Lee Elci: He’s a writer, an excellent writer. He’s got a column up right now in the Wall Street Journal. Red, good morning. How are you?
Red Jahncke: Hey. I’m good. Lee, how are you? Been having to wield the hammer, the screwdriver, the wrench and the spit and bailing wire.
Lee Elci: You know, I couldn’t get my camera to work, and it, literally, it was just one stupid thing. One button that had to be pushed.
Red Jahncke: The “on” button, right?
Lee Elci: Yeah. Exactly. Yeah. The one, the big red button. Alright. Listen. Good morning. Great column, by the way, one that we have talked about at length in the past. But if folks haven’t read Red’s column, go to the Wall Street Journal or go to the-red-line.com and take a look at it there. It’s fantastic. But today you wanted to talk about the Big Beautiful Bill.
Red Jahncke: Yes, sir.
Lee Elci: Alright. Yeah. Talk to me. Give me the 30,000 foot view and then I’ll ask questions.
Red Jahncke: I did, and that’s exactly where I think we should start. Because, right from 30,000 feet, the Democrats are distorting and misinforming. By the time you get to anything that’s actually in the bill, you’re beyond this point of major distortion.
There are two ways to look at the impact of the bill, one of which is change from current law. The other is change from current policy. That is not a simple semantic difference. The current law is that the Trump tax cuts expire at year end. So changes from current law are changes from the reimposition of the higher taxes. Well, we’ve been living in an economy since the middle of Trump’s first term, where taxes have been steady. That’s current policy.
So what’s the change from current policy i.e. the world we have actually been living in, as opposed to current law, where it’s assumed that the tax cuts expire and you calculate all changes in this new bill from that baseline. The Democrats think that the extension of the tax cuts are a change. They are definitely not a change from what’s been going on for 6 to 7 years. So they’re crying foul that Trump is cutting taxes for his rich buddies. But taxes are steaming along under the One Big Beautiful Bill exactly where they’ve been for 6 to 7 years. That’s no change.
Lee Elci: Right. Let me ask you about that though. It does seem like there’s a disproportionate disbursement of the of the positive tax breaks for the either the upper 20% and in particular the 1%. What’s your thoughts on on that.
Red Jahncke: That is just the function of the progressive tax code. If you’re going to tax wealthier people at higher rates, any change in the overall rates are going to impact them disproportionately. If you’re paying 37% as a high income wealthy person, a tax cut is going to have impact at a 37% rate. If you’re paying taxes at 15%, the tax cut delivers a whole lot less to you. So if the Democrats want to adopt a flat tax, then we can talk about whether tax cuts in a level environment, level playing field.
All of this is not to say that we don’t have a massive fiscal financial disaster on our hands. We’ve got $29 trillion of national debt. Okay, this is not to be ignored. So don’t take my words this morning as a defense of running nonstop enormous deficits and additions to the national debt.
Lee Elci: All right. So yeah. And you and since you mentioned that so that, according to most reports, you’re going to add three point something trillion to the national debt over the next decade from this bill. Good, bad and different. I know it seems like we’ve that that numbers this desensitized to the trillion dollar number now. So I mean what’s the impact on on all of that. Right.
Red Jahncke: Well, there is a glaring omission in this debate. We’re talking about whether you use current law or current policy as your baseline. We’re talking about budget matters on budget law passed through Congress and adopt and signed by the president. Omitted in the discussion is the impact of executive orders.
Democrats in Congress requested that the Congressional Budget Office score the impact over ten years of Trump’s tariffs as of mid-late May, no one talks about that. You know what the impact is? The impact is to raise $3 trillion of revenue, completely offsetting the impact of the One Big Beautiful Bill. So what’s going on in the public discourse is highly partisan. To ignore the impact of tariffs, in my opinion, is journalistic malpractice.
Lee Elci: And we’re talking significant amounts of money [that] have already been raised, even in this infancy of this tariff deal. In some months, it’s, you know, it’s $30 trillion or $17 billion. So it’s adding up, right?
Red Jahncke: Yeah. It’s adding up. And you know the the defense that these, these so-called journalists offer is that well how can you know what tariffs are really going to be and their impact because Trump changes them month to month, day to day. Right. Put that out as a disclaimer. That’s fine. But report the CBO scored tariffs as raising $3 trillion over the next decade, okay.
Lee Elci: So there’s your offset. And you’re not calculating the potential growth from giving people more money in their pockets to spend. Are you calculating that in your your assessment of this.
Red Jahncke: Right. You’re onto another conceptual perspective on budgeting and the future economic fiscal outlook. There’s, there’s static budgeting where you just tumble the numbers, add and subtract. And then there’s dynamic. In dynamic, as you suggest, more money is in the economy. The economy has more wherewithal with which to grow. If it grows faster, it will throw off more tax revenue. If a company, if you make 25 billion versus 20 billion, you’re going to pay higher income tax, corporate income tax. That’s going to fill the government corp coffers faster.
