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What the hell is going on with tax havens, explained


Ezra, Matt and Sarah use the Panama Papers to discuss how tax havens and shell corporations became such a big deal, and why America has done so little to stop them. Matt and Ezra argue a bit about the effectiveness of global governance. Economist Gabriel Zucman gets name-checked quite a bit. Sarah runs through some really surprising new Obamacare data (Medicaid fans — you know who you are — won't want to miss this!). Today’s episode is brought to you by The Great Courses Plus. Visit TheGreatCoursesPlus.com/Weeds to stream Inexplicable Universe: Unsolved Mysteries and hundreds of other courses for free!This episode is also brought to you by Re:Dream, a documentary series on Youtube taking a look at the idea of the American Dream. Watch the videos, find local events, and join the conversation at ReDreamProject.org.

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This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This week's episode of the weeds is sponsored by re dream. Watch the videos find local events. join the conversation we dream project, dot org. This week's under the weeds sponsored by the great courses. The great courses plus is offering our listeners a chance, a stream hundreds of their courses, including undersea investments, its two hundred fifteen dollar value for free. You just go to the great courses plus dot com, slash weeds, that's the great courses plus dot com, slash weeds! The following podcast contains explicit language, ok, what's the most credit, we can possibly claim for their rights hello work into another episode of the weeds, but ass. He had passed them anyway, network Matthew, glaziers with me as usual, my colleague, Sir Cliff recline, we'll recording it at a special time
afternoon time after a long meeting, so we may be rambling and I don't think so it back. I was surprised to hear that I have stolen two point: six, I of your dad and we get on the internet. I just everywhere my alma terribly exciting, that's terrible! Now it's worth referring, of course, to be the Panama papers, great name for papers, so called that it has been, leaked from the panamanian law, firm massacre on sector to a huge group of journalists in dozens of countries? Not including me, I voiced many of this- is a law firm that specializes in setting up a shell companies in a tax haven countries, especially it's it's a native homeland of Panama and and they revealed a bunch of interesting newsy things about specific politicians. But it's also just been a good sort of opportunity pretext to talk about the general from
on of of tax havens and shell companies, which is one of these things. I mean it's a kind of thing that the media doesn't do a great job with, where would just southern known for a long time, that these kind of taxation and against are happening and it's never a great opportunity to have like headline many wealthy individuals stash their money and offshore tax havens. But if you have a big league, then that's news and and weakened and if you think this is a very big league, the Prime Minister Islam is now resigned over the lake. Do not he had given a high tech, shelter to his wife. She kept it offshore. He put it in her name the day before he would have had to report it and that pact shelters owed a bunch of money by banks that he's d go shedding with. I mean amazing stuff you're so far, not a ton about U S, companies or individuals, but some wonderful foreign ski, those and his mouth is just a fascinating bit of insight into something
We all knew was going on, but it was so opaque that, aside from trying to get indirect because of its size. It was very, very hard to get people interested in. So I think mats, the one can reported on this motion is the most about it with things happening when the differentiation. coming up now, and I hope of you- can talk through how bad, No, this is, I think, a good deal of a shell companies like it sounds bad. It sounds like someone's doing something they shouldn't be. even when things you breathing writing on looking at like how many these are, legitimately, like laundering drug money or like doing like what the Prime Minister of Iceland was doing. Prism wealthy who are being like very creative, with their taxes and doing tax avoidance, I guess, would be used to determine what the additional two different things in play and in these documents, and one is the idea of shell companies. An initial company is basically so
thing that a person or a real operating company uses to disguise who the real owner of something is there's a lot of? U S based shell companies for a variety of reasons, as well as foreign ones, and then the other thing that we are seeing here is the use of tax havens, which is basically where you try to put your money in a country where tax levels are low, and so did the specialty of of mother can take us seems to be at the intersection of the two right where, if you want to put your money into a tax haven country- and you also want to obscure the fact that your money there's a sort of complicated legal work behind that. Can you give me an example just stylized, but that still of why you might want to do a see your company, your operating out of bullets in California, you do business overseas and then what? What is the set of things that might happen here?
This is then. Another thing is the corporate aspect of tax avoidance right, which I think is, is really best kept up a little bit separate furnace. Would you have on the corporate level right? Is different countries charge different levels of corporate income tax and if you operate your company on a global basis, you can objective. We measure apples a great example. This cause they're, they're, really big, and they they take advantage of a lot of aggressive tax planning. If corporate taxes were levied on sales, you could just look around and say: ok, Apple sold, so many phones in Germany, so many funds in the? U S so many funds in Canada and DV up, but that the tax that way
But we don't tax corporations that what their tax on their profits and profit is a measure of your sales, minus your costs, and so you can do various things to manipulate the geographical location of your profits. So you can transfer, say some valuable intellectual property to your irish subsidiary, because Ireland is a very low corporate income tax and then you can have your irish subsidiary licence the intellectual
property to your other subsidiaries and higher tax countries, so that what you might have a lot of sales in Germany, where the corporate income tax its high, but your profits are all coming into Ireland, where the corporate income tax is low, then because the United States doesn't charge corporate income tax on your foreign profits. As long as you keep the foreign profits abroad, you accumulate low tax piles of money. A lot of their technology in pharmaceutical companies have done this, which they kind of sit Quantum Court offshore in the accounts of the foreign subsidiaries, and then you have a lot of political action again about trying to get at a law passed a kind of bring them home cheaply. So that's that's! What corporations are doing? You don't need any kind of shell companies for that, because it's their something's words like the real scandal, is: what's
go in this case. There is an even a scandal: it's like completely known the companies themselves. They have to explain to their shareholders how they make money and what's going on, because their big public companies so was entirely entirely out in the open way. is different from an individual, because if you're in american right and you're a rich guy- and you own a lot of stocks and the stocks pay, you David you're not allowed to formally speaking to do that kind of thing. Until I say, I know it's actually, as were of Ireland, that owns and stocks right, so to sort of avoid taxes on on your money, Way a corporation. Would you need to take advantage of some of these shady or possibilities right? So you could have a panamanian company that is controlled by you, but that these named directors of our lawyers at this law firm and then that company owns assets that are in the
Cayman Islands and they are earning you return on income, which you dont report on your taxes to the IRS, and they can't see that you secretly control them and then that show company might say go by like a beach house in the Cayman Islands. And then you could go stay there, because you in fact own it without tax authorities ever sort of being able to be the wiser in that kind of thing, is Unum, that's illegal, but people considered talk themselves into the idea that it's not illegal. The question is: is its illegal in which country the ideas you're taking advantage of that the laws in these other countries they really dont, have taxes. You really are allowed to have completely anonymous companies in Panama. You really are allowed to not pay any income tax and the Cayman Islands, so you can set. These things happen, legal there and you may be an American, but maybe you don't care one.
