News Sips 3/7: Obamacare Lite (?), North Korean Provocation, Travel Pause II, and Baltimore’s Looming Minimum Wage Disaster

Here are the four things you need to know before your coffee gets cold, the March 7, 2017 edition:

 

Obamacare Lite?

The long wait for a look at the House GOP’s Obamacare replacement package came to an end yesterday when large parts of the approximately 120 page plan (the American Health Care Act) were released. Two major House committees, Energy and Commerce and Ways and Means, will spearhead different parts of the repeal and replace effort with markups in committee scheduled starting Wednesday.

The plan is, at a basic level, what most people expected it to be: Obamacare sung to a Republican tune. While this may be discordant to conservative ears, to Republican leaders (who, like anyone who has power and want to keep it), it is the groundwork for compromise.

Here’s the problem for Republicans: they need to change Obamacare. The law is a front-loaded disaster that’s collapsing under its own weight. Costs are spiking and the entitlement is failing. This was, probably, by design. Get people hooked then transfer to single-payer. There wasn’t enough political capital in 2009 to get single-payer through, but, in a crisis (the law collapsing), people are much more likely to accept a radical solution. That, and the fact that the “goodies” are front-loaded (staying on parents’ insurance, no denial for pre-existing conditions, etc.).

So, the law is collapsing and Republicans, by virtue of Democrats bungling several elections in a row, are in complete control of government. Unfortunately, they have an election next year. While it looks unlikely that Republicans could lose control of the Senate (there aren’t many vulnerable Republicans up for election and Democrats are defending over a dozen), the House could see a swing (like it did against Democrats when Obamacare was passed) based on popular opinion. It’s pretty routine that the President’s Party loses seats on his midterm election, so, Republicans are already braced to fight. If Obamacare were to collapse on the Republicans’ watch, guess who gets blamed?

So, here they are: people hooked on the entitlement, the law collapsing into a call for single-payer healthcare, and GOP Congressmen terrified that they’re going to lose re-election. What’s a Speaker to do? Well, the House plan is the start. It changes around the much-maligned individual mandate and, rather than a stick, provides a carrot: tax incentives. It block-grants Medicare funds to the States. Proponents say that it’s not really an entitlement, and that it embraces free-market principles: people get to shop a market and aren’t forced into one-size-fits-all plans.

Criticism from the right and the left were instant (and we’re going to be having a lot of talk about these critics in the months to come). Boiled down to their most succinct points, conservatives think the bill is a new entitlement that breaks the promise to repeal Obamacare. From the left, the criticism is that this will kick millions off of the Obamacare plan that they already have. The biggest concern, in the very near term is that, despite having seven years, it seems that the proposed bill, that has yet to be scored by the Congressional Budget Office, is more rushed than it should have been. However, in the coming days, we will see what’s in the bill and how that will be applied to the current system.

What remains very clear right now is that there will be a lot of fighting with the Republican leadership about the bill. It’s very unclear which side will give in and what the final product will look like.

 

North Korean Provocation

North Korea continues its provocation. As we discussed yesterday, over the weekend, Pyongyang test-fired four ballistic missiles in an apparent test of its war-making capacity. While the missiles were not a particularly new design, firing four at once was a clear indication that the missiles were not the real test, but rather whether the North could engage in a salvo-style coordinated strike.

The test comes at a time when the United States and South Korea are participating in joint wargames. These are an annual display of unity and strength that routinely draw the ire of North Korea. However, the issue is complicated by the North Korean assassination of Kim Jong Nam, the elder brother of North Korean leader Kim Jong Un. Nam, who was seen as Chinese leverage over his younger brother, was killed in Malaysia. It has now been revealed that Pyongyang has detained Malaysian citizens in North Korea in response to the Malaysian government’s insistence that North Korea was behind the assassination. This is a dangerous escalation, even for North Korea, because it risks angering China, the North’s only real defender on the world stage.

It remains unclear whether the detention of Malaysian citizens is just another attempt by North Korea to enhance its bargaining position or whether it is really an attempted show of force against another Asian nation. North Korea still remains one of the most volatile flashpoints in the world and a real test for President Trump’s fledgling Adminsitration.

 

Travel Pause II

Yesterday, the President, outside of the view of the press, signed his new Executive Order on Immigration. Taking effect on March 16, immigration for non-excepted foreigners from six failed states will be paused until the United States can draft more comprehensive immigration vetting policies. Iraq, which was included in the first Order, has been removed from the new Order. This change was noted by Secretary of State Rex Tillerson in a briefing to the press. The Secretary explained that the Iraqi government had worked closely and immediately with the United States to address security concerns that the US government had with Iraqi travel policies. Along with the fact that the Iraqi government has become an ally of the United States, the new policy would not impact Iraqi immigration.

Along with Secretary Tillerson, Attorney General Jeff Sessions and Secretary of Homeland Security John Kelly also gave a brief overview of the new Order as it impacts their respective departments. Sessions noted that there were currently 300 FBI investigations of refugees taking place at this time with regard to possible links to terrorist organizations. Kelly explained that DHS had been in contact with all of the relevant organizations, and with members of Congress, to explain the roll-out of the new Order. This is clearly an attempt to make sure the new Order’s roll-out is smoother than the Order that it will be replacing—which caught some enforcement agencies off-guard and resulted in a rhetorical win for the President’s opponents.

