Rethinking America

Paul Ryan Exposed

Don’t ask cronies to reform crony capitalism



  • We are a long way from true free-market capitalism, and we won’t get there by consulting crony "capitalists."
  • Ryan's claim to fame is of being a level-headed numbers guy. You can’t see any of that in the Ryan healthcare bill.
  • Trump's tax law drafters will not reform the true source of inequality and scams: the charitable tax deduction.
  • Meaningful reform would require an honest government to draft new laws itself, and not rely on capitalist help.

Paul Ryan’s health care “reform” bill was defeated last week without even receiving a vote in the House of Representatives, in spite of the care he had taken to get input from the health insurance industry.

That was the problem. In a crony capitalist system, where bad lobbyist-pushed laws and regulations have poured illicit profits into the pockets of oligopolists, the oligopolists are the last people to consult on how to reform those laws.

The same dynamic is visible in monetary policy, in bank regulation and in corporate and individual tax.

We are a long way from true free-market capitalism, and we won’t get there by consulting the current crony “capitalists.”

Cronyism under Trump

Healthcare is a classic example. U.S. healthcare costs 18% of GDP, compared to 12% in the next-highest cost countries, France, Sweden and Switzerland, 11% in Germany and Canada, 10% in Japan and 9% in Britain and Australia.

Effectively, the U.S. government pays as much for healthcare as Britain’s state-run system, then private American citizens pay the same amount all over again.

The U.S. gets nothing extra in terms of outcomes for all this expenditure; indeed U.S. indicators of healthcare results, such as life expectancy, are distinctly mediocre by rich-world standards.

It’s a waste, stupid!

Whatever your political view on who should pay for what, getting the United States’ appallingly high healthcare costs down to those of its competitors should surely be the top priority, indeed more or less the only priority, in any healthcare system reform.

Paul Ryan’s American Health Care Act achieved essentially nothing in the way of cost control. It claimed to do so, replacing Medicaid by a system of “block grants” to the states, but that change does not actually reduce the cost of healthcare at all.

It merely shifts it from the federal government to the states and, inevitably, to America’s less wealthy citizens who depend on Medicaid.

Sucking up to fat cats

The legislation did nothing about the trial lawyer blight. It kept all Obamacare’s cost-increasing regulations in place. It did not provide for insurers bidding across state lines.

And it did not remove the egregious 1986 emergency room mandate, by which hospital emergency rooms must treat indigent patients without limit and without receiving any kind of compensation from the state that mandates this nonsense.

Without proper cost-reducing measures, the legislation was essentially useless. Its 17% approval rating in the polls was probably higher than would have been achieved once the public discovered what a colossal waste of Congressional time it had been.

Mr. Budget, really?

Ryan has based his claim to fame in Washington on being a skilled and level-headed numbers guy. You can’t see any of that in the Ryan healthcare bill. Quite the opposite.

The reason for the Ryan bill’s poor quality is that it was designed after extensive discussions with the insurance industry and other beneficiaries of the current system.

Ryan is a champion fund-raiser and much admired as a “policy wonk”, largely because of the care he takes to consult the special interests before proposing new policies.

A coward, not a fixer

Thus, the provisions that might make a serious dent in insurance company incomes were missing from Ryan’s bill, as were provisions that would collapse the cost of medical care overall, reducing the economic rents that health insurers, hospital chains, trial lawyers and others could extract.

This is not a problem limited to healthcare. We are likely to get another almost perfect example of it when Ryan unveils his corporate tax reform plan.

While it may include some form of “border adjustment tax,” favored by President Trump, which redistributes income from retailers to manufacturers, it’s likely that the main feature of it will be the abandonment of worldwide taxation.

Further, it will involve a movement to “territoriality” in corporate tax, by which corporations will pay U.S. corporate income tax only on U.S.income.

Next stop on the gravy train: Tax reform

This is a move in precisely the wrong direction. The economically neutral and efficient means of taxing multinationals would tax all worldwide income, without any deferral of income earned overseas, but with a full tax credit for taxes paid overseas.

The United States has never had this system. Corporations’ overseas income is deferred from tax until it is remitted to the United States, under “Subpart F” legislation introduced in 1962.

Thus, we have a system in which U.S. corporations have stashed over $2 trillion overseas to avoid taxes, and companies such as Apple are borrowing domestically to pay dividends and engage in economically damaging repurchases of stock, while keeping ziggurats of cash offshore.

The current system makes no sense at all. It encourages companies to invest overseas, by giving them the potential to avoid tax on the investment, thus discriminating against domestic investment, precisely the problem against which Trump rightly rails.

Individual taxpayers are being had

The current U.S. tax system is also grossly unfair to U.S. individual taxpayers, who have only a very limited ability to use this loophole. U.S. taxpayers who earn income overseas, must pay full U.S. tax (and in some cases, state tax) on that income, unlike U.S. corporations.

What’s more if they attempt to keep their own money overseas tax free, in a tax haven bank account, the U.S Treasury goes after the foreign banks, with a spurious excuse of finding terrorist funding, and subjects the taxpayers to threats of imprisonment.

Lobbyists’ bonanza

The corporate tax bill Ryan is likely to propose, as favored by corporatist lobbyists from the Wall Street Journal down, would make this economic insanity worse, by allowing all foreign income to be fully exempt from U.S. corporate tax.

Of course, the first effect of this would be a “giant sucking sound” of money rushing out of the U.S. into tax havens for spurious foreign investment, doubtless leveraged to the eyeballs by Fed-induced cheap money.

There are other examples of this. President Trump’s economic crew, made up largely of alumni of Goldman Sachs, are likely to gut banking regulations that restrict the insane amount of leverage in the system, while retaining those that add cost and bureaucracy, which provide useful barriers to entry against new and smaller competitors.

Billionaires’ self-service shop

We are also likely to see this problem in the Trump administration’s “reform” of individual taxes. It may well be inspired by President Reagan’s 1986 tax law, which reduced rates of tax by eliminating deductions.

It may well eliminate the deductions relied upon by the upper middle class, for home mortgage interest and state and local taxes.

But you can be absolutely sure that, guided as they will be by the billionaires in the political donor class, the tax law’s drafters will not reform the true source of inequality and scams: the charitable tax deduction.

This serves the combined purpose of funding a myriad of sleazy left wing agitators and allowing the ultra-rich to finance their lifestyles tax-free through foundations such as the Clintons’ while the merely mega-rich on the two coasts tax-deduct their repulsive social climbing and networking through charity dinners.


To achieve meaningful reform would require a smart and honest government to draft the new laws itself, and not rely on crony capitalist help. Instead, due to the generous contributions the crony capitalists make as political donors, Paul Ryan, major political fund-raiser, is handing them the keyboard to create the “reform” draft.

To be sure, that is a far cry from what Donald Trump announced in his campaign.

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About Martin Hutchinson

Martin Hutchinson is the co-author of Alchemists of Loss: How modern finance and government intervention crashed the financial system (Wiley, 2010). [New York, United States]

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