Things. That has been really helpful for me in trying to understand the size of what we're talking about, because this leak is about one law firm that is biting off a piece of his business in one particular, primarily in one particular country but but a year ago, Gabriel's it men whose an economist had written a book event is mercifully, incredibly short, given the subject matter is quite dense, called a hidden. While nations and he finds using a number of measures that were pretty indirect but were the best effort anybody had done until now to try to measure the size and scale then, a low and estimate of the amount of money being sheltered in these ways is seven point: six trillion trillion dollars, and that is roughly eight per cent of all financial wealth across the world? And he says by the way, shows with a number of across a number of dimensions. This is rising growth quickly, very, very, very quickly ended the growth looks almost exponential, and so this is becoming a very.
clear route. Nice systematic way that people almost in a out of the box fashion Kin take advantage. If you dont need to be some kind of genius tax avoidance doesn't go to one of these companies. People know who these companies are their reasonably above board in the countries in which they operate, and you can put your money there becoming a really significant according to him loophole in the global tax system, and I think The marriage of adding having threw him through there is a better understanding of the size of this, but now this incredibly vivid example of what and how it's going on is really for the first time focusing attention in a way that feels to me not just like people lamenting it, but people actually thinking. Ok, maybe maybe so gone awry here that needs to be fixed or not speaking, that routine ass, the folks a planet money which is another guess I love they. Ve been doing a series of hot guess where their setting up these shall corporations
favorite as they set one up in police called unbelievable and there's just cite authorities the right type. I love their broadcasts. I recommended, I think, with listeners at the weeds, we're not being paid to say this. I just like to listen to it, anyways the really showed how routine it is where they are some podcast hosts, and they just you, filled out the paperwork and then all of a sudden believe sends them like this stamp that they get to use they like an official seal, and I was suddenly unbelievable: it is directed by the director of their company, the secretary at the at the law firm that help them set it up. She calls meetings to order. She does everything for the company their names on it are nowhere to be found in these. Are few people who didn't really have to put a lot of time or money into it. They did conflict as a fun experiment for their podcast in a really speaks. Do how routine it's become man just how there
industry built around at one also. There's the middle ground between sort of individual tax avoidance and corporate tax avoidance is what you see happening in partnership for stride. So if you go to a small head, find it in New York or in Connecticut the company in a common sense way. You will typically say companies located in New York right, we know New York is the center of the global financial industry. We know that London is another important centre, and by that we mean that the human beings who work at these companies and their offices are located there, but the companies are generally Cayman Islands or british virgin islands. Or what have you companies and these are not secret. Shell companies is right, I mean this is set up, it's it's no and they have to do a little marketing and sales oftentimes. The principles of the company are well known: political contributors, one unfilled
topical figures and one reason such a large share of the world's assets are coming to be existing in tax havens is precisely because these kinds of we know well known marketed. Funds have for tax purposes located themselves in tax havens, countries mom and pop does not have their money in the hedge fund. That's registering the Cayman Islands, but you know a state pension plan really made a university endowment. Less wealthy investors do and that stuff is that's totally totally legal and-
policy questions that the settlements book raises is like. Why is that legal? I mean in a very formalistic sense he could say like, while you know the Cayman Islands as their own country, they can have whatever kind of tax laws they want, and you know we just happened to have good reason. It works for investment funds. Is that for us sort of like a car company right most of the company's assets is like machines that build cars, but for an investment company you have a couple physical assets of desks and stuff, but the US our financial assets which await lesson and can exist everywhere. So you know when this first trend first happened, you could say: okay, well, here's some clever people, they ve like found a loophole and they're just beyond the reach of the IRS. When it goes on for years and years and years, you have a sort of accidental palace
right, which is nobody ever put down a law in Congress that was like maybe hedge fund shouldn't have to pay corporate income. Tax Kazanovitch would pass straight, but we have a de facto situation where fast food companies pay decent amount of corporate income tax because their assets oral here domestically, but investment companies just don't because it's just a bunch of Americans who are owned by Americans, whose investors are all Americans, but the company quantum quote, is in the Cayman Islands. So so this is this point of accidental She is very, very important. I want to stick on it from it, but first I want us to consider the question or have you consider the question for me because you more about the scenario of politics, and until it is so, is there a good reason to have. This is calabrian. Clearly there are companies and individuals who abuse it. Is there a case If I had a lawyer from one of these firms sitting here is there,
a positive case that we should have this system set up this way. Does anybody defend it I don't think anyone would say that the system that we have is great, but lots of people think I'm in wheat. We talk about this a little and in the tax episode we did people believe very sincerely that high levels of taxation, particularly on investment income, are damaging to the economy, and so they would say that if you had no loopholes, people could take advantage of if you had to go work. As you know, a fancy doktor pay, whatever percent on your income than take that money handed over to a hedge fund that within invested for you, there would then pay a thirty five percent corporate income tax. That would then kick money back to you and you would be paying a capital gains tax and you return that after all this
back saying he would have no saving, no capital formation Babo. By an I mean what they would tell you is that what we should have as much much lower tax rates out of any one would say that an optimal system is to have this like Goofy Cayman Islands loophole. But it's because many people believe that tax rates in the United States are too high that there's not a lot of political interest in closing these kind of loopholes, right that in in Congress, like the status quo, tends to win ride. So if you tried to say affirmatively who were going to drastically reduce corporate income taxes and capital, taxes, you'd have a hard time winning that fight, but also, if you want to close loopholes, you have a hard time winning that fight. So we have an equilibrium that you know it does not reflect anybody's ideals exactly, but that reflect the principles of sort of conservative economics that it's good to have a light taxation of these forms of income