On March 16, when the new pause takes effect, it will, simultaneously, end the ongoing litigation over the President’s first attempt at an immigration pause. While the Press Secretary had stated that they President would continue to fight the first Order in Court—where a Federal judge enjoined its enforcement—there is really no reason to do so once a new Order is in effect. Moreover, there is the chance that the Orders could have conflicts with one another and the suspension of the first would be the practical course of action. Already, immigrant groups and liberal activists have vowed to sue the Administration over the new Order. However, Attorney General Sessions was clear that the new Order takes into account the admonitions of the Courts over the first Order and is within the President’s broad discretionary authority, given to him by Congress, to enforce immigration laws.

 

Baltimore’s Looming Minimum Wage Disaster

Baltimore is barreling forward with an economically disastrous plan to hike its minimum wage independently of the rest of the State. Spearheaded by the rhetoric of the “Fight for $15” rather than sound policy, and despite being warned by City agencies that the legislation would cost the City, already hemorrhaging money, millions per year, the Council looks all-but-certain to force the legislation through.

Despite popular approval of the legislation (who is going to turn down what is put in front of them as free money?), the reality is that there are significant, heavy consequences for Baltimore’s businesses that vapid, rhetorical nonsense is incapable of solving. Most importantly, it makes Baltimore a place where people won’t want to bring new business. So much of the discussion is focused (rightly) over whether a wage law that creates a discrepancy between Baltimore and surrounding areas. However, it does not take into account the decision-making process of large employers who, without even visiting Baltimore, will completely discount moving a business to a City where the cost of doing business is several times higher than across an arbitrary border.

Sure, it sounds nice to think that some people will get more take-home cash. That warm, fuzzy feeling will quickly be displaced by the cold reality of the business cycle. Wage pressure, especially as it relates to small businesses, can be devastating to business owners and new hiring. Raising the cost of labor without raising the value of labor does not help the owner or the laborer. Rather, artificially raising wages also increases the amount that employers will have to pay with respect to benefits and taxes. Likewise, people living in poverty, the same people the minimum wage crusaders think that they are trying to help, are the same persons who will be laid off because their skills don’t match their cost. Moreover, even keeping a position in the new labor market could kick workers off of government assistance programs and result in a greater impoverishment than what people are currently facing.

Here’s the problem with a municipality taking it on itself to artificially increase business costs: municipalities have almost no control over benefits and taxation. If the Federal Government were to raise the minimum wage to $15 (it’s wrong for macro, policy reasons in the post-industrial economy, but that’s another discussion), at least the whole government, including the IRS, Social Security, Medicare, and assistance programs could all work in tandem to change regulations to prevent negative impacts against the working poor. Even at the State-level, the significant negative effects on families by raising the wage could be offset by other policies (this would cost millions and be bad economics, but, at least there are options for the State to help the poor). A municipality, like Baltimore, raising the wage, has no power over the benefits structure of the poor and could very well wind up, through altruistic intent, denying families their much-needed safety net.

The displacement of unskilled workers also becomes a major problem when you create an arbitrary wage discrepancy on an intra-state border. Here’s the issue: if a Baltimore City business is required to pay $15 per hour and a Baltimore County business is required to pay $8.75 ($10.10 being likely in 2018), a worker with more qualifications in Baltimore County (or Anne Arundel or any of the bordering areas) will see it as a raise to apply for jobs in Baltimore City, thereby denying a Baltimore City resident, the exact people that the wage hike is trying to protect, from getting a job. The example is eminently suited to North Baltimore and the Charles Street corridor coming down from Towson. Why would a grad student working at a Towson Starbucks not travel a mile down the road to a Baltimore City Starbucks for an over 33% raise? Thus, a Baltimore City resident is displaced, Baltimore City loses out on tax revenue, and the wage is taken out of the jurisdiction.

It’s important to realize that minimum wage increases are not being pushed by individual workers, but rather by large, multistate unions that realize their power over collective bargaining increases if their members have a higher base wage. At its core, the “Fight for $15” has all of the hallmarks of a shakedown of businesses under the guise of helping workers.

The reality for Baltimore will be just the opposite. Small businesses, despite the talk about caring, will experience tighter profit margins (if at all). Some will fail entirely, some won’t be able to make new hires. Large employers, like retailers and desperately-needed grocery stores, will look at the cost of business in Baltimore and decide not to invest. The City will have to outlay millions of dollars in new, unforeseen and unprovided-for wages to its own employees and will be forced into an even tighter budgetary death-spiral than the one it is already facing. The poor, unequipped with new skills, will either be displaced from jobs or, in some cases, thrown off of entitlement programs. But, please, keep advancing slogans and rhetoric.

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Of course, there are more things going on in the world, but these should be enough to get your day started.

 

Matt McDaniel

Attorney and Political Commentator

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