Perspectives on Obamacare Repeal

As President-elect Donald J. Trump prepares to take office next week, Republicans are weighing options for repealing and replacing the Affordable Care Act. Policy makers and experts are debating the implications of different repeal options.

Two analysts – Leighton Ku of George Washington University and Donald Grimes of University of Michigan – have recently published findings that offer different perspectives on the subject. Both use our economic model, REMI PI+. An article in The Atlantic magazine on the possible economic effects of an Obamacare repeal cited both studies.

Dr. Ku is the lead author on a report released by GWU and the Commonwealth Fund titled “The Economic and Employment Consequences of Repealing Federal Health Reform: A 50 State Analysis”, which estimates the impacts of a repeal-without-replacement scenario. The study has also been cited by NPR, CNBC, and CNN.

Mr. Grimes is co-author of “Economic Effects of Medicaid Expansion in Michigan”, which was published in the New England Journal of Medicine and projects employment and revenue effects of Medicaid expansion in the state.

State Tax Policy: Time for Change?

Regardless of the outcome in next week’s presidential election, governors and state lawmakers will play a significant role in policy innovation – including tax reform.

While state fiscal health has improved since the end of the Great Recession, many states only expect modest growth in revenue. Policy makers in state capitals across the country will continue to look for more efficient ways of collecting taxes.

It’s not just a question of sufficient revenue. Policy makers weigh tax reform as a means of boosting economic growth. Some reform plans emphasize a shift away from taxing wages, salaries and investments, in favor of increased taxation on consumption.

Georgia officials have considered options for cutting state income taxes, increasing sales taxes, and expanding the sales tax base. These changes might encourage savings and lower the cost of capital, producing benefits that offset higher consumer prices.

Georgia State University’s Fiscal Research Center analyzed the potential implications of tax reform. Peter Bluestone, a senior research associate at the center, used REMI PI+ to simulate the potential effects of the proposals.

Clinton vs. Trump: Pocketbook Policies

In 27 days, this year’s bitter and unpredictable presidential election will reach a conclusion, and the winner will shape national economic policy for the next four years.

While angry arguments and raucous rallies often drown out substantive issues, serious economic questions are at stake in this election. The subtext throughout this campaign season is economic growth and income inequality.

Voters are frustrated with the sluggish recovery following the Great Recession, and many policy makers are paying greater attention to the widening disparity in wealth. Hillary Clinton and Donald Trump are zeroing in on voters’ economic anxieties.

Clinton has emphasized positions that she says will increase fairness in the economy – paid family leave, expanded child care, and a higher minimum wage. Trump has criticized trade deals as costing American jobs and promised immigration restriction that he says will boost wages.

Trump also vows to stimulate the economy with major tax cuts, while Clinton would raise taxes on the wealthy. Both candidates have spoken in favor of increased spending on infrastructure.

While their economic prescriptions differ, Clinton and Trump both invoke the electorate’s concerns about growth and economic fairness. We have to ask: Do we live in a stagnant “fixed-pie” economy, where all economic competition is a zero-sum game? Or can we grow the pie, and turn the economy into a positive-sum game?

To evaluate proposals that address these issues, we need a dynamic view of the economy. If we can boost productivity, for example, we can grow the pie and avoid fights over limited opportunities. A dynamic approach to economic analysis can anticipate productivity gains, and lead to policies that lift us out of the zero-sum trap.

Paying It Forward: Targeted Borrowing

When the economy is in the doldrums, the government has a few options in its tool box. One strategy is “priming the pump” by injecting the economy with government stimulus, paid for with borrowed money.

Deficit spending can give a boost to the economy, replacing lost demand whenever consumers and businesses are afraid to spend. Depending on how the money is spent, however, the stimulus may just have a fleeting impact on an economy.

On the other hand, if borrowed money is targeted at much-needed public investments, the spending could eventually pay for itself in improved productivity. Alleviating traffic bottlenecks, ensuring the safety of drinking water, or modernizing air traffic control improves people’s lives and promotes future growth.

For some, additional deficit spending is merited even now at a time of relatively low unemployment, since the needs are urgent and the benefits of key investments could outweigh the costs.

Economist Paul Krugman recently argued in his New York Times column that there are a lot of unmet needs right now, citing the aging Metro system in Washington D.C. as one example. He wrote that “there is an overwhelming case for more government borrowing” – given that interest rates are low, and spending would translate into a larger economy and more tax revenue in the future.

In a Washington Post op-ed, former Treasury Secretary Lawrence Summers made the case for infrastructure investments, saying the return on projects would exceed the cost of borrowing.

The key challenge is how to choose projects. With sound economic impact analysis, policy makers can see which projects will likely result in the greatest gains in productivity, employment, and output, and use this information to prioritize spending.

Tackling U.S. Infrastructure Challenges

When it comes to infrastructure, Americans have a daunting “to-do” list.

The U.S. must spend an estimated $3.6 trillion by 2020 to ensure our highways, water mains, electrical grids, and other critical infrastructure continue to meet our needs, according to a report by the American Society for Civil Engineers.

Insufficient infrastructure spending can hurt the economy, as aging highways and bridges, crowded airports, and overburdened public transit slows the flow of goods, services, and people.

But our policy makers have a finite amount of money to spend on transportation. We want to invest limited resources wisely, to make sure we’re prioritizing construction projects that offer the greatest economic benefits.

That’s where economic policy modeling makes a difference. By simulating the future impacts on jobs, productivity and output, we can better evaluate the potential benefits from transportation proposals.

REMI Vice President Billy Leung gave a webinar presentation this topic, reviewing how to rank the viability of investment strategies using dynamic economic modeling. You can find a recording of the presentation here.