you know I I think that that does not hold up really well. By another reason, then it becomes difficult to close. It right is that you can have liberal, saying? Well, ok, but we need to do, is just shut all these loopholes down and collect every penny of tax its owed, and you haven't seen estimates. This had been a really big issue in the European Press, so a typical guardian article will say what if we actually collected the statutory rate and every single penny of income that aren't all around the world and they'll say it's like We lost fifty trillion pounds. You know to declaration. I think a more realistic estimate would be to say that if we close these loopholes and had like a global tax on minimum, the rates would come down right. I mean to the extent that just political, pragmatic, like you, would have to do it every part of how good built constituency for it, but also reflects the fact that the face value rates in countries like
knighted states really are very, very, very high. You see on the corporate income tax side. I think this pretty famous, but the statutory weight is thirty. Five percent and the effective re dislike twenty percent, and so, if you did were form close, who pause you would want to get higher than twenty in terms of the actual rate that your collecting, but going all the way up to thirty five would be a really high tax rate, an income that you know it's according to a company's than would pay out individuals and be taxed again, and you know you start getting into rates that are plausibly gonna, sorted, diminish investment. I would not take at face value exactly, what's being lost, it's a lot of money, but it's not all the money. So we ve talked about third, these loopholes that are basically justice system. At this point, there not really loopholes that, like some smart person is exploiting what would it look like if we use government said like yes, we want to get serious about this. This is a policy priority for us
I know you were a little bit today that sometimes it's worked into trade deals. Sort of body it just like hasn't been priority is this thing where, if we decided that yes, this is a thing we care about. We could really change it or is it two challenging with dealing with other countries, unlike their view its laws and regulations like how much of this is just a problem of will verses like actual legitimate obstacles that would be really hard to tat, I think on the individual income tax collection, part of it, it would be almost trivia. I mean, I think, that if the United States said to Panama to the Cayman Islands, these other caribbean nations, look you guys you have to maintain a proper record keeping of who owns which assets and you have to automatically report to the? U S: government, when: U S persons, open companies like this, and you have to fully shared the data that these countries would have no ability whatsoever to resist. I mean if you look
the history of? U S like America relations, we dictate what laws they can have about cocaine and another hasn't drug policies. We routinely invading over further governments and its telling that the Tax Haven countries see out there. It's not even countries like Argentina, so the middle sized countries that have a history of resistance to these kind of things, Panama Cayman Islands, british Virgin islands, they very much want to be part of this sort of. U S lead global economy. This is the market needs that they have found for themselves Not gonna they're not going to stand up against it in Europe. The sort of offenders are Switzerland and Luxembourg. The technical political problem there is it because, workers in the European Union, even though its like seven people
European Union as an entity can't actually threaten Luxembourg with consequences because their part of the decision making process and in a theoretical sense the EU operates on a unanimity rule. So they can't change anything without Luxembourg. Doing so. They have actually addressed this in a number of ways, because anti tax politics is not as strong in Europe. Luxembourg really is a tiny country and even though, according to the rules, can unilaterally veto EU actions in reality that can't do that, and so they have. Political wrangling. Luxembourg has never tried to genuinely stand alone, and so, when they
get England and some of the other lower tax countries to side with them. You know they stand up Switzerland sort of get step to an extent like free ride. Luxembourg's obstructionism, but would you would you see with all of these countries- is that they have had these sort of banking secrecy regimes for a long time, usually dates back to work or wine, and the original purpose. Willie was tax avoidance, but it's been taken advantage of by Chris
enterprises over the years and we ve crack down on, particularly after nine eleven. You know the? U S. Government was not going to let people finance Al Qaeda through anonymous Swiss Bank accounts and Switzerland changes laws. They can't really resist this kind of thing. These bank accounts are not in North Korea. You know something like that. The corporate tax stuff is different because you know you getting in too much closer to like the core areas of national sovereignty and the world powers I think clearly could Probably should try to coordinate more on on corporate income tax collection, but you know it's difficult for me to imagine the United States just like telling Ireland that its corporate income tax rate has to be thirty five percent, just because ours is
you could have a compromise, particularly within the European Union, is actually will that they have such different rates. But you know our states have different tax policies and they to an extent engaging petition with one another, but it is the nature of life right. I mean countries want to be able to write their own tax laws but saying that countries need to accept anonymous financial transfers. I think it's pretty quest I have something I want to ask you on that matter, but before that, let's hear from one of our sponsors this week separated the weeds is sponsored by we dream. We dream is a nation wide projects taking look at the idea of the american dream, the ideas to discover with online videos and local meet ups, what it means to make it in the twenty first century, wash the Red Room, documentary Series and Youtube: is it delves into the hopes and struggles of average Americans is a new video every week day from now through April. Twenty second project pairs, mine storytelling with over thirty community engagement events? We dream is by Casey BT and partnership with fourteen other PBS member stations all across the country, its sponsored by think shift
