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Biggest Political Gamble of the Decade

FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
March 9, 2010

IN THIS ISSUE:

1.  Obama’s Latest Healthcare Proposal Details

2.  Obama Implores Congress to Use “Reconciliation”

3.  Do the Democrats Still Have the Votes?

4.  The Issue of Reapportionment & Redistricting

5.  Why Democrats Have Lost the Public’s Trust

Introduction

Last Wednesday, President Obama gave yet another speech on healthcare reform and implored the leaders of the House and Senate to pass his latest healthcare plan, even if by only a majority vote (51) in the Senate – the process known as “reconciliation.”  Most Americans don’t fully understand the reconciliation process, but most of those who do, don’t like it, especially when it comes to healthcare, which represents over one-sixth of the economy and affects all of us.

In the wake of his recent Healthcare Summit, which changed few, if any, minds, the president presented another version of sweeping healthcare reform last Wednesday, and essentially is asking House and Senate members to risk their political futures to pass this plan, even as a growing majority of Americans oppose it.

It remains to be seen if this new 2700+ page proposal – based largely on the Senate plan, with a few incremental changes – will pass in either the House or the Senate, but President Obama is apparently willing to risk losing control of the House and/or the Senate in the 2010 elections, and maybe losing his own job in 2012.

There is one very interesting element in all of this political rancor that I don’t hear much talk about.  That is the subject of reapportionment of House of Representatives seats following the 2010 census, and the redistricting that will occur in those states that gain or lose seats.  If the Republicans pick up a sizable number of House seats in November, that would suggest they will pick up a number of governorships as well.  If so, that will have a significant impact on redistricting in those states – to their advantage.  I will discuss this in more detail as we go along.

Poll after poll shows that millions of Americans are growing angrier and angrier at Washington lawmakers over healthcare reform – such as 57% think it will “hurt the economy” and 61% want Congress to “start over.”  The public clearly wants Congress focused on the economy and jobs rather than healthcare reform, yet the Democrats apparently see it differently.  To help us understand why, I have reprinted a very good article at the end that is written by a Democrat.  Regardless of your political persuasion, I think you will like it.

Obama’s Latest Healthcare Proposal Details

The new healthcare reform proposal announced last Wednesday by President Obama is basically the healthcare bill passed by the Senate in December, which requires everyone to buy insurance or pay a fine, and companies with 50 employees or more will have to provide health insurance; however, there are some important differences:

  1. The Obama proposal eliminates the special deal cut for Nebraska to buy Senator Ben Nelson’s vote, as well as provides additional federal financing to all states for the expansion of Medicaid;

  2. It also addresses the “donut hole” currently encountered in the Medicare prescription drug program, eventually closing it entirely by 2020;

  3. Obama’s proposal strengthens the affordability provisions in the Senate bill as well as those designed to fight fraud, waste and abuse in Medicare and Medicaid;

  4. It scales back the excise tax on “Cadillac” healthcare plans while also delaying its implementation until 2018;

  5. The proposal also creates a new “Health Insurance Rate Authority” to oversee private health insurance plans and prevent unreasonable rate increases;

  6. As expected, the latest Obama proposal raises taxes on high-income taxpayers to help defray the cost of the bill.  Generally, these additional taxes will apply to single taxpayers with incomes of $200,000 or more or $250,000 for married couples filing jointly. 

There are a number of other proposals, but the above list covers the main ones.  While a number of these proposals sound good on paper, the devil, as they say, is in the details.  And with 2,700 pages of details, the devil has ample opportunity in this legislation.  The biggest detail is that of cost, since Obama has gone on record that any healthcare reform bill should not add to the deficit, but it almost certainly will.

While Obama’s proposal lacks sufficient detail to be scored by the CBO, the similar Senate bill is estimated to cost in the neighborhood of $848 billion over 10 years.  With cost reductions and additional taxes, however, the CBO has estimated that it will actually reduce the deficit by $131 billion over that time.  But almost no one remotely believes that.

