Debt Digest | President Trump’s “Great Health Care Plan” has seeds of good reforms
Links & Fiscal Facts
Here are this week’s reading links and fiscal facts:
President Trump’s “Great Health Care Plan” has seeds of good reforms. Cato’s Michael Cannon comments: The best proposal: “Allow More Over-the-Counter Medicines; The best idea: Let workers control their health care dollars; The best addition: Secure Trump’s greatest first-term health care accomplishment by permanently removing barriers to Obamacare-exempt plans.” Cannon notes that reducing prices in healthcare can only come from more choice and not federal impositions in the cases of Most Favored Nation prescription drug deals, Pharmacy Benefit Managers, and price transparency. For Reconciliation 2.0, Congress should look to cut spending in health care, as “health care programs are the biggest drivers of federal spending growth”. Boccia, Cannon, and Michel lay out the options that Congress should implement in the second reconciliation bill here.
Mercatus scholars release market-oriented framework for affordability in Reconciliation 2.0. Veronique de Rugy and Joshua Rowley released an agenda for a second reconciliation bill, and “the proposals are organized around four channels through which reconciliation can materially lower the cost of living: immediate, year-round tax relief that reduces price wedges; reforms that remove demand distortions and expand supply in housing and health care; restructuring of health care subsidies and payment systems to restore price sensitivity; deficit reduction to lower interest rates and inflation risk.” Lett emphasizes that fiscal policy is the source of the affordability problems: “If there’s one clear lesson from the pandemic spending spree, it is that affordability is not something Congress can deliver with a deficit-financed check. […] Given America’s dire fiscal environment and its impact on prices and incomes, getting government out of the way via supply-side tweaks will be a necessary but insufficient fix alone. To truly deliver on affordability, Congress needs to hunker down and slow the growth of health care and Social Security spending.”
Congress should end Community Development Subsidies. In a new Cato Policy Analysis, Chris Edwards writes: “The US Department of Housing and Urban Development (HUD) spent more than $20 billion on community development subsidies in fiscal year 2025. The spending flows to state and local governments for housing projects, welfare programs, disaster aid, sidewalk repairs, pickleball courts, business support, grants to nonprofit groups, and many other activities.” The problems with the subsidies include, “intense paperwork, fraud and corruption, and pork-barrel politics.” Edwards supports a move toward greater federalism, citing the Trump Administration’s proposal to end these subsidies: “Given the need to reduce federal budget deficits, it makes sense to cut funding for local activities that local governments can fund for themselves.”
The latest dispute between President Trump and the Fed highlights problems on both ends. Joseph C. Sternberg of WSJ comments on the DOJ investigation into Fed Chair Jerome Powell. Sternberg warns of the consequences of threatening Fed independence including “rolling the dice on higher inflation in exchange for pre-election policy gimmicks such as rate cuts to boost the economy,” and “a subservient central bank becomes hostage to elected politicians’ fiscal decisions, forced to run the printing presses in an inflationary manner to finance large deficits.” Sternberg emphasizes, however, that “the Fed’s record makes it hard to defend the central bank’s independence on these grounds. Mr. Powell presided over the Fed’s worst policy error in four decades and still hasn’t fully explained why Fed economists didn’t see the inflation coming, let alone brought it back down to the Fed’s 2% target”, and “has waded directly into the political sphere in unhelpful ways” with “his not-so-subtle lobbying in autumn 2020 for big fiscal stimulus during the pandemic.” Cato’s Jai Kedia adds another reason: “The Fed is too much of a black box and sets rates in too arbitrary a manner. As a result, it is easy for opportunistic politicians to scapegoat the Fed and blame it for poor economic outcomes, even if these outcomes are the result of poor fiscal policies.” Kedia points to a solution: “minimize political influence by having the Fed follow a monetary policy rule when setting its interest-rate target.”
The cost of renaming the DoD to the Department of War could reach $125 million. In a new CBO report: “Depending on how DoD implements the order to use the name “Department of War,” CBO estimates that costs could range from a few million dollars up to $125 million. A modest implementation of the name change would cost about $10 million.” In article titled, ‘Trump’s ‘Department of War’ Rebrand Might Be His Most Honest Move Yet’ Jacob R. Swartz highlights a comment from Peter Schiff in Reason: “‘Trump is renaming the Dept. of Defense the Dept. of War, with Pete Hegseth becoming Secretary of War. While he’s at it, Trump should also rename the Dept. of the Treasury the Dept. of the Debt, with Scott Bessent becoming Secretary of the Debt. Both names seem more appropriate.’”