Why sickly US health bill affects us all

Republican resentment bodes ill for yet-to-be-passed bills

So the picture on Capitol Hill may now be one of grinning Democrat faces -- but for how much longer? Early today, health-care reforms backed by President Barack Obama finally scraped past the crucial Senate hurdle, with the Democrats getting the required 60 votes to move the bill to a final vote by Christmas Eve.

Yet this Democratic victory has bred deep resentment in the Republican caucus. Reports from Washington suggest that a new era of partisanship is about to begin, boding ill for yet-to-be-passed bills still tied up in the Senate.

The key concern is that Republicans will choose to play politics, causing domestic intransigence to weigh down on globally important issues such as climate change and nuclear weapons proliferation.

Climate change legislation, which Senate Democratic leaders aim to bring to the floor by next spring, has been hotly opposed by Republican senators, particularly those from the manufacturing states. The failure of the bill to pass through the Senate before the recently ended Copenhagen summit was blamed as one of the reasons for the world's subsequent inability to agree on a legally binding treaty, demonstrating how America's domestic problems have impeded global co-operation.

Similarly, Obama wants the Senate to ratify the Comprehensive Test Ban Treaty, a legally binding agreement that calls for a world halt to nuclear weapons testing which the US Senate declined to ratify in 1999. To date, the treaty has been signed by 182 countries, but has yet to come into force because the US and eight other countries have yet to give it their approval.

Both bills require a 60-40 majority to pass, making a show of bipartisanship all but crucial for any hoped-for success: with exactly 60 Democratic senators there is no room for manoeuvre. And, remember, Obama's stated goal was to achieve a bipartisan health bill -- a forgotten hope.

Republicans are convinced that the Democrats are heading towards an "historic mistake" and intend to force a series of six procedural showdowns to keep Senate in session right through Christmas Eve -- a tactic designed to drag the final vote out until after the Democrats' self-imposed deadline. If successful, this would further delay attempts to work out a compromise between the House's and the Senate's health-care legislation.

Moreover, the Democrats' hard-fought win still hangs in the balance -- the absence of a single member of the Democratic caucus could derail the bill's progress.

"What the American people should pray is that somebody can't make the vote," Senator Tom Coburn of Oklahoma, a leading Republican opponent of the health bill, was quoted as saying.

The Senate bill, as it now stands, will significantly transform the US health-care system, mandating almost all Americans to buy insurance, with those from lower-income groups receiving subsidies to do so. It would mean 94 per cent of Americans under the age of 65 would have medical coverage by 2019.

But compromises had to be made in order to win the necessary votes.

The option of a new government-run insurance plan to compete with private insurers was dropped, while support had to be given to revised language on abortion in order to win the crucial 60th vote from Senator Ben Nelson from Nebraska -- one of the most conservative Democrats. The bill now says that states can opt out of insurance plans that cover abortions, and state "insurance exchanges" will have to offer at least one plan that does not fund abortions.

Nelson's support for the bill was also given on condition that the federal government will permanently fund Nebraska's bill for Medicaid, the insurance plan for the poor.

Such wrangling for votes has attracted fierce criticism that the concessions made to Nebraska are akin to bribery and corruption. Senator John Cornyn, a Texas Republican, described the effort to get the 60 votes as "basically a pay-to-play approach . . . and it's just repulsive".

However, this does not mean that the haggling is over. The bill will have to be merged with the House's version, which still restrains the government option and places stricter limits on abortion funding, before going back to both houses for another vote.


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Q&A: What are tax credits and how do they work?

All you need to know about the government's plan to cut tax credits.

What are tax credits?

Tax credits are payments made regularly by the state into bank accounts to support families with children, or those who are in low-paid jobs. There are two types of tax credit: the working tax credit and the child tax credit.

What are they for?

To redistribute income to those less able to get by, or to provide for their children, on what they earn.

Are they similar to tax relief?

No. They don’t have much to do with tax. They’re more of a welfare thing. You don’t need to be a taxpayer to receive tax credits. It’s just that, unlike other benefits, they are based on the tax year and paid via the tax office.

Who is eligible?

Anyone aged over 16 (for child tax credits) and over 25 (for working tax credits) who normally lives in the UK can apply for them, depending on their income, the hours they work, whether they have a disability, and whether they pay for childcare.

What are their circumstances?