initiative, the taboos foundation watch the videos find local events. join the conversation we dream project dot org to zoom out on this controversy just a little bit. I think this speaks to something that has been put in the presidential election this year and in a broader General sense actually should be something we think harder about, Then we typically do and- and- and one reason I think it has underlined- the political discussion is simply because we are not great tools to address at the economy, as has become completely cliche to say, is increasingly global and the most global members of it are the richest and most powerful, both the richest and most powerful countries like the United States, but also big corporations like Apple as opposed to the coffee shop, on your corner with, but is not have a lot of business in China and very rich people who spend a lot of time. Traveling have contacts in other countries have the money to get people who know how to get things done in other countries. That was something that has been a
this election. Certainly candidacies of of Sanderson Trump, is a feeling that the global economy a sand us, but it is rig the ordinary workers, about deal and ill often get. Somewhat narrow economic response to this kind of argument that says: oh no Bernie said this doesn't understand trade deals and trade deals are better than he thinks, and I think there are some argument that those are met in Bernie Sanders thanks, but this is, I think, a place where Sanders is really right. and we see a d problem in global economic, governance which, to a first for proclamation, more less, doesn't exist at all costs or no institutions capable of doing it. There is a lot of deep unfairness in them black economy. There are things that which people get to do the poor people don't get to do that. Some of these tax efforts, If you did the equivalent of them as someone who makes thirty five thousand dollars a year and listened Flint, Michigan would probably happen
time. Is the Iris would discover where you're hiding here your ass to your money and you would get either very very badly find or potentially, eventually put in jail? but instead here we have allowed this system to spring up or, if you have enough money to do it in a really slick way. Actually no pretty well nobody's ever gonna come after we ve let this go on for long enough that you can operate with confidence. There are whole law firms it do professionally that have really good confidentiality encryption and we just, Let all this go on. It is not a situation where we don't know what it is or how to stop at the situation. We have just decided it's a lot of trouble the people who would be fighting here have a lot of money. There is a very good way of doing it, and in a world where the economy is becoming global, much more rapidly, the governance of the economy is becoming global and where the players who benefit from that lack of gum, have a lot of money and have a lot of international Paul leader, the kinds of equilibrium. dead end while they're both having a big deal in the specific, I think the fact that we have potentially
percent or more of the world's financial assets in these kinds of arrangements is about thing on its own. Is also bad because it makes people mistrust the entire global system. They hear stories like this and it correctly This is em off. It makes them feel that they are getting this shitty end of a deal and while they are getting that shitty under the deal serving repeatedly told me global economy is great. No, it's important forbidden to be that competitive. Nowhere all in this together and in that increasingly doesn't track for them, and then you get candidacies like Donald trumps. So I think there's something brought here that that isn't just about this one event or this one even set up. The tax arrangements but away the show is something where we have normalized kinds of behaviour in the gap between how global economy is habitable. Our governance and its political power is
That is really bad and he's gonna have long term really deleterious effect. If we're not able to figure out some way to Brigitte. It's really selective to casino of you guys, partly remember when we were in college, or at least when I was in college Napster exe. I get on the scene, and suddenly you could just now I was in as fair authorizes lies a young anyway, you can. You can just download everything for free and music companies that in like that, so the government crackdown and then- You know some years later, people got this. This other idea right now is like. Well, we run a website out of Sweden and it can be called the pirate Bay and Sweden has different intellectual property laws and what we're doing there isn't illegal and it's an airless global economy. You know we can't be touch hooray for you know, there's a lack of global governance Babar, but, like guess what it turns out, big countries that didn't like all this intellectual property, piracy told Sweden. They had to change the laws. So Sweden change the pirate Bay got shut down.
There's a nice museum in Stockholm, sweetest technical museum. You can see the pirate Bay servers and there is that it's a nice exhibit. and it's also a monument to the fact that global economic governance can be done when people decide they care and not to me. Actually that is the greatest sleight of hand here. People will offer wanna say that things are happening or changes have to be made because of globalization, and so you, even here I mean I- I remember one response- often to proposals for higher levels of taxation as well it'll just be evade dried people can just move the money off shore like it's a globalized economy. That was not the political systems response to IP owners right wouldn't when Pirate Bay came up, they said, like you know what we in fact have
Maybe we have nuclear bombs. I mean that we threaten to bomb. Sweden. Is that right, but it is. It is not true that the world is this like anarchic state in which we have no ability to do these things, but we don't have particularly in the United States, is a political consensus that we want to collect more tax revenue from wealthy individuals. We, in fact you know, have quite the opposite: ride him in it. That there's no like shady, like hide the ball stuff in republican Party tax plans like they want people to pay lower tax. aids. So, of course, they're not interested in shaping down tax haven countries, but it is in some ways it like, I think, will you write Azra, that you know that the system is rigged, globalization, Bob Bob and in other ways it's like it's almost more banal than that that, like we just have political conflict over whether wealthy people should be paying higher tax rates, and this
one aspect of it, and I do think, though, that its telling that politicians who already centres side- but you know you're, broke Obama'S- your Hillary Clinton is people who want higher tax rates. They, though, tend not to talk about this, this kind of stuff, and they certainly don't talk about it in the tone of like moralistic we did you hear from Bernie Sanders and that kind of thing you know it does raise people's suspicions a little bit about you. I think that that kind of stuff, it's part of woods, has fuelled some of this kind of insurgent mentality is like how serious are they really I'm going after some of these things. You know, are you saying you can raise taxes, but you're gonna keep winking at at these kind of loopholes or or not? So when you like, look this, then do see anything like big happening of the? U S, because I can watch this now and I think, like you'll, be there's big store. The Prime Minister of Iceland will resign.
