Who Knew Governing Was so Hard? Obamacare Repeal Fails

President Donald Trump and Speaker Paul Ryan (R-WI) begged, cajoled, twisted arms, wheeled and dealed, and, finally, resorted to making threats. In the end, none of it worked. After delaying a vote on the AHCA on Thursday, it was clear that the votes would not be there on Friday, either. So, the Speaker went to the White House for instructions, and The Donald made the call: Kill it. The AHCA is thus dead without even coming up for a vote, and—as both Ryan and Trump acknowledged on Friday—Obamacare is, and will remain, "the law of the land for the foreseeable future." The GOP said much the same thing about Social Security...80 years ago.

There are an awful lot of moving parts here, and any assessment is probably best organized in terms of winners and losers. So, let's start with the losers:

• Donald Trump: There is no quantity of spin, denial, obfuscation, or "alternative facts" that can change one immutable fact about Friday's events: The President suffered a humiliating defeat of epic proportions. Those are strong words, but strong words are needed in order to make clear how very bad this was for him, because this defeat functions on many, many different levels. He failed as a legislator, in his very first attempt to actually achieve something through some means other than executive orders (and Twitter). He failed as an agenda-setter; now the other aspects of his program will be harder to secure and harder to pay for (more below). He failed as a politician—it has now been laid bare that his promises of a "terrific" replacement for Obamacare were nothing more than hot air.
  
  Perhaps most importantly, Trump failed as a dealmaker. The man who "wrote" The Art of the Deal has always put his negotiating skills at the very center of his self-image and his case for the presidency. Indeed, "negotiation" has been his panacea for nearly all that ails America: trade imbalances, rocky relationships with China or India or Israel, job losses, health care, etc. However, the President's handling of the AHCA made it seem like he didn't even pass Negotiation 101. To start, despite Sean Spicer's assertion that, "The president has given it his all," he really didn't. Trump spent last weekend golfing at Mar-a-Lago, and let others do the heavy lifting. Then, when he finally did start to get his hands dirty this week, he failed to commit to a vision for what he wanted the bill to be—it could not concurrently become both "more conservative" and "more moderate." Finally, his ultimatum to house Republicans was a huge blunder, one that even rudimentary game theory would have warned against. As the "ultimatum game" teaches us, two competing interests will almost always accept a 50/50 split of available resources. And 40/60 will generally fly, as will 30/70 when push comes to shove. But at a certain point, the person (or faction) getting the smaller part of the pie will eventually get to a point that they would rather save their self-respect, even if it means they walk away with 0% of what they want. That tipping point comes at around 80/20, and it is clear that the AHCA was offering so little to many Congressional Republicans (both on the far right, and nearer the center) that 0% was the preferable option.
  
  Now, as we have pointed out before (and as we point out again below), only losers fail in Trump's world, and only losers accept blame. Consequently, there was so much finger pointing going on at the White House on Friday that it seemed like Sean Spicer had grown two new arms. Though Trump publicly praised Ryan, administration insiders slammed both the Speaker, as well as HHS Secretary Tom Price, with one declaring, "This is 100 percent a Ryan failure. His plan and Tom Price is his guy." Trump (and his surrogates) also blasted the Freedom Caucus, along with the President's lobbying group America First Policies, and, of course, Congressional Democrats. "I think the losers are Nancy Pelosi and Chuck Schumer because now they own Obamacare," Trump declared. The President was even angry with son-in-law Jared Kushner, who was never enthusiastic about the Obamacare repeal in the first place, and who spent the week skiing the slopes of Aspen, CO. In short, the only person to avoid blame, besides Trump himself, is the second shooter on the grassy knoll. Of course, we're still waiting for Trump's 4:00 a.m. tweetstorm, so the grassy knoll guy's turn could still be coming.
  
