In the April 3, 2026, editorial “The ObamaCare Crisis That Isn’t,” the Wall Street Journal Editorial Board argues that Democratic warnings regarding the end of enhanced subsidies have proven unfounded. The Board claims:

· The 1.2 million person decline in number of ACA enrollees was smaller than anticipated and enrollment remains high at 23.1 million nearly twice the 2021 level.

· The decline of 1.2 million enrollees was largely result of removing people who were enrolled in both Medicaid and in state exchanges or had committed fraud.

· Average monthly premiums $137 or $73 for subsidized enrollees remained manageable and had not in fact risen.

· The most significant cost increase were limited to blue states with expensive mandates.

The objective of this essay is to systematically go through and evaluate these WSJ claims against broader economic data, state-level premium comparisons, and the clinical realities of coverage loss.

Concern One: The Omission of Medicaid-to-Exchange Transitions

The WSJ Claim: The 1.2 million decline in Exchange enrollment is a minor correction caused by the removal of “ineligible” enrollees and the curbing of “fraud.” This suggests the expiration of pandemic-era subsidies did not cause a meaningful loss of coverage.

The Counter-Analysis: Viewing Exchange data in isolation ignores the movement between Medicaid and the ACA Marketplace. Under the 2025 Tax Act, Medicaid eligibility was significantly tightened through 6-month redetermination cycles and stricter work requirements.

The Exchange acts as a safety valve for those losing Medicaid. If 2 million people were removed from Medicaid due to the 2025 tax bill, a healthy system would see those individuals transition to the Exchange.

If the Exchange lost 1.7 million previous members and only gained 500,000 “refugees” from Medicaid, the total number of people losing ACA-style coverage is significantly higher than the “1.2 million” headline suggests.

The 2026 CMS report shows a 13% drop in “New Consumer” sign-ups. In a year where Medicaid rolls were being cut, new sign-ups should have spiked.

Concern Two: The missing context of the 6.8 million growth

The WSJ Claim: There are 6.8 million more enrollees today than in 2023 and nearly twice as many as in 2021, implying the system remains robust despite the reduction in subsidies.

The Counter Analysis: This growth actually suggests the enhanced credits were a successful way to expand coverage. In addition, the WSJ does not account for other factors behind the growth of state exchange enrollment.

Between 2021 and 2025, many small businesses dropped coverage because heavily subsidized ACA plans were more affordable for their employees. This “crowd-out” means many of the 6.8 million were simply shifted from private employer budgets to the federal budget. One of the impacts of this substitution was lower costs for some small businesses, not a bad outcome.

This KFF article shows that a lot of the expansion of state exchange enrollment during the Biden years came in conservative states including Texas, Mississippi, Georgia, Tennessee and South Carolina that had higher uninsured rates.

Concern Three: The “Paperwork Barrier” vs. Actual Fraud

The WSJ Claim: The removal of 1.5 million people from the rolls is a victory for “program integrity” and a necessary step to stop subsidies going to those who “didn’t submit income records.”

The Counter-Analysis: The editorial conflates procedural ineligibility (paperwork errors) with intentional fraud. Data suggests this aggressive “cleaning of the rolls” creates a high-cost burden on the healthcare system.

Audits show that roughly 77% of Medicaid “improper payments” are due to “insufficient documentation”—meaning the person may legally qualify but failed to navigate new, stricter 6-month filing windows.

Double Counting of Medicaid and state exchange enrollments is often a timing issue caused by state data lags. Cutting these people instantly results in a coverage gap where the individual has no insurance for 30–60 days.

As depicted in medical literature (and dramatized in series like The Pitt), losing access to maintenance medications for chronic conditions like asthma leads to a massive spike in Emergency Room visits. Basically, a monthly subsidy of ~$500 for Symbicort is significantly cheaper for the taxpayer than a single $2,000 ER visit. See Emergency Department Visits for Acute Asthma by Adults Who Ran Out of Their Inhaled Medications (published in Allergy and Asthma Proceedings and indexed via NIH/PubMed) or The Lancet: Asthma Commission Report or Episode 13 Season Two of the Pitt.

Concern Four: The Statistical Illusion of “Average” Premiums

The WSJ Claim: Average monthly payments of $137 ($73) for subsidized consumers) are “hardly a great hardship reduction” as they mirror 2022 levels.

The Counter-Analysis: These averages are a classic example of survivor bias. The “stability” in the price is caused by the mass exit of the population from some of the more expensive cases.

People earning over 400% FPL faced 100%+ price hikes. They have largely fled the system. When the people with the highest premiums leave the data set, the mathematical “average” of those who remain stays low.

Many who stayed “bought down” from Silver to Bronze plans. They pay the “low” $73 premium but have seen deductibles spike from $5,300 to $7,500+. They are severely under-insured. This problem is about to get a lot worse because of the proposed HHS regulations, which I recently reviewed.

The increase in state exchange health insurance costs for some people over age 60 may have delayed retirements prior to the age of Medicare eligibility. The decision to retain employer based insurance rather than retire and switch to state exchange may lower premiums because state exchange premiums are age rated.

Concern Six: The “Blue State Mandate” Myth

The WSJ Claim: Premiums in “Blue” states are double those in the rest of the country due to mandates for social care, such as gender-affirming care and IVF.

The Counter-Analysis: The claim that blue states are more expensive is not consistent with other data See this KFF table for state cost estimates.

