In the wake of the Congressional Budget Office’s analysis of the Republican Senate majority’s proposal to overhaul the Affordable Care Act, an interesting argument has emerged. The millions of dollars in reduced spending on Medicaid that the Republican bill proposes aren’t actually cuts to Medicaid, because Medicaid spending still goes up.
The argument was epitomized in this tweet from President Trump.
We’ll get to the legitimacy of that argument in a second. For now, though, I’d like to raise some alarm bells for the president: By that logic, the gutting of the taxes on high-income earners that was originally part of the Senate bill doesn’t count as a tax cut.
After all, the case that Trump is making depends on the upward trajectory of that line of spending. In fuller context, compared to spending that is anticipated under the existing law, the drop in spending is clear. It’s the part with the gray diagonal lines.
(ACA here is the Affordable Care Act; BCRA is the Senate’s Better Care Reconciliation Act.)
But as long as the trajectory is upward, Trump argues, it’s not a cut.
Last week, the CBO analyzed Trump’s proposed budget, finding not only that the promised deficit elimination was not likely, but that annual revenue would continue to increase — even after those Obamacare taxes were eliminated.
The blue line is how the CBO anticipated that revenue would increase year-over-year without any changes to the law; the red line is the group’s expectation if Trump’s budget were enacted.
That line is going up. Therefore, under Trump’s logic, it’s not a tax cut. In fact, one might describe it as a tax increase.
That’s nonsense, of course, for two reasons. First, just because overall tax revenue keeps increasing doesn’t mean that individual taxes aren’t being cut. And, second, that anticipated revenue increase is in part thanks to inflation: A dollar in 2026 likely won’t be worth as much as a dollar in 2016.
To both of those points, the correct answer is: Of course. The tax cuts are tax cuts, just as cuts to part of Medicaid are still cuts to Medicaid, even if spending increases year over year.
We also created a version of that Medicaid spending chart that puts the annual spending in 2016 dollars. The increase essentially vanishes, since the increase in Medicaid spending will become essentially equal to the annual increase in inflation.
What’s more, tax revenue and Medicaid spending will also continue to increase because the number of people contributing to each will continue to increase. More people in the population means more people paying taxes and more people needing support from Medicaid’s programs. If you have 1,000 people paying $100 in taxes each year, you collect $100,000 in revenue. If you cut the tax rate to $99 the next year but add 100 new people, you collect $108,900 in taxes — more revenue despite the tax cut.
The point of this exercise isn’t that Trump is actually denying that his tax cuts are cuts. It’s that the rhetoric on Medicaid cuts falls apart when extended to revenue — suggesting that perhaps it’s not good rhetoric.