  Perhaps The Donald will have success passing the buck; it's worked for him so many times before, after all. But eventually, as CNN's Julian Zelizer argues, more and more people are going to take notice that there's only one commonality when Donald Trump loses the popular vote, and when Donald Trump draws a smaller inauguration crowd than Barack Obama, and when Donald Trump's campaign staffers interact in questionable ways with Russia, and when Donald Trump falsely claims he was wiretapped, and when Donald Trump's effort to reform healthcare fails to come to fruition. Here's a hint: The common factor isn't fake news, and it isn't Muslims, and it isn't undocumented immigrants, and it certainly isn't Jared Kushner.
  
  
• Paul Ryan: This was Paul Ryan's first major test as Speaker of the House, and he failed it—the legislation he crafted was almost universally reviled, and he demonstrated virtually no ability to herd the cats that make up his caucus. Making things even worse is that the AHCA is the kind of law that forms the heart of his political program: cut spending/taxes, give money back to the wealthy. As we are fond of observing, a week is a lifetime in politics, but at the moment, it is very hard to see how he or his agenda can be taken seriously going forward.
  
  
• The Freedom Caucus: Nominally, Friday's developments were a victory for the Freedom Caucus, since they were able to band together and kill a bill that they really hated. However, that now means they are left with a healthcare program that they hate even more. That's like trading the flu for cancer. Further, they now have a target on their collective backs, having aggravated both the Speaker and the President. One of these days, the Republicans may even realize that they are not a political party as much as they are a governing coalition. If this were the UK, and Theresa May felt the Scottish National Party was starting to become more trouble than it's worth, she might start chatting with the Democratic Unionist Party. Similarly, GOP leadership might one day conclude that the cure for what ails them is to stop talking to the Freedom Caucusers and to start talking with the Blue Dog Democrats. Such a realization could quickly leave the Freedom Caucus as an irrelevant radical fringe.
  
  

Moving on, let's talk about some winners:

• Obamacare: Although Trump said that the Democrats would now have to "own" Obamacare, that's not exactly correct. In fact, it's not really correct at all; it would be considerably more accurate to say that Obamacare is now Trumpcare. It is now in the President's hands to shepherd the program, and he can choose to (1) try and fix its problems, (2) do nothing and let it flounder, or (3) actively try to undermine it. At the moment, still stinging from Friday's defeat, Trump's instinct is to let it burn. But eventually someone will point out to him that someone who had insurance under Obama and then lost it under Trump is not likely to blame Barack Obama, regardless of whose name is on the program. Further, if Obamacare does go down in flames, it will only highlight the GOP's inability to come up with an alternative. It is also the case that, now that it is clear that no alternative is coming, insurance companies and states are likely to become more invested in Obamacare, with more states potentially opting in to the exchange system and/or to the Medicare expansion. The executives at those insurance companies, and the governors of those states (not to mention the governors of the states that have already committed to Obamacare) are likely to share their views with the administration and with the members of Congress. Add it all up, and the odds are very good, as The Hill's Peter Sullivan and Jesse Hellmann point out, that Obamacare got a new lease on life on Friday.
  
  
• The American People: It may seem facile to say so, but the American people were also winners on Friday. There are, of course, the tens of millions of people that will presumably be able to keep their insurance now. Beyond that, however, the more people who are insured, the better off everyone is. First of all, because diseases that are treated do not spread as widely as diseases that are untreated. Second, because hospitals are legally required to treat people with medical emergencies, even if they don't have insurance. As long as that remains the case, it's better for the general public that those people at least make some contribution to the costs of their care or, failing that, that they get treatment while their condition is cheap to fix, rather than once it becomes a very expensive crisis situation.
  
  
• The Democratic Party: The blue team took a beating on Election Day, but now—from their vantage point as the minority party—they pulled together and managed to help salvage the signature achievement of the Obama administration. The party's leadership took some well-deserved victory laps on Friday, with Senate Minority Leader Chuck Schumer (D-NY) mocking the Trump administration as "incompetent," with Sen. Bernie Sanders (I-VT) describing the GOP as "out of touch."
  