look. Maybe some other documents will come out. There really change the narrative as journalists pour over it, but can avoid thinking about average I've read like listening to you talk through it busy agree? It makes me think of a future where, like we have this news story, journalist write about it and then we can I move on to like whatever the next thing, Is there a reason like what are you or the other countries like you, no one Iceland, is this like unleash like a wave of like finance. Regulation, our room. What do you see So I was just one thing to say: is that you know the reason this document we get so big, as is forty years worth of documents over that span of time, the rules actually did get quite a bit tighter in a number of these countries, and you know my friends at the Treasury Department would want me to mention vodka f. Ain t see which will set out the tax law that there was passed in the Obama years and, in fact, did Sir put the squeeze on this.
Bilateral: U S, Panama, trade deal and twenty eleven. I think its tax provisions are relatively weak and the fact that the EU has agreed to relatively weak tax provisions shows it was not high priority of the. U S: rub centres office, but do not nothing right. I mean we did as part of that deal. Make Panama agreed, enhance tax cooperation, Switzerland in Luxemburg, had to change their walls and response. First to U S pressure after nine eleven EU pressure. More recently, David Cameron and the UK had been saying that he wants to crack down on tax havens, which is significant, because a number of the biggest tax havens are in this weird legal status, but somehow part of the british empire, but not subject to,
tax law and reasons. I don't totally understand you know it's like their monarchy, so it's like the queen rules, the Isle of Man, but parliament doesn't govern it or something so he had said he wanted to make a push against this and then one of the things that's in the papers is about his father's weird offshore tax vehicles. So I think he is now under like more pressure than ever
show he's going to deliver so actually do think. There's a lot of sort of step, wise progress on the individual income tax avoidance part the corporate tax thing people been talking about forever. I think the White House, Jason firm and recently by wrote an article once again laying out the Obama administration principles for corporate tax reform. Dave Camp had a proposal. That's been sort of congressional limbo for a million years, and you know I don't think anyone ever knows what to make of it. But, but I do think that this sort of basic thing where countries are letting people have completely secret accounts that they can basically illegally avoid taxes on, has been chipped away at over the years, even as more and more money has come into them.
and there's no reason to think it might go away which you do a corporate tax reform at the said some time, despite the tremendous amount of preparation that will take the awesome, terrible ass, she would take a break in and come back with. Some good news in our research are the week. This week's episode of the weeds sponsored by the great courses we how can a lot about the great courses lately and were excited by their new great courses plus video learning service? It gives you limited access to this huge library of the great courses, lecture series in so many fastening subjects you that science, history cooking ever as we really want you to try the great courses plus so they're, giving our listeners especial chance to watch one of their popular courses, understanding investments, absolutely understanding. Investments is presented by award winning Professor financial Economics, it Duke University, Conall, Fulton camp. The course explains the fundamentals of investing for people, worn familiar with the press, and it also covers areas. The more experience investors find beneficial its
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put out numbers iron who they expect different sectoral programmes to cover. They ve been doing this since Obamacare past. in the really interesting thing in this paper, was as to how sharply their medicate projections have changed so last year when they this out, they estimated that Medicaid, which is the program that covers low income Americans that has expanded by Obamacare. That would cover fourteen million people, which is a sizeable number this year a year later, they up that two eighteen million people such four million additional people who their national Budget Office, which does casting about different laws, the United States, who they think it's going to cover million by when annex, have the number by think by next year by twenty seventeen demands: a lot by money, niner etiquette levels out around levels out around there over the direct aid for the period. It covers the thing I found most if those members did not blow your mind tat. The thing I found to standing is that
the size of Medicaid it actually grown since Obamacare first passed in the recent events, so astounding is that fewer its are expanding, Medicare or Medicaid. Sorry, when Mama care past. It was envision that all fifty states would expand their medicate programmes to cover anyone who are warned less than a hundred thirty. Three percent poverty line, which is about ten thousand dollars or sell for an individual and back then LA past. Scipio did this exact same report and they As you know, we think about sixteen million people will get insurance through Medicaid, and at that point, they thought all states are expanding, but the Supreme Court change that and now only about thirty states have expanded Medicaid and even with twenties it's just saying no we're not going to do this. Medical aid has grown much faster than anyone expected and its It was something surprising to me as someone who's covered all these numbers that you know it's really a much much bigger part of the. Mama car insurance expansion than anyone really exe and why I'm really be so bad it as this is
dragging ok. I want make sure I understand exactly what you're saying you're you're saying that when Obamacare passes CBS as a medicate projection, based on the assumption that every state will expand. Medicaid were now whatever it is five. Five years later, I guess six years later and see Bio is now it in a way Who knows where, in a world where not every state is expanding, medicate, Texas, Pasok and expand Medicaid for quite some time have ever or Florida or has lots of people, and even so we are now. Looking projections were recently similar time period and that now see higher they Kate enrollment then was changed and we expect Twenty two million more people enrolled in Medicaid with twenty fewer state. You d say why that is they deal? Is it good reason or about, or is it because one reason could be that the economy is worse than people and furthermore, people under the poverty now sits nodded. not really that that doesn't actually come up and severe report at all. It's basically that enrollment Navy blue, be eligible have signed up and much higher rates than expected.
