recently abandoned communism. It was quite depressing. In one room I could read about oppression under ancient royalty, in the next oppression under Hitler, in the next oppression under communism. I became acutely aware of how lucky I was to live in a nation with a positive history and legend about its founding and development, and the related ability to triumph over evils, internal and external, ranging from slavery to fascism.
A person like Nelson Mandela takes his country onto a higher plane. He serves as a beacon and inspiration for new generations. When the South African government falters, as it will over time, Mandela’s legend will continually call the people back to a time when hope for progress drove the nation.
Any country’s story of itself evolves from the actions of its heroes and the mythology (in the most positive sense of that word) that surrounds them. In the United States, our teachers and textbooks teach our schoolchildren to try to emulate our Washingtons, Jeffersons, Lincolns, Roosevelts, and Kings. With their leadership, we—and our nation—seemed to move to a higher and better plane. We don’t have to count on our Millard Fillmores to inspire us, even if plenty of them still seem to be around.
I worry greatly about those countries without heroes to inspire their citizens. People in Russia or Egypt may come to tolerate a Putin or a Mubarak-like successor because many of them haven’t known anything better. Despite the formidable talent of the Chinese people, they still look back to a Mao rather than a Gandhi for thinking about what their nation can become—giving India, in my view, an extraordinary leg up for development in this still-young century. In a country with true national heroes, the citizens come to see themselves as part of an evolving and perfecting culture. Failures aren’t tolerated as the way of the world but seen and actively opposed as obstacles to progress.
In this way, Nelson Mandela lives on—and will do so for centuries to come.
A few years ago I emerged from my July 4 hovel at home and started attending fireworks celebrations again. Sometimes I settle in with the crowds on the National Mall in Washington, DC; other times I crowd at the last minute with the groups that gather on one of the many surrounding hilltops. What strikes me again and again as I merge into and mingle with the crowds is how much the experience unifies us. Here are five related thoughts:
- There’s something very special about July 4 and Thanksgiving Day, national holidays where we all come together to celebrate the many blessings we have received. What other holidays take us so outside ourselves and into the larger whole of our national community?
- Among the most jovial and lively of the participants on July 4 are the new immigrant communities, at least as I infer from their many accents. They cheer the loudest. Many have come far from conditions of poverty and tyranny to know real freedom. I like this. They inspire me.
- Whatever anyone thinks of immigration reform, our immigrant community largely organizes its protests over its desire to work and contribute. I contrast this particularly with those (not all) countries of Europe or Japan, where either immigration is discouraged or significant roadblocks are placed on immigrant work. Such places lose out on the intellectual and even genetic gains from diversity and gain the social problems that derive from keeping the young restless. I also applaud our founding fathers, who ameliorated what will be a perpetual problem in any rich country by having the good sense to attach citizenship to birth in the country. I know it’s arbitrary, but it certainly avoids some of the multigenerational problems and bitterness I’ve seen elsewhere.
- Symbolism and celebration help define who we are. Give John Adams early credit when writing his wife, Abigail, that “the second day of July, 1776 [he was off by two days—for good reason]…will be celebrated by succeeding generations as the great anniversary festival… it ought to be solemnized with pomp and parade…and illuminations, from one end of this continent to the other, from this time forward forever more.”
- I’m one of the luckiest people ever to live in this time and place. Aren’t you?
Charitable organizations form a vital part of America’s safety net. Ideally, foundations would be able to make greater payouts in hard economic times when needs are greatest. Unfortunately, the design of today’s excise tax on foundations undermines and in fact discourages such efficiency.
Under current law, private foundations are required to pay an excise tax on their net investment income. The tax rate is 2 percent, but it can be reduced to 1 percent if the foundation satisfies a minimum distribution requirement. The dual-rate structure and distribution requirements obviously introduce complexity. The stated purpose of the tax in legislative history—to finance IRS activities in monitoring the charitable sector—has never been fulfilled.
In the recent recession, the impact of the excise tax was especially pernicious, as it penalized those that maintained their level of grantmaking.
How? As Martin Sullivan and I first described in 1995, the excise tax penalizes spikes in giving; under the current formula, a temporarily higher payout results in a higher excise tax when payouts fall back to previous levels. A foundation that reduced its grantmaking during the last recession would not be subject to an increased excise tax because the amount the foundation paid out would be measured as a share of current net worth.
One proposal would replace the excise tax with a single-rate tax yielding the same amount of revenue. While a flat-rate tax would remove the disincentive to raise grantmaking in bad times, it still raises taxes for some foundations and not others.
A related law applying to foundations is the required payout rate, now set at 5 percentage points. Many experts have debated how high that rate should be. The current rate is believed to approximate the long-term real rate of return on a foundation’s balanced portfolio of assets. However, if foundations follow a strict rule of paying out the minimum 5 percent every year, they, too, will be operating procyclically, paying out more in good times when stock markets are high and less in bad times.
If we wish foundations to operate more countercyclically—to pay out more when needs are greater—we need to address both the excise tax and the natural tendency, reinforced by a minimum payout requirement, to make grants and payouts as a fixed percentage of each year’s net worth.
While the income inequality among different racial and ethnic groups is significant, it is nothing compared to wealth inequality. In 2010, whites had six times more average wealth than blacks and Hispanics ($632,000 versus $103,000). The income gap, by comparison, was twofold ($89,000 versus $46,000).
In a recent study, several colleagues and I examine in more depth how these ratios are affected by wealth accumulation over a person’s lifetime. Early in wealth-building years (when adults are in their 30s), white families have 3.5 to 4 times the wealth of families of color. As adults age these initial racial differences grow both absolutely and relatively. Whites in the cohort we examined started with about three and a half times more wealth than blacks in their 30s but had seven times more wealth in their 60s. Compared with Hispanics, whites had four times more wealth in their 30s but nearly five times more wealth three decades later.
Or consider how ratios would vary if each family saved the same share of its income and earned the same rate of return on those savings. Ignoring inheritances, the wealth gap should resemble the income gap, not be three times as large.
While the Great Recession didn’t cause the wealth disparities between whites and minorities, it did exacerbate them. The 2007–09 economic slowdown brought about sharp declines in the wealth of white, black, and Hispanic families alike, but Hispanics experienced the largest decline. Lower net equity in homes accounts for much of Hispanics’ wealth loss, while retirement accounts are where blacks were hit hardest.
Something is definitely going on. Whatever other conclusions one may draw, I think our tax and social policies are doing a pretty poor job of helping individuals attain the types of protections that private wealth-holding offers. In fact, wealth disparities among races have expanded over the past 27 years, which should have liberals and conservatives alike questioning the unintended consequences of their policy victories, or at least their policy focus, over that period.
For more analysis of the wealth gap between whites and minorities, read the brief Less Than Equal: Racial Disparities in Wealth Accumulation or watch The Racial Wealth Gap in America. This work has been cited in the New York Times.