So, yes, those are all different approaches, but they certainly can’t be dismissed out of hand, which is the nature of the reporting from the mainstream media. They just adopt current law as if it’s the only game according to Hoyle. In their minds, there’s no other possible method. So they don’t even mention current policy. They stick with static budget forecasts and don’t even mention dynamic. Fair and reasonable people can disagree type difference in methodology.
And then you get to this glaring omission of tariff revenue. And it just becomes amazing.
And then, I have to go where I’ve been writing, which is about the “cuts to Medicaid.” And most of the savings in the OBB come from reforms of Medicaid. And they are reforms. They are not cuts.
We have official figures for Medicaid [which] has grown as a program from $600 billion to $870 billion from 2017 to 2023. That is a 5.5% compound annual growth rate. I think I’ve read accurately that the OBBB merely reduces the growth rate to 3%. Medicaid is still going to grow as a program, but it’s going to grow at a more moderate, affordable, sustainable rate. So let’s get that straight from the beginning.
Then, if you look at the actual reforms, there are 70 million people on Medicare. Only 37 million people live below the poverty line. So, on the rolls for Medicare today are both the poor and, many, many millions of near-poor. Well, Medicaid was conceived and launched and maintained for most of its history as a health care program for the poor. Obamacare and the Democrats had added the near poor. What? Okay, so what are the effects? Let me stop there. That’s pretty clear, right?
Lee Elci: It’s clear to me and everything that you said, you said it much better than I have said it in the last couple of months. But I’ve been saying the same thing. It’s not a a slash of Medicaid. You’re still spending more. You’re just not spending as much as the Dems want. And I you know, I couldn’t agree with you more as far as who should get it and why they are getting it. So, you know, bravo for that.
Red Jahncke: Yeah. And it gets worse. Medicaid was not only launched to meet the needs of genuinely poor and needy, but it was launched as a partnership between the federal government in the states, with the states covering 50% of the cost. Including, a special subsidy for poorer states where Uncle Sam covered 60% for them. But this is a 50-50 bargain. Now, if it’s a 50-50 bargain, the program can’t grow faster than the state’s ability to deliver their 50%.
If you change it, as Obamacare did with a 90-10 arrangement where Uncle Sam covers 90% of it, all of a sudden, the built-in growth restraint disappears and states run to the roses, spending as fast as they can because they’re only having to cover $0.10 on the dollar.
That’s why the explosion in the growth rate and aggregate Medicaid expense. What the OBBB does is return the program toward the original bargain, and it does so in a way that’s very fair and reasonable. It’s saying this explosive growth is coming from the 40 states that expand it [Medicaid]. We’re going to restrain their growth going forward. We’re going to leave the ten alone who didn’t expand, okay. We’re going to push the 40 back in the direction of having to cover more of the expense, from their state budgets.
How did they do that? Well, there’s this little-known mechanism. It’s a scam, really, where under which states can siphon money from Uncle Sam with something called provider taxes. In this state, it’s known as the hospital tax.
And this wonderful little game is you tax hospitals $900 million. You send back right away $600 million. When you send back the $600 million, the federal government will match that because you re-label it “Medicaid supplemental payment.” So Uncle Sam’s sends the state $450 million. What’s happened here? Nothing substantial. Nothing substantive has happened. This is just a tax scheme that extracts $450 million from Uncle Sam. Well, the state then sends maybe $300 to the hospital. So, they’re whole, but the state has created $450 million out of thin air.
So what the OB does is, for the expansion states, we’re going to ratchet that game down.
Now states can do whatever they want with that $450 that they create out of thin air. They can spend however they want. And the numbers are larger than $450. In the first instance in 1989, New Hampshire used the money to close its budget deficit. In 2017, this state, Connecticut, used all the money to close it. In that case, it was $750 million to close our $2.2 billion budget deficit in that year. We’re running state budget deficits through the Medicaid program!
This is lunacy and outrightly unfair! Why should citizens and taxpayers in non-expansion states subsidize this in expansion states.
So you’ve [the OBBB has] got a twofer right. That the provider tax is being ratcheted down from a level of 6% of hospital revenue to 3.5% over a five year period, a half a percent per year in expansion states where most of the unsustainable growth has taken place. So that’s where they’re applying the reform. That’s eminently fair, right?
Lee Elci: Right. Listen, I gotta run. I’m up against the hard break. But great stuff today, as always, I appreciate it. The-red-line.com read the column, Wall Street Journal as well. Right. I’ll talk to you next week. Thank you, sir.
Red Jahncke is a nationally recognized columnist, who writes about politics and policy. His columns appear in numerous national publications, such as The Wall Street Journal, Bloomberg, USA Today, The Hill, Issues & Insights and National Review as well as many Connecticut newspapers.