So one of the things we generally know about public programmes, is they often very low participation rates for Medicaid about half of the people who are eligible for medical? Typically and role in the programmes are usually expect. Not have people just won't show up what seems to happen. With Obamacare is that more people than expected showed up at the press. Briefing at Scipio went to questions I had was well are being your projections, because you think lots of states are going to expand or you think the states that have expanded they're going to do really robust enrollment and it's the ladder. You know a few more states will expand, but the thing that they think they miscalculated is what percent of the eligible population wouldn't run the programmes. I remember when Obamacare pass that really interesting conversation with RON Paula currents, films, USA, which is a big help, advocacy group and he was saying that he and his group in and surname cover this at the time were, were creating a consortium of folks, I think, is called in raw, you are saying: well, America, Latin America and
idea, was that Obamacare could actually cover many many more people than than folks realised that the severe projections are based on the idea that only a fraction of the potentially eligible population would actually and so what we are saying here is that we have actually Listen the medicate population gone much further towards the total eligible population than we expected. If we thought forty four, of eligible individuals would enrolled? In fact it's been sixty percent or something yeah, I think that's part what's going on and how we got there. I think one is just the push around Obamacare that with medicate it's kind of a programme that exist in the background. There's not usually a giant really big public push to get people unrolled it happening across the country. Another thing I think that's that doesn't get as much attention is that Obamacare made a lot of very technical changes to how one signs up a decade that just made the process a lot easier. So these streamlined the enrollment process. Can often be a process that involves a lot of people,
were a lot of going back and forth this social service offices. I cannot list right now the exact changes they made me. I've talked to medicate advocates and Someone who works on medicate enrollment, I'm working on a follow up on this. Please email me me now. If there's something I missing thing under the email you may get email me at Sarah, at vocs dot com and please let me know you know what you think is going on. What I've heard of you live talk so far. Is that they think a lot of these really technical changes had a really huge fact and made a lot easier to sign up for Medicaid. Oh, that's it useless. You know- and this is a good example- I think- of a way that sitting people miss allowed in tax white, which is that one of the main things that really gets covered in politics is what our politicians talking about, that you know it's. The most sort of visible thing is, is what's going on there and at no point during the Obamacare process did
a bomb. I say my big thing here that I'm really trying to do is make it easier for poor people to clean the welfare benefits that they have long been entitled to. That was just not stated priority of the Obama administration, but there were working in Congress and in the administration lots of earnest people who, for years, if not decades, had felt that one problem in America is that it was too difficult for people who are eligible for social service benefits to sign up for them and they went and did things that you have made a difference there and it turns out maybe even a bigger difference. Libya knew but No one really at the time was talking about that Sweden. We didn't have stories, saying it and then, when political mood, serve shifts right and were now in a cycle where word like talking about the Obama leg, see and things like that, rather than Obama pushing a contentious law in Congress to an extent
people. Don't fully know and appreciate the like full legacy of things that the Obama administration did on I'm anti poverty front or on a single payer. Expansion. type front, because at the time they were doing that the legislation, the marketing push was very much about look. This is a pragmatic centrists thing. This is about helping middle class families. Money, Bob Bob Alibi, and it was zero interest in saying, like actually there's some people here, we're just fanatically devoted to channeling money to the non working So I one question about this and then and then one data point add if I remember and so you you'll know if I'm wrong here, we are underneath original Sybil projections around insurance exchange- enrollment, yes, yes, do. We think that there is in a migration for some reason do do you think that we, that wrong them overseeing is somehow one to one here. So I think the finger pointing at
basically, the size of the insurance expansion is the same as just which programme people iron railing. And yes, I generally think that is true. I don't think it is people, because you can't really the decision of which one you period not evil. I could carry on your income its depending on your. This was something that came up right when in Roman started out that you're picking medicate, but yes, is about the same size of an expansion with the eyes, are what I met by the one to one question and we made just not noticing CBS Report was what happened in the russian Budget Office either. Because of and as you said, it is not enough, but but I'm curious about it either, because we got an economic projections wrong or potential, because we had misunderstood who the population that needed Obamacare what's in it, for it was that they were incorrect about which buck the population would end up falling into, but it sounds like that. Isn't is inequality. It's not. I mean the thing I would say, as I have talked to four separate stories, folks tibia about how they do their estimates and the thing I've understood is. It is very hard to project insurance,
pensions. There are not many historical examples. You can look at and say. Oh that's like how I think take up we'll go that who I think I will sign up with this two insurance expansions in the past fifty years? One was the children health insurance programme for low and middle income. Kids and one is expansion of drug coverage in Medicare. So all the forecasters CBS. They basically have these duties local examples to go on which are really different from the affordable care act. So I think you know they made their best guess and their best guess. I'm kind of you know this global level was right. Insurance expansion is just about as large as data dead, but they they overestimated exchange enrollment and they underestimated medicate enrollment for some of the reasons, what about unmitigated. I dont fully understand, The under estimate of exchange commit the main point is he was a kind of coincidence the area is electrodes out to sea loudly easy. Both bear the same sigh and inferior, full medicate expansion across every state, we'd we'd be I had, but I want to
something else who I think has really interesting, and we do not talk about about in this. The New York Times had a great story about employer basement at an and what they showed in the story was dead space at ninety nine. Until around the time of Amr CARE past the share of Americans with Implore based Roma was was dropping a bit and went about care passed. There is a tremendous. The mound of warning and discussion and concern that what would happen is called employer dumping that employers would see that now this great thing called Obamacare or this terrible thing called Obamacare depending on their perspective and that what it meant was they could stop offering health insurance to their employees. He's just let them get Obamacare or maybe increase even their wages, a bits vicar go get upon a care, but that the result would be that taxpayers would be paying subsidies where employers or previously paying premiums. That appears to be completely not happening that that, since a bombing their past employer based, Cares actually held unusually steady, it's been steadier than it was in