During the recent bipartisan healthcare summit moderated by President Obama, Republican Congressman Paul Ryan of Wisconsin stole the show when he pointed out, in great detail, how there was no way that the cost projections touted by the Democrats could be accurate.  Here’s what else is wrong with the bill, as Ryan pointed out:

"The bill has 10 years of tax increases of about one-half trillion dollars, with 10 years of Medicare cuts of one-half trillion dollars to pay for six years of spending. What's the true 10-year cost of this bill? In 10 years, it is $2.3 trillion."

"When you strip out the double-counting and what I call the gimmicks, the full 10-year cost is a $460 billion deficit. The second 10-year cost of this bill has a $1.4 trillion deficit."

"It takes $52 billion in higher Social Security tax revenues and counts them as offsets, but that is really reserved for Social Security. So either we are double-counting them or we are not planning to pay those Social Security benefits."

"It takes $72 billion and claims money from the Class Act, that's the long-term-care insurance program. It takes the money from premiums that are designed for that benefit and instead counts them as offsets. The Senate Budget Committee chairman said this is a Ponzi scheme that would make Bernie Madoff proud."

"It treats Medicare like a piggy bank. It raids a one-half trillion dollars out of Medicare . . . not to shore up Medicare solvency, but to spend on this new government program."

"The chief actuary of Medicare . . . is saying as much as 20 percent of Medicare providers will go out of business or stop seeing Medicare beneficiaries. Millions of seniors who have chosen Medicare Advantage will lose the coverage they now enjoy. You can't say that you are using this money to extend Medicare solvency and also offset the cost of this new program. That's double-counting."

"Are we bending the cost curve down or bending the cost curve up? If you look at your own chief actuary at Medicare, we're bending it up. He's claiming we are going up $222 billion, adding more to the unsustainable fiscal situation we have."

"We are all representatives of the American people. We all do town hall meetings. We all talk to our constituents. And I've got to tell you the American people are engaged. If you think they want a government takeover of health care, I would respectfully submit, you are not listening to them."  Well said, Congressman!

Not only do most Americans not want to see a government takeover of healthcare, most (like Congressman Ryan) don’t believe the cost estimates. Americans have now become used to seeing government cost estimates pale in comparison to the actual costs.  We saw it with the Bush Medicare prescription drug bill.  This was originally estimated to cost $400 billion over 10 years, but more recent estimates now put it at $700 billion.  Does anyone really believe that a new healthcare entitlement will actually decrease deficits in the future?  I certainly don’t.

Obama Implores Congress to Use “Reconciliation”

Virtually all major legislation that is passed in the Senate is passed by at least 60 votes, the so-called “Super Majority.”  On rare occasions, major legislation has passed by only a simple majority of 51 votes - the process known as “reconciliation.”  The idea behind the Super-Majority was that major legislation should have enough bipartisan support to pass by more than a simple majority.    

Because of the hesitance of the Republicans to enter into another entitlement boondoggle, the Democrats realize that the bill will never be passed under the regular rules since they can’t muster enough votes to overcome a filibuster.  However, Obama made it clear in his direction to congressional Democrats last Wednesday that they should pass his plan, even if it means doing it with just a majority vote. 

“[Health care] Reform has already passed the House with a majority. It has already passed the Senate with a supermajority of 60 votes. And now it deserves the same kind of up or down vote that was cast on welfare reform, that was cast on the Children’s Health Insurance Program, that was used for Cobra health coverage for the unemployed and, by the way, for both Bush tax cuts — all of which had to pass Congress with nothing more than a simple majority. I, therefore, ask leaders in both houses of Congress to finish their work and schedule a vote in the next few weeks.”