The more you earn, the less you are likely to receive. Single claimants must work at least 16 hours a week. Let’s take a full-time worker: if you work at least 30 hours a week, you are generally eligible for working tax credits if you earn less than £13,253 a year (if you’re single and don’t have children), or less than £18,023 (jointly as part of a couple without children but working at least 30 hours a week).

And for families?

A family with children and an income below about £32,200 can claim child tax credit. It used to be that the more children you have, the more you are eligible to receive – but George Osborne in his most recent Budget has limited child tax credit to two children.

How much money do you receive?

Again, this depends on your circumstances. The basic payment for a single claimant, or a joint claim by a couple, of working tax credits is £1,940 for the tax year. You can then receive extra, depending on your circumstances. For example, single parents can receive up to an additional £2,010, on top of the basic £1,940 payment; people who work more than 30 hours a week can receive up to an extra £810; and disabled workers up to £2,970. The average award of tax credit is £6,340 per year. Child tax credit claimants get £545 per year as a flat payment, plus £2,780 per child.

How many people claim tax credits?

About 4.5m people – the vast majority of these people (around 4m) have children.

How much does it cost the taxpayer?

The estimation is that they will cost the government £30bn in April 2015/16. That’s around 14 per cent of the £220bn welfare budget, which the Tories have pledged to cut by £12bn.

Who introduced this system?

New Labour. Gordon Brown, when he was Chancellor, developed tax credits in his first term. The system as we know it was established in April 2003.

Why did they do this?

To lift working people out of poverty, and to remove the disincentives to work believed to have been inculcated by welfare. The tax credit system made it more attractive for people depending on benefits to work, and gave those in low-paid jobs a helping hand.

Did it work?

Yes. Tax credits’ biggest achievement was lifting a record number of children out of poverty since the war. The proportion of children living below the poverty line fell from 35 per cent in 1998/9 to 19 per cent in 2012/13.

So what’s the problem?

Well, it’s a bit of a weird system in that it lets companies pay wages that are too low to live on without the state supplementing them. Many also criticise tax credits for allowing the minimum wage – also brought in by New Labour – to stagnate (ie. not keep up with the rate of inflation). David Cameron has called the system of taxing low earners and then handing them some money back via tax credits a “ridiculous merry-go-round”.

Then it’s a good thing to scrap them?

It would be fine if all those low earners and families struggling to get by would be given support in place of tax credits – a living wage, for example.

And that’s why the Tories are introducing a living wage...

That’s what they call it. But it’s not. The Chancellor announced in his most recent Budget a new minimum wage of £7.20 an hour for over-25s, rising to £9 by 2020. He called this the “national living wage” – it’s not, because the current living wage (which is calculated by the Living Wage Foundation, and currently non-compulsory) is already £9.15 in London and £7.85 in the rest of the country.

Will people be better off?

No. Quite the reverse. The IFS has said this slightly higher national minimum wage will not compensate working families who will be subjected to tax credit cuts; it is arithmetically impossible. The IFS director, Paul Johnson, commented: “Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.” It has been calculated that 3.2m low-paid workers will have their pay packets cut by an average of £1,350 a year.

Could the government change its policy to avoid this?

The Prime Minister and his frontbenchers have been pretty stubborn about pushing on with the plan. In spite of criticism from all angles – the IFS, campaigners, Labour, The Sun – Cameron has ruled out a review of the policy in the Autumn Statement, which is on 25 November. But there is an alternative. The chair of parliament’s Work & Pensions Select Committee and Labour MP Frank Field has proposed what he calls a “cost neutral” tweak to the tax credit cuts.

How would this alternative work?

Currently, if your income is less than £6,420, you will receive the maximum amount of tax credits. That threshold is called the gross income threshold. Field wants to introduce a second gross income threshold of £13,100 (what you earn if you work 35 hours a week on minimum wage). Those earning a salary between those two thresholds would have their tax credits reduced at a slower rate on whatever they earn above £6,420 up to £13,100. The percentage of what you earn above the basic threshold that is deducted from your tax credits is called the taper rate, and it is currently at 41 per cent. In contrast to this plan, the Tories want to halve the income threshold to £3,850 a year and increase the taper rate to 48 per cent once you hit that threshold, which basically means you lose more tax credits, faster, the more you earn.

When will the tax credit cuts come in?

They will be imposed from April next year, barring a u-turn.

Anoosh Chakelian is deputy web editor at the New Statesman.