  With that said, the Democratic Party's problem—for at least a decade or two—has been keeping the heat on. Michael Moore, who seems to be the voice of reason an awful lot these days, observed that the Democrats must recognize that they only won a battle today, and not the war. "This is not the time for the Democrats to gloat," he said, "This is the time we have to now double down." As a tactical matter, Moore is right about that—Donald Trump is certainly not going to tuck his tail between his legs and disappear into the White House for the next four years. In fact, given Trump's need to be seen as a "winner" and to have positive headlines, it would not be a surprise if he is back next week pushing hard for another of his signature initiatives—the wall, perhaps, or tax reform.
  
  
• The Republican Party: In the short-term, the GOP took a beating on Friday. But long term, they would have taken the lion's share of the responsibility for the fallout from the AHCA, whether people losing their insurance, or markets entering death spirals, or maybe even an outbreak of swine flu or mad cow disease. This could have been very, very painful at the polls in 2018 and 2020. And so it's fair to say, as Politico's Steven Shepard does, that the Republican Party ultimately dodged a bullet here.
  
  
• About Two Dozen Senators: If the AHCA had made it through the House, it would have created a huge headache for some members of the U.S. Senate—Majority Leader Mitch McConnell (R-KY), as a start, but also some Senators up for re-election in 2018, as noted above. These individuals, say a Joe Manchin (D-WV) or a Dean Heller (R-NV), could have been put in a very tough position, balancing between GOP voters who hate Obamacare and poorer voters who need the program. Now, they don't have to take a position at all.
  
  

We're not the only ones to do a winner/loser approach; others can be found at The Hill, RollCall, PoliticusUSA, The Daily Kos, and, for those of a financial bent, CNBC.

So, what happens next? Well, the problem with holding (or canceling) a vote on a Friday afternoon is that there's no time left to answer that question. Tax reform is the obvious answer, but maybe not so much, given that it will be very difficult politically, and there won't be extra money from the AHCA to pay for it (see below). Presumably, the future will become less cloudy next week, but at the moment, your guess is probably as good as Paul Ryan's. (Z)

Trump: I Should Have Done Tax Reform First

Donald Trump is famous for never, ever, admitting he has done anything wrong, so it is surprising that just before the vote on the AHCA bill, he admitted to four people close to him that pushing repeal of the ACA to the front of his legislative queue was a mistake. Tax reform should have gone first. Fundamentally, Trump misjudged how difficult healthcare reform would be and how much opposition there would be from his own party to any concrete bill.

The problem here is that Trump has no idea how difficult tax reform will be. Republicans all want to cut taxes. In the abstract, there is total agreement. It's when the subject of whose taxes will be cut that the trouble comes in. For example, Trump wants a border adjustment tax that will tax imports but exempt exports from tax, in order to stimulate exports and penalize imports. Big exporters like Boeing and John Deere are wildly in favor of this. Big importers like Walmart and Target are equally wildly against it. Then there is the small matter of whether the emphasis should be on cutting individual taxes or corporate taxes.

if there is a massive tax cut, deficit hawks will scream unless there is an equally large spending cut. However, the three biggest items in the federal budget, by far, are (1) Social Security, (2) Medicare, and (3) military spending. Trump has promised not to touch (1) and (2), and he wants to increase (3). Next come (4) interest on the federal debt and (5) veterans benefits. Not too promising. Everything else combined is about 1/8 of the budget. Here is the famous pie chart.

Oh, did we forget to mention how taxes interact with foreign policy? Sorry. If Trump and Ryan push for and get a border adjustment tax (basically, a tariff on imported goods), China, Germany, and other major trading partners will surely responded with their own tariffs on American goods, leading to a trade war. The Smoot-Hawley tariff didn't work out so well, but maybe it will do better the second time.

And then there is the minor matter of North Korea, which is working hard to build a missile that can deliver a nuclear weapon to mainland America. The only real leverage the U.S. has against North Korea is China, which provides all of North Korea's oil. If China were to cut off the oil supplies, North Korea would totally collapse within a week. What are the odds of China cooperating on North Korea after Trump has just imposed a 45% tariff on Chinese goods entering the U.S.?