The president got more specific later in the day on Wednesday and sent word to Congress that he wants the bill on his desk by Easter.  That’s a tall order, if he gets a bill at all!  The Senate Republican leader, Mitch McConnell of Kentucky, told reporters after Mr. Obama’s remarks the following:

“They’re making a vigorous effort to try to jam this down the throats of the American people, who don’t want it. We think that’s a policy mistake, and we think resorting to these kind of [reconciliation] tactics, to thumb your noses at the American people, is something that ought to be resisted.”

The Democrats justify use of the reconciliation procedure because Republicans have used it in the past.  Most often, the Democrats point to the Bush tax cuts as examples of when reconciliation was used by the Republicans to pass legislation.  However, there’s one big difference between these pieces of legislation: the Bush tax cuts had overwhelming support from the public, while the healthcare bill does not.  It’s one thing to use a procedural process to overcome opposition to a popular piece of legislation, but quite another to “jam this down the throats” of American voters, as suggested by Senator McConnell.

If the Democrats believe they still have the votes to pass the healthcare measure, even by only a simple majority, then the process should proceed roughly as follows.  First, the House Democrats would have to abandon their own healthcare bill that includes the so-called “public option” and vote to adopt the bill that the Senate approved in late December.  

As that is happening congressional bureaucrats and lawyers will be busy writing a new bill that would incorporate all the changes that Obama put in and announced last Wednesday.  Then both the House and the Senate would have to pass the final bill which would go to the president for his signature.  That’s an awful lot to happen by Easter, if it happens at all. 

Do the Democrats Still Have the Votes?

Let’s start with the obvious: if the Dem’s have the votes, they will pass Obama’s healthcare plan, and they will do it just as soon as they believe they have the votes.  But do they?  It has been four months since the House healthcare bill passed in early November by a razor-thin margin of 220-215.  The Senate bill passed in December.  Since then the public polls have worsened considerably on the issue.

Public approval of Congress has plummeted to the lowest level on record – only 15% approve according to the latest CBS News/New York Times poll.  The latest FOX News poll has it at 14%.  These are the lowest congressional approval ratings since polls have been taken!

President Obama’s approval rating has plunged as well.  According to the RealClearPolitics.com average of all polls, Obama’s approval rating has sunk to only 48.7%, while his disapproval rating has soared to 45.7%, the highest it’s been.  From his soaring high approval ratings just after being sworn in, Obama’s plunge since then is the worst on record.

Democrats are no doubt worried by these polls and are aware that healthcare reform, as they have crafted it, is a big reason why so many Americans are mad at them.  The latest Rasmussen poll last week found that 55% of Americans want Congress to scratch the current healthcare proposals and “start over.

At the same time these national polls are falling, dozens of Democrats in the House, and even some in the Senate, are faltering in their re-election bids in November.  Several have already announced that they are retiring, which for most is code for they are not going to be re-elected in November.  Even Senate Majority Leader Harry Reid of Nevada is well behind in the polls.

Despite these disturbing trends for the Democrats, President Obama is now applying maximum pressure to line up the votes to pass his healthcare reform package.  In essence, he is asking congressional Democrats to “walk the plank” and risk their political careers.  And he has to exert pressure on multiple fronts within the party.  Let me explain.

On one front, Obama has to deal with the most liberal Democrats that vowed, after the Senate bill passed, that they would not vote for ANY healthcare bill that did not contain the “public option.”  He absolutely has to get all of these congressmen to change their minds and vote yes on his bill which does not include the public option.

Next, he has to convince the growing number of Democrats who fear that if they vote for the current healthcare reform bill, they will be defeated in the November elections.  Obama said publicly last Wednesday that it is more important to vote in favor of what is right for America than whether you get re-elected or not.  Of course, that’s easy for him to say since he is not up for re-election in November.  And who is to say that Obama is the sole arbiter on what is ‘right for America’?

And finally, in President Obama’s latest healthcare plan, he added in several Republican ideas, hoping to curry at least a few GOP votes.  Among them, he included: 1) better protections against fraud; and 2) increased pay for doctors who treat Medicade patients; both of which most Democrats should easily go along with.

