DOOM: Larry Summers warns ‘thousands will die’ from GOP tax bill

Well, you better update your estate, order your coffin and prepare for your funeral right now because the Republicans’ new tax plan will kill you.

Writing in The Financial Times on Monday, former Treasury Secretary Larry Summers warned that “thousands will die” amid the GOP’s Tax Cut and Jobs Act, the landmark legislation for the Trump administration.

He cites the loss of the Obamacare mandate as the primary reason for the likely increase in deaths in the United States, even though Americans can still voluntarily purchase health insurance.

“The Congressional Budget Office estimated that the tax bill could reduce insurance coverage by 13 million people, which to be conservative we can round down to 10 million people,” Summers wrote. “If we treat the 176 to 830 range as implying that it is safe to assume that 1,000 more uninsured means one death, the conclusion would follow that the tax bill would result in 10,000 extra deaths per year.”

Despite the fact that Americans can purchase health insurance, Summers doubts Americans will voluntarily acquire it because their premiums will skyrocket and people are irrational.

Summers added:

“First, for many, the loss of health insurance will not be voluntary: They will lose coverage because premiums will increase, pricing them out of the market. Second, I take seriously the insights of behavioral economics, which suggest that irrational actors may make choices that will lead to worse health outcomes, and higher mortality rates.”

The GOP tax plan is far from perfect, and it ultimately shifts around the tax burden and adds to the budget deficit. That said, one of the best things about the Republican tax plan was the elimination of Obamacare, in addition to the reduction in corporate taxes and cuts in income tax brackets.

Like other tax plans, people will still live. No one is going to die from it.

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Comments

  1. . There is now a significant possibility that disruptions to specific sectors in the economy could be more important than the negative macroeconomic impacts of the Republican tax bill. Eliminating the Obamacare individual mandate, as is currently in the Senate version, would cause there to be 13 million less people with health insurance. Uninsured people spend less on healthcare than those with insurance. Most studies indicate a 25% difference. Thus, fewer insured people will result in less spending on healthcare than would have been the case otherwise. Other than the direct impact on GDP from lower expenditures, there could be financial distress as some firms in the healthcare become unable to pay their debts.

    The risks of defaults stemming from weakness in the housing-related sectors probably exceed that of healthcare. The homebuilders are correct in their complaints that most of the tax advantages of home ownership will be eliminated in all of the Republican tax bills. The Senate version now eliminates deductions for state and local taxes, including real estate taxes. The House version allows deduction for real estate taxes up to $10,000. As the homebuilders point out, many more middle- and low-income people will no longer itemize, since the standard deduction has increased, and many other deductions will be reduced or eliminated. Additionally, a lower limit on mortgage interest deduction for new home purchases reduces tax advantages of home ownership.

    Thus, as the home-builders now argue, only a few relatively wealthy households that still itemize will get any benefit from the $10,000 real estate tax deduction. For those wealthy households, a $10,000 deduction is not likely to be a major factor when deciding whether to buy a home. The net result could be a significant negative impact on home prices. As we saw in 2007, a decline in real estate prices can easily spillover to the financial sector.

    As I said in With A 23.4% Dividend Yield Credit Suisse X-Links Monthly Pay 2xLeveraged Mortgage REIT ETN REML Now More Attractive:

    Another potential disruption from the Republican tax bill also stems from the reduction or eliminations of deductions for state and local taxes. As with the real estate impact, the impacts on the finances state and local will vary widely for different regions and locations. There are some jurisdictions that will be severely impacted the reduction or eliminations of deductions for state and local taxes. New York and California are the obvious examples.

    Take the example that would be the case if the deduction for real estate taxes were limited to $10,000. There would likely be people in New York and California who were paying $5,000 in property taxes and $5,000 in state and local income taxes. These people would now pay more federal income taxes as compared with someone in a state with no state and local income taxes, who pays $10,000 in property taxes, assume both have the same incomes and itemize. This could cause shifts in businesses out of the states with high state and local income taxes.

    The most significant impact could be felt in New York City. In theory, New York and New York City in particular, could reduce income taxes and make up the difference by raising property taxes. This would make sense since New York City residents pay one of the highest state and local income taxes in the nation. Additionally, in terms of tax as percent of market value, New York City residents pay one of the lowest property taxes in the nation.

    The flight of businesses from New York City could prompt the government to see the advantage of real estate taxes as compared to income taxes, in that real estate cannot be relocated to another tax jurisdiction. However, given the immense power of the real estate interests in New York City, a much more likely scenario would be that as tenants fled New York City, in response to the tax bill, the real estate interests in New York City would force the government to reduce real estate taxes and make up the difference by raising local income taxes. This scenario or something similar might be played out in various other high-tax localities…”
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