If Trump expects the tax-cut bill to be all rainbows and unicorns, he is going to be quite surprised when an actual bill is drafted. We have a headline stockpiled for future use: Who knew tax cuts were so hard? (V)

Investigation of Manafort Now Extends to Cyprus

The government's investigation of Donald Trump's former campaign manager, Paul Manafort, has now extended to Cyprus, an island nation in the Mediterranean perhaps best known as a center where Russian billionaires like to do their money laundering. Manafort ran transactions through Cyprus on a regular basis. For example, in Oct. 2009, one of his companies received $1 million from an unknown source via a bank account in Cyprus, then split it in two and sent $500,000 to each of two unknown destinations. There is nothing illegal about doing business in Cyprus per se, but why did he do the transaction there? American banks are happy to do wire transfers, as well. Perhaps the secrecy that banks in Cyprus offer had something to do with this? When White House Press Secretary Sean Spicer was asked about it, he replied: "You pull out a gentleman who was employed by someone for five months and talk about a client that he had 10 years ago." Nice try, but we probably haven't heard the last of this story. (V)

Poll: Americans Don't Want to Deport Undocumented Immigrants

A new CNN/ORC poll shows that Donald Trump's view of undocumented immigrants ("deport them all") doesn't align well at all with what the American people think. The poll shows that 90% of the respondents think that undocumented immigrants who have been in the country for many years, speak English, and are willing to pay any back taxes owed should be allowed to stay and eventually apply for citizenship. Also, 60% think the government should prioritize legalizing those people over deporting them. The poll closely mirrors an earlier Quinnipiac University poll that shows support for allowing undocumented immigrants to stay is 63%. Sizeable majorities disapprove of the planned border wall and the Muslim ban.

Polls or no polls, presidential adviser Steve Bannon flatly rejected the news and said that an "overwhelming majority of Americans" support his "populist nation-state policies." This statement is clearly false. Part of Bannon's "misconception" is that when people are presented with some of his ideas in the abstract, like "America first," they sound pretty good. But when people realize the actual policy that goes with the slogan, they don't like it at all. That is surely going to be true of many other policies going forward. "Tax reform" sounds pretty good to many people who feel that Jimmy Carter was right when he said the U.S. tax code is a "disgrace to the human race." But their idea of reform may not be giving millionaires and billionaires a huge tax cut and then cutting social programs to pay for it. (V)

Senate Votes to Kill Internet Privacy

In 2016, the FCC voted to required Internet providers to get their customers' permission before selling information about what they do online to third parties. The Senate just voted 50-to-48 along party lines to overturn that policy. The House is expected to follow suit and Donald Trump is expected to sign the bill when it lands on his desk. This means that Verizon, Comcast, AT&T and other Internet providers can track what people do online and sell that information to the highest bidder without asking permission from their customers or even notifying them that they are doing so. For example, if someone does online research on some disease, that information might be of interest to companies that sell life insurance or to employers. Sen. Jeff Flake (R-AZ), who introduced the bill, said the FCC regulation was an example of a "bureaucratic power grab." The vote is a victory for Internet providers, who see the data about their customers as gold to be mined, and is a defeat for privacy advocates.

Next on the agenda for the big carriers is "net neutrality," a ruling that prevents them from selling high-speed delivery guarantees to big corporations and disadvantaging the millions of smaller websites that can't afford to buy access. The end game here would be to turn the Internet into something like cable television, with a few thousand large corporations having big websites and not much else out there. (V)

Canada's Largest School District Will End Trips to U.S.

The Toronto District School Board has announced that it will stop schools from organizing trips to the U.S. on account of the uncertainty of which students may be affected by the Muslim travel ban. Trips that are already scheduled will take place but no new ones will be planned. The board said that it would put students in a terrible situation if some members of a class were denied entry to the U.S. The class could hardly just leave the students at the border and continue with the trip. To avoid such situations, the board, which oversees 246,000 students in 584 schools, decided the best policy was to simply avoid all school travel to the U.S. (V)

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---The Votemaster and Zenger