in the period previous to this, and that, I think, is one kind of a a bit of a surprising result on an economic level. There are good reasons to believe: implored dumping. What happen! I'm gonna, I'm at a claim. Some some credit here and say that I was sceptical just because right now, players are under no obligation offer health insurance, and so I never quite made sense to me why oh Bonica would change their calculation. The calculation is much more about attracting and retaining talent, but nevertheless it is entirely possible that what happened with the fact that it is an happening. So the fact that you have more Medicaid expansion and you thought you'd love at lower insurance enrollment than you thought, but benevolence reasonably reasonably high and a statement as an based market means that on the overall, in terms of how many poor people are being covered, which is really important here That's actually going pretty well, because you could have a world in which Obamacare is beating projections, but there what was happening was it. People were falling out of the employer market and onto Obamacare answered the and the
what number uninsured actual not going down in way, you'd help I'd, say it's going well and that metric one thing I mean another metric, even look at its cost and in that place, actually all this increased medic, and romantic did increase scipios projections for the costs, oh Mamma care over the projections they had last year, it still finally under cost. When you look at that, so many because when you were given twenty ten projections, still lower than that, but it is. There is now a bump up in the praise since last year, or so, if you are thinking about, what's the cheapest way to get insurance exchanges, ten be more affordable because you're not providing as heavily subsidize coverage, talk down one, a very early episodes of the weeds about the premium increases or being seen in certain state Obamacare insurance markets this year, while twenty sixteen has that continue to be borne out. So that will interesting Z in TWAIN seventeen. We don't have TWAIN seventeen rates, yet Blue Cross Blue shields put out a pretty interesting and somewhat controversial report that the opposition quickly swatted back
saying that our exchange enrollment is very sick population. That cost way more than our own visual and release that cost way more than people who get insurance at work. So they kind of through this out there and said that we need some help. This is too expensive to just seen a very quickly. You know it said that there is logical rooms of the paper. They really tried to push back hard against it I mean the outgoing nerd- I am- I am very interested to see the twenty seventeen rights and where they shake out be no. I think it's is worth saying that, even though the total numbers came out similarly that by having less employer dumping, less exchange, sign up more medicate expansion and this kind of untapped potential medicate expansion in in southern states and was constant Indians at the overall
of what Obama is is actually quite differently from. I would say we're not even when the long past, but when the debate sort of begin right, that the United States under George W Bush was a country with this fragmentary healthcare system, where most working people got insurance through their jobs, where a decent number of working of of working age people had no insurance, where we had kind of social assistance programmes, get healthcare to poor people, and when we had this single payer programme for the elderly right- and I think, when most like liberals have in their head this idea that, like a proper country, just as like a national insurance programme, idea was that Obamacare without being total drastic disruption, was supposed to get us to something like that. It was also put us on track to being like Germany or the Netherlands or Switzerland, with pride
insurance, but like a national system that everyone was in and it turns out that we actually got something much more like the trajectory that we ve been on all throughout the Eightys and Ninetys, which was when Democrats have political influence, they spend federal dollars on expanding that health care programme for the poor. Right that Medicaid was expanded a whole bunch of times in the nineteen. Eighty is that S chap was created in the ninety nine. Is that Obama care? You know it turned out that there was a big medicate expansion. Opponent has worked his way through Congress for cost reasons. It started relying more on medicate expansion Then people had initially sort of intended. Now that is in fact, we see that it's been even more medicate expansion than then we knew and if you had sort of started this whole thing back in two thousand seven and the primary process and Denmark it's in the primary trail had been like, but we ought to do is put a lot of money
explaining Medicaid. I think people just would react emotionally, intellectually, to that very differently than to this, idea of we're going to have a universal health care for all the cut that point a little bit differently something you see here in it, and the lack of employer dumping, which is obviously very derogatory term, but in some ways I think, is a is a mixed blessing, actual a mixed effect. Rather, I think you're getting more coverage, but somewhat less actual health care, rough,
form then was part of the initial initial vision and also then than I think, walk certainly would have wanted. I mean, if you think, of a part of a bombing that Israel really reform. It is really trying to make insurance markets work differently and in a more competitive and more straightforward fashion. You're looking at the insurance exchanges, that's a place where you did not have the distortion of the employer tax break for the most part, that's a place where you have much easier shopping where you have more competitive rates, for you have more options. We have more transparency that spatial regulators really have our hands around the situation and there is a sort of better regulation. But what ensures cannon and cant do that's a place where individual consumers can choose things that are relevant today,
situation in what they need and life, not just whatever their age. Our department happened to negotiate a good price on, and you know you looked at the plans or more darlings of healthcare walks, likely that the plan from on widen and by Bennet called Healthy Americans act. They basically moved everybody, families who were who was in Medicare into things. It looked like insurance exchanges and with Obamacare think the argument for long term reform was it. You would have over time, and you still might over time, but you'd have over time a transition from the employer market into the exchanges. The exchanges would get bigger and bigger thou, great political pressure to more employers into them,
and they would become a much more central part of the american healthcare system than they are now in and they create a much more competitive insurance selling space. But I think you're not really seeing that I think you're seeing the unity insurance markets are growing, but not as fast as you expected. Employers do not seem desperate to get out of health insurance, which is something you so the need them to be in order to see that happen and so Obamacare covering a lot of people, and it does have a lot of reforms printed on the payment side that I think are promising, but in terms of the way could totally transformed the insurance market. I dont think it is moving as quickly along that pace, as some reform is right when I,
