Happy Friday! The summer solstice arrived yesterday at 4:51 p.m. ET, so how was your first full day of summer? We spent ours looking for fiscal news, just for you.
Ted Cruz Offers Bill That Would Exempt Tips From Taxes
Some fiscal experts are still scratching their heads over a proposal floated by presumptive Republican presidential nominee Donald Trump to eliminate taxes on workers’ tips. The idea seemingly arrived out of nowhere, with little grounding in economic history or theory other than a general objection to all taxation. And it would come with a hefty cost estimated to be as high as $250 billion or more over 10 years.
Republicans in the age of Trump aren’t letting that bother them, though, betting that the idea, however random it may seem at first blush, could provide real political benefits, not least in Nevada, where Trump initially raised the idea earlier this month. At a rally, Trump said that if he wins in November, “hotel workers” and “people that get tips” — groups that are thick on the ground in the key toss-up state — are “going to be very happy, because when I get to office, we are going to not charge taxes on tips.” The former president vowed to change the tax rules “right away.”
However, a president would need help from Congress to make such a change. Rising to the occasion Thursday, Sen. Ted Cruz, Republican from Texas, introduced a bill that would do just that. The bill is co-sponsored by Republican Sens. Steve Daines of Montana, Rick Scott of Florida and Kevin Cramer of North Dakota.
The No Tax on Tips Act would exempt all tips — which are broadly defined to include tips delivered via credit cards and checks in addition to cash — from federal income tax. Tipped workers would simply deduct the income on their tax forms.
In a statement, Cruz said the bill is “pro-worker” and “common-sense,” designed to help workers “deal with the historic inflation caused by the Biden administration.”
Not all conservatives are jumping on board, though. Referring to a similar bill introduced in the House earlier this week by Republican Reps. Thomas Massie of Kentucky and Matt Gaetz of Florida, with Rep. Marjorie Taylor Greene of Georgia as a co-sponsor, Texas Rep. Chip Roy, a member of the House Freedom Caucus, asked why tipped workers should be treated differently than other low-wage workers — a complaint heard across the pollical spectrum.
Fiscal conservatives are even less enthusiastic. Brian Riedl, a budget expert at the conservative Manhattan Institute, said Thursday that Cruz’s bill is one of the “silliest tax proposals” he has seen. “It complicates the tax code,” he wrote on social media. “It induces income shifting (reclassify as tips). It serves no national purpose. It adds to the debt.”
Speculating about how such a bill could emerge, Riedl suggested a simple political explanation: It’s “an election year & there are voters [to] buy.”
The Big Businesses Quietly Driving Prescription Drug Prices Higher
Pharmacy benefit managers, the middlemen hired to manage prescription drug programs, are widely blamed as one of the major reasons U.S. drug prices are so high. The New York Times today takes a 5,000-word deep dive into the PBM industry and the three companies that dominate it, all part of huge conglomerates: CVS Health, Cigna and UnitedHealth Group.
Reporters Rebecca Robbins and Reed Abelson describe the PBM business as a “collection of powerful forces that often escape attention, because they operate in the bowels of the health care system and cloak themselves in such opacity and complexity that many people don’t even realize they exist.”
These businesses are supposed to negotiate with drugmakers to save money for the businesses or government insurers who use them. The main lobbying group for the companies says that they saved clients and patients $286 billion in 2022 alone.
But the Times report, the first in a planned series, found that the benefit managers often act in their own interests and drive costs higher by steering patients toward more expensive drugs, placing massive markups on drugs that would otherwise be relatively inexpensive, collecting hidden fees and lowball independent pharmacies on payments, further consolidating their corporate owners’ power.
“P.B.M.s save money off bogus inflated prices that should not exist in the first place,” Antonio Ciaccia, a consultant hired by Ohio and other states investigating the benefit managers, told the Times. “They are the arsonist and firefighter of high drug prices.”
The savings the benefit managers generate, the Times found, “appear to be largely a mirage, a product of a system where prices have been artificially inflated so that major P.B.M.s and drug companies can boost their profits while taking credit for reducing prices.” And the system is so complex and hard to understand that employers often don’t know they are being overcharged. “Many admitted to us that they struggled to understand how the system works,” Abelson and Robbins write.
The system appears to be working for the benefit managers, which are huge, and growing. The three top pharmacy benefit managers — CVS’s Caremark, Cigna’s Express Scripts and UnitedHealth’s Optum Rx — would each rank in the top 40 U.S. companies by revenue, Robbins and Abelson write. As a group, the three biggest players now process some 80% of prescriptions in the Unites States, up from less than 50% in 2012. And the Times reports that fees collected by PBMs overall doubled from 2018 to 2022, growing from $3.8 billion to $7.6 billion.