But Obama also added two more provisions that many Democrats may baulk at: 1) a hint of tort reform; and 2) making Health Savings Accounts more available.  These will be bitter pills for liberal Dems to swallow – another reason Obama may not get the votes he needs.

Unlike many presidents before him, Obama is more than willing to hang Democrats in Congress out to dry in order to pursue his agenda.  As I have discussed in previous letters, he is too much of a liberal ideologue to move to the political center when faced with opposition, as did Bill Clinton when his healthcare reform plan bombed.    

However, using an unpopular back-door procedure to force through an unpopular bill may not only affect Congressional elections, but state and local contests as well.  In short, Obama could be setting up Democrats at all levels to lose governorships and state legislative posts.  This, in turn, could have a long-lasting negative effect on Democratic representation at the federal level.

The Issue of Reapportionment & Redistricting

This is a very important issue related to the use of the reconciliation vote that I find almost no one talking about.  All of the 435 members of the House of Representatives are elected or re-elected every two years.  Unlike the Senate which has two senators from each state, the 435 seats in the House are “apportioned” to the states based on each state’s population.

As you also know, there is a national “census” once every 10 years in years ending in “0” (2000, 2010, etc).  The 2010 census will determine how many House representatives each state will get going forward.  Fast growing states like Texas and Florida, for example, are set to increase their number of House representatives after the 2010 census; other states will stay the same; and still other states will see their number of representatives shrink.

Based on the results from the 2010 census, each state that sees a change in the number of House representatives it will have going forward will begin a process known as “redistricting” in 2011.  In almost all states, redistricting is a very politically-charged process that is generally controlled by the political party that has the governor and a majority in the state legislature. 

These redistricting battles are usually very ugly because they are setting the political landscape for the next 10 years, which can benefit the party in power today for a very long time.

And here’s the point.  Most pollsters and political analysts now agree that the Republicans are going to pick up a considerable number of seats in the House and at least a few in the Senate come November, largely due to Obama’s agenda.  Likewise, it is expected that the Republicans are going to win several additional governorships and state legislature majorities.

If so, the Republicans would be in control of the redistricting efforts in even more states in 2011, which could mean a big advantage for the GOP in those states, perhaps for a decade.

But apparently, President Obama doesn’t care about that either.  He wants his healthcare reform at any cost, no matter the long-term damage it may do to his party.  Political analysts on both sides of the aisle have to be wondering, “What are the Democrats thinking?”

Why Democrats Have Lost the Public’s Trust

A year ago, newly sworn in President Obama’s approval ratings were soaring, and Republicans were wandering in the wilderness, having lost control of both houses of Congress to the Democrats.  It seemed it would be many years, if not a decade, before the GOP could reverse the tide.  Yet just over a year later, Obama’s approval ratings have plunged below 50%, and Congress’s approval ratings are the lowest in history, down to only 15% in some polls. 

Making matters worse, the Democrats recently lost governorships in Virginia and New Jersey to GOP challengers, and Ted Kennedy’s Senate seat of 40+ years went to a Republican in a stunning special election surprise.  In addition, 16 Democrat incumbents in the House and five in the Senate have announced that they are “retiring” this year, and there could be more.

How and why has all of this happened in such a short time?  I read the following column last week which offers perhaps the best analysis of the Democrat’s plight that I have seen.  Interestingly, it is written by a Democrat strategist – Dan Gerstein – who served as Senator Joe Lieberman’s communications director and chief strategist for over a decade (when Lieberman was a Democrat).

Regardless of your political persuasion, I think you will find Gerstein’s analysis very interesting (and right on target in my view), so I have reprinted it below.  Should you choose not to read it all, be sure to scroll down to the next-to-last paragraph to read the latest shocking poll numbers on just how angry people are with Washington – I have highlighted them in bold.