talk to health insurance executives about the marketplace is the thing they'll say of this is great. This is changing our business, it's kind of like the small thing. That's not that expensive, although keep doing it, but there are clearly not making a lot of money on it, but they kind of like feel bad pulling out of it. They keep going along because it's not going to kill their business and that kind of feel like it's, the good corporate citizen thing to do, and what you are saying. As the health insurance market places, they think we're this can be seen by the media, is at the core of Obamacare like this was the thing that a chain I remember when you do the law the insurance expansion started and twenty fourteen we getting in roman numbers and at the beginning, people that numbers were very high for Medicaid very low for the marketplaces you see. A lot of coverage been like all those are medicate enrollment. Those dont really count what we
the cared about was exchange and Rome or even pupil to say, oh bombing, your signed up acts and with exchanges yeah so any, and if you'd try declared medicate people, they, like oh you're, patting the numbers of their medicate sign ups enter. There was kind of this narrative that developed, and you too, maybe it's because medicated around already exchanges are shiny, new that, like that, was what Obamacare was, I think, when we look back at the legacy of the aim, at least from you- we see right now in this video projections of things happening in the market places? The legacy will be much more have grounded in expanding this. This pro for low income Americans and making it easier to, for which is less sexy, but also meaningful accomplishment, but it's less its interests that its less sexy right, but they did his less of the intellectual. Aspiration and I d make every segment. This big do been a civil war a series of like climb down from a kind of
what you would drop in a seminar room like this would be a more rational healthcare system and then it's like ok, but we have a healthcare system, and you know you have interests. Interests have like human beings who don't like change, and so it's like, how can we get from a to b and the exchanges were the part that was meant to get us from a to b, and the idea was firstly, will have on the exchanges. People who currently dont have healthcare so they're, not averse to change
and then the idea was well you'll have some gentle incentives that kind old EU? Maybe new company is to just like not go down, the employer provided rude or maybe they will be like not so much employers dropping insurance that we call it dumping. But you know gently gently. People are gonna transition via the Cadillac tax and in various other things, but the legislative process already ground down some of that and we ve seen some or grinding down in terms of backlash of it to the Cadillac tax. Things like that, and so is it's a very meaningful received
to not have insurance, and I have Medicaid like that- can be a really big difference in your financial wellbeing, though also you could just get like money, but we ve seen somewhat less transformation. A we ve seen just less of those ideas. There were percolating like before the start of like the way healthcare ought to work is like this right and Obama cares. Point disposed to get us to be more like that and expand. Medicaid was never anyone's idea of like how it should work. Although I will say there was an you spoke about this earlier. There wasn't like here is how it should work to sign up for social services, and there is an experiment happening there that I think is quite successful in getting attention than like the lofty ideas, like here. Is our insurance market place? No, no! No! That's very true in each quite relevant, to I mean probably a whole range of programmes and things that stuff
Governments do I mean I mean a lot is learned, but it's just that those. I mean I just remember these, like very intense pre, two thousand eight thousand nine arguments about like how should health insurance be, and it just feels to me, though, that the all that has been less relevant to what happened. You I mean a lot of intellectual energy. Around Obama CARE was about how to cut costs right. I mean it in by President Obama, who cared a lot bout cost cutting it? S very was very convinced by bad, as these single long term driver budget deficits driven lot at that time by Peter or Zogg first at the congressional Budget Office and then at the Office of Management and budget had really push the idea of it. these central fiscal challenge was bending the cost curve. There's a lot of ideas about how you cut costs a lot of interesting experiments. They're the same time there was
out of moral and urgency and I think, I'm more sure, footed path to expanding coverage and abolishes doing some interesting stuff around cause, some of which I think, is being promising again on the payments are dismissed in things happening and we should ensure by do up a payment reform episodes of done, but and on insurance markets. I did some other says I think is- is not being as transformative as as advocates hoped, but the insurance expansion in its own way, because I think it had more just direct blunt force policy behind. It is working out pretty well to be fair to the reformers, costs have fallen weight, and so we can have this sort of thing is this: it is a kind of pundit argument as to like did costs fall because of the costs only on things in Obamacare or didn't it, which is fine, but it's If you're running a healthcare system and your costs are falling, Alonzo growing more slowly, Mozilla knowing anything new. But the point is a high level of knowing in credit,
I think the weeds paragraph on a high level, the cost curve is bending which, to an extent, whether it's a coincidence or just a couple, measures have been amazingly successful. Objectively puts less pressure on you to do are things to control quite strike? If costs would ballooning out of control people in age ass in the White House for probably running around, oh my god, like what are we going to do, but this cost? falling there. Instead, having that press secretaries run around to be like ok, what's the most credit, we can possibly claim for this because one way or the other they're going down so like there is no cause. Conservatives, going on so fast, like some of the policies in a bomb care that would have triggered if they were going up, have actually not triggered scientific know how dying animals, if not arrive- or I think conservative said, which is not like a crazy fear- was well of you. Expand coverage costs are going to explode right and that just hasn't happened if it had happened about,
We have a big problem to your point about projections, and- and this was true year two years ago- is a centre on budget policy parties chart. I dont know if it's true Billy right now, but the cost of national of government provided healthcare in this country right now, with Obamacare is lower than Pre Obamacare projections without Obamacare, because that's how big the on the road, should an overall system might costs are now a lot as some of our dutch and soon was her bad reasons like the recession but but stone impressive stat, and with that and with that, thank you for listening and thank sat things our producer. I see that as thanks to our answers and keep on will keep on rating us keep on recommending this
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Transcript generated on 2021-09-14.