The trade group representing PBMs called the Times article biased and incomplete and said the benefit managers have proven value in lowering drug costs.
“It is clear this article was designed from the beginning to fit predetermined conclusions about the PBM industry and advance an agenda that shares common cause with the pharmaceutical industry,” Pharmaceutical Care Management Association President and CEO JC Scott said in a statement. “The article lacks data and instead relies on a handful of anecdotes to make broad assertions. It disregards the role of the rest of the prescription drug supply chain, including giving brand name drug companies a free pass despite their sole power to set prices on the products they market, the majority of which are unaffected by negotiations with PBMs because they face no competition in the marketplace.”
The bottom line: Drugmakers, insurers and pharmacy benefit managers all point fingers at each other for the high cost of prescription drugs and try to deflect any blame that might be placed on them. All the while, the size and reach of the biggest players in the industry has led to questions about whether they have grown so big as to be unhealthy for patients and the U.S. economy.
Quote of the Day
“We got to look at the debt and the deficit and what that means, and how we’re going to pay for it. So it’s changed in terms of the debt for us five years ago. ... We have to find a way to create balance between having targeted tax cuts, but at the same time start dealing with our financial wherewithal.”
– Republican Rep. Vern Buchanan of Florida, in a Roll Call article detailing how cost concerns and political considerations are shaping House Republicans’ potential plans for extending the expiring 2017 tax cuts.
“Republicans have long said they would like to extend and make permanent expiring provisions, but in a shift in messaging some members on the tax-writing House Ways and Means Committee say fully extending the provisions isn’t a foregone conclusion,” Roll Call’s Caitlin Reilly reports, adding that the budget reconciliation process Republicans want to use if they win control of Congress and the White House in November would make it hard to pass a multitrillion-dollar increase in annual deficits.
Number of the Day: 1 Million
President Joe Biden said Friday that more than 1 million pensions have been protected from cuts thanks to the Butch Lewis Act, which is part of the American Rescue Plan, the $1.9 trillion piece of Democratic legislation signed into law in 2021 in response to the Covid-19 pandemic. The act, named after a retired Ohio trucker and pension advocate, is designed to bolster roughly 200 pension plans covering about 2 million unionized workers. To date, 83 pension plans have received assistance, protecting 1 million retired workers from income cuts of 37% on average, according to the White House.
In a statement, Biden linked the success of the program to his broader political message. “Whether it is Social Security, Medicare, or pensions, workers who earn a dignified retirement through decades of hard work and sacrifice should never see their benefits cut due to broken promises or policies that favor the wealthy over working families,” he said.
Fiscal News Roundup
- Democrats’ Plan to Tax the Rich and Corporations Begins to Take Shape – Washington Post
- The Opaque Industry Secretly Inflating Prices for Prescription Drugs – New York Times
- Cruz Offers Bill to Exempt Tips From Taxation, an Idea Touted by Trump – The Hill
- Cruz Seeks Probe of Signs Touting Biden’s Infrastructure Law – Politico
- Trump’s ‘Tax-Free Tips’ Proposal Grabs Headlines Even as Experts Raise Eyebrows – The Hill
- Court Upholds ACA's Free Preventive Services Mandate – Axios
- Court Delivers ‘Mixed Bag’ on Obamacare Preventive Care Mandate – The Hill
- House Republicans Shift Message on Extending 2017 Tax Cuts – Roll Call
- Summers, Trump Swap Arguments on Proposal for Widespread Tariffs – Bloomberg
- Trump Outraises Biden in May as Billionaires Start Giving Big – Bloomberg
- Trump Raised So Much Last Month He Erased Biden’s Cash Advantage – Politico
- Home Prices Hit a Record High – Wall Street Journal
- US Retirement Accounts Are Flush for Millions of Older Americans – Bloomberg
Views and Analysis
- Will Debt Sink the American Empire? – Gerald F. Seib, Wall Street Journal
- How a Long, Debt-Loving Bipartisan Consensus Has Warped U.S. Business – George F. Will, Washington Post
- Is a Wealth Tax an Income Tax? Here's Why That Matters – Stephen L. Carter, Bloomberg
- A Supreme Court Mistake on Wealth Taxes – Wall Street Journal Editorial Board
- Arizona’s Economic Boom Is the Biden Signal in Trump Noise – Matthew A. Winkler, Bloomberg
- A New Economics Playbook is About to Drop in Europe. The U.S. Should Be on Notice – Victoria Guida, Politico
- The Smart Money Is Preparing for Trumpflation – Rick Newman, Yahoo Finance
- What Any Economist Will Tell You (but No Real Estate Agent Will) – Megan McArdle, Washington Post