QUOTE: Deaf to America by Dan Gerstein

As I listened to the same tone-deaf talking points from the congressional Democrats at the White House health care summit last week, I was reminded of the classic excuse politicians use about their comments being taken out of context. In this case, and many others, the Democrats are suffering from the exact opposite problem--their arguments and actions are not taking in the context of the times. Indeed, over the past 14 months they have continually been trying to jam a square political peg into a round historical hole. The result has been a disastrous fit with the public mood and a deepening credibility gap.

This failure to factor can be traced back to the watershed vote on the stimulus bill, the Democrats' single big accomplishment in the Obama era. The Democrats considered the $787 billion recovery package not just an essential step for saving the economy from depression, but also a first strike in White House's "big bang" strategy. It would, by their way of thinking, build political momentum for a range of other major Obama agenda items like climate change [cap-and-trade].

But for much of the public, the poorly conceived and marketed stimulus plan was the last straw in the unsettling explosion of government and debt that began with the bipartisan bailout bonanza in the waning days of the Bush administration. Ever since that dividing line was crossed, the Democrats have seemed to be operating in a hermetically sealed political vacuum, impervious to the public's changing post-crash priorities and diminishing tolerance for big government solutions.

The complex, sector-remaking cap-and-trade bill is a perfect example. That plan may have been a tough but closeable sell in a stable economy, given the short-term sacrifices we would have to make to secure the long-term rewards. But it was a dead letter in a near-depressed economy with a mistrustful electorate prone to believe the most damning attacks about higher taxes and lost jobs. Yet the Democrats plowed ahead with a bill in the House and only stopped when Senate moderates bolted.

That was nothing, though, compared to the multi-pronged Democratic disconnect on health care. It was clear early on that the public wanted the president and Congress to focus on the economy, especially after the evidence mounted that the stimulus, whatever its disaster-preventing benefits, was not going to spur job growth any time soon. Yet the Democrats went ahead and devoted most of the last year to health care reform, which only reinforced the growing perception that Washington was still as arrogant and unresponsive as ever and that the Democrats, like their predecessors, were still out for themselves and their political aims.

Once that die was cast, it was obvious that the public's top priority was reducing costs, and they had a right to expect that's what Washington would try to do since that's how Obama sold his agenda. Yet the Democrats on the Hill crafted a contradictory trillion-dollar bill--it called for cutting costs by increasing spending--that was largely seen as being about expanding coverage. And after all the recent federal intrusions into the economy, the frustrated middle was plainly skeptical about the federal government's ability to re-engineer one-sixth of the American economy. Yet the Democrats came forward with an incredibly intricate scheme that even they could not explain.

The Republicans would like us to believe that this is just liberalism run amok and that's why the public is rejecting the majority's agenda. There is some truth to that, but it's far too simplistic an explanation. If you look at the polling over the last several years, especially on health care, you would see the problem is more temporal than ideological. The backbone elements of Obama's health care reform plan tested well in 2008, and many of them continue to do so--in isolation. Even in late spring of last year, before the protests and death panel hysteria, the public was fairly open to the public option. But then events--and the Democrats' stubbornness and incompetence--intervened.

To be specific: As the year went on, and federal spending piled on, concerns about deficits heightened. With even the modestly successful Cash for Clunkers program running out of money, confidence in the Democrats' ability to deliver on their sweeping reform promises plummeted. Following a series of sweetheart deals for special interests and self-interested politicians to curry favor [on health care reform], faith in the legitimacy of the process and the integrity of the bill eroded. The more the Democrats wrote off these reasonable warning signs as nothing but Republican fear-mongering, the more they drove off the frustrated middle. Now most polls show only 35% to 40% of Americans support the president's [health care] plan.

The full extent of the Democrats' contextual confusion was laid bare at last Thursday's health care summit. Despite all the accumulated evidence that the Democrats were pushing the wrong bill at the wrong time, as well as the president's best efforts to reposition the debate, Obama's congressional allies stuck to their unyielding and ineffective script. Led by Pelosi, they repeated their same unpersuasive arguments for universal coverage, recycled the same hollow CBO numbers as a crutch and too often resorted to the same partisan defenses in responding to what sounded like substantive Republican criticisms. Obama at least made an effort to swim against the tide, explaining why universal coverage was not just affordable but necessary to bend the cost curve. The others seemed content--or just resigned--to go down with the ship.

Those hell-or-high-water Democrats are banking on the context to change again once they pass their [health care] bill. Their theory is that once the program benefits kick in, the political benefits will soon do the same. Public support will grow over time, the system will become as ingrained and untouchable as Medicare and Medicaid, and this year's election liability will gradually become a campaign asset. It might be a plausible argument--if this were any other year, if health care were the only issue dragging down the Democrats' credibility, if the anti-government Tea Party movement had not gotten such traction, and of course, if the bill ends up working reasonably well.

This is perhaps the greatest example of the Democrats' enveloping myopia. They may reflexively put issues in silos, but average Americans don't. Most voters are impressionistic, especially independents and moderates of both parties. They look at the whole of what you have done and the how of what you have done. If Democrats ram through an unpopular trillion-dollar health care bill in this climate, with Congress' approval rating at 15%, they may well cement their image as the worst of Washington and sever their claim on the public's trust for years to come. Even if ObamaCare delivers over time--and if it avoids the substantial premium increases that the Massachusetts universal care system has produced--it most likely will be too little too late.

Again, consider the context. Trust in government--which has been trending substantially downward since the crash of 2008--is in tipping-point territory right now. A recent New York Times poll showed that 70% of Americans are angry or dissatisfied with how Washington is handling the people's business; 80% said that members of Congress are more interested in pandering to special interest groups than in serving the needs of people who elected them; and 81% said members of Congress across the board deserve to be thrown out. A new CNN poll out this week goes a step further and shows that 56% of Americans now think the federal government poses a threat to their rights, with even 37% of Democrats sharing that view.

Those numbers beg the question: Would the Democrats actually be better off if their comprehensive health care bill does not pass? I tend to think so, though as I argued last week, the best course for Democrats would be to skip the all-or-nothing trap and pass a center-out bill that contains the 80% of insurance reforms on which both sides already agree. But that's a moot point: The Democrats are going for broke (in more ways than one). The more salient question is when will the Democrats start connecting the dots--and recognize that the American people are not going to accept a government that is not willing to heed their doubts. END QUOTE

Dan Gerstein, a political communications consultant and commentator based in New York, is the founder and president of Gotham Ghostwriters. He formerly served as communications director and senior adviser to Sen. Joe Lieberman, I-Conn.

In closing, a CNN/Gallup poll last week showed only 25% of Americans are in favor of any of the current Democratic healthcare plans, and the late February Rasmussen poll found that 55% want Congress and the president to start over.  

And just out today: 1) the latest Investors Business Daily/TIPPS poll now finds that 61% of Americans want Congress to start over; and 2) Rasmussen says 57% of voters believe the healthcare plan will “hurt the economy.”  Wow!  (See Investors Business Daily article in the links below.)

Yet Obama is imploring the Dems to pass his plan anyway – even if it costs them their jobs.  That’s why I say this is the biggest political gamble of the decade.  Stay tuned!

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

Understanding Obama’s real agenda (this is good!)
http://www.realclearpolitics.com/horseraceblog/2010/03/its_time_for_moderate_house_de.html

Healthcare: Congress, Start Over or You’re Finished
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=525756

Another list of what’s wrong with healthcare reform
http://www.nytimes.com/2010/03/09/opinion/09brooks.html

 


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Forecasts & Trends E-Letter is published by ProFutures, Inc. Gary D. Halbert is the president and CEO of ProFutures, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, ProFutures, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.

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