· Standard Silver Plan, premiums in “Red” Texas ($661) are actually higher than in “Blue” California ($570).

· The disparity is even more pronounced in the mid-Atlantic, where West Virginia ($1,073) is roughly 75% more expensive than its neighbor Virginia ($612).

West Virginia’s premiums are among the highest in the nation primarily because of the “double whammy” of an uncompetitive hospital market dominated by a few consolidated systems and a high-risk patient pool with the country’s highest rates of chronic diseases like diabetes and heart disease.

Actuarial data shows that “social” mandates like IVF or gender-affirming care typically account for only 1% to 3% of total premium costs. These are marginal “carve-outs” in a framework where 75% to 85% of a premium is dictated by provider prices and chronic disease management.

Blue states are not a burden to red state taxpayers because on net they pay more to the Treasury than the receive while red state get more than they give.

Conclusion

The “stability” celebrated by the Wall Street Journal editorial board is a snapshot of a shrinking market rather than a sustainable system. By pricing out the middle class and forcing the near-elderly to choose between their health and their retirement, the expiration of enhanced subsidies hasn’t solved a crisis—it has simply moved it from the federal balance sheet to the kitchen tables of American families.

A Note on the Limits of Editorial Discourse

The complexity of healthcare economics—where variables like hospital consolidation, regional risk pools, and federal subsidy structures intersect—rarely lends itself to the brief, high-level format of an op-ed or editorial. While the Wall Street Journal provides a valuable platform for policy debate, the board’s recent reliance on selective statistics to support a “Blue State Mandate” narrative serves as a reminder that opinion pieces are often an insufficient mechanism for exploring such intricate issues.

When data is curated to fit a specific ideological lens—such as focusing on marginal social mandates while ignoring the massive cost impacts of provider monopolies—the resulting commentary risks being more misleading than informative. For a framework as vital as the ACA, a commitment fact-based analysis is a prerequisite for any meaningful discussion on reform.

Deep Dive: Expert Video Analysis For a visual breakdown of how the 2026 subsidy expiration is reshaping the health insurance landscape, I highly recommend this KFF briefing: KFF Expert Briefing: The 2026 Coverage Gap and the Subsidy Cliff

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New York’s Climate Leadership and Community Protection Act (CLCPA) represents one of the most ambitious state-level climate frameworks in the United States, but its implementation is increasingly constrained by economic, institutional, and political realities. Governor Kathy Hochul’s proposed revisions—delaying enforcement timelines and modifying key targets -- highlight a broader dilemma: how to reconcile aggressive statutory targets with rising concerns about affordability, grid readiness, and deployment bottlenecks. This challenge is compounded by an emerging political divide, with progressive Democrats opposing delays and more moderate stakeholders supporting greater flexibility.

This paper argues that New York’s experience reflects a broader pattern across U.S. states and internationally, where ambitious climate policies are being recalibrated as they expand beyond the power sector into transportation and buildings. While cap-and-trade systems, subsidies, and regulatory mandates have achieved partial success, they represent second-best approaches shaped by political constraints that limit the use of more efficient, transparent carbon pricing. The analysis highlights the central role of utility structure, market access, and incentive design in determining outcomes, and suggests that aligning implementation reforms with adjusted targets may be necessary to sustain both political support and policy effectiveness.

Key Results

• Governor Kathy Hochul’s proposed rollback exposes a growing intra-Democratic divide, with progressives opposing delays and moderates aligning with Republican support for flexibility.

• Scaling back climate policy is becoming the norm as economy-wide programs face cost, complexity, and political constraints.

• New York’s subsidies function as both implementation tools and political cover for softening rigid climate targets.

• The main barrier to clean energy deployment is conflict between utilities and solar and battery developers, which results in slow approvals, unclear costs, and uncertain payments.

• Both cap-and-invest and mandate-driven approaches are second-best policies shaped by political limits on direct carbon pricing.

• Building mandates illustrate the core tradeoff: efficient fuel pricing is avoided because it raises visible costs for households, leading to more complex alternatives.

Introduction:

Governor Kathy Hochul faces a defining policy dilemma in New York’s implementation of its climate law: how to reconcile some of the most aggressive statutory emissions targets in the country with rising concerns about affordability, grid readiness, and economic competitiveness. Recent reporting highlights an unusual political alignment, with Republicans supporting efforts to delay or soften key mandates while progressive Democrats oppose any perceived rollback of the state’s climate commitments (See Hochul wants a climate reprieve, WSJ.)

This tension reflects a broader reality: the transition from ambitious legislative targets to practical implementation is proving far more complex than originally anticipated, particularly as costs become more visible and timelines more binding.

New York’s experience is not unique. Across the United States and internationally, governments are recalibrating climate policies that were initially designed under more optimistic assumptions about cost, technology, and political tolerance for higher energy prices. While cap-and-trade and related systems have delivered measurable emissions reductions in certain sectors, their expansion to economy-wide frameworks—especially in transportation and buildings—has encountered increasing resistance. The result is a growing pattern of delays, modifications, and policy adjustments, suggesting that scaling ambitious climate initiatives requires not only technical feasibility but sustained political and economic alignment.

Description of the New York Climate Law (CLPA)

The CLCPA is the most aggressive state-level climate mandate in the U.S. due to its unique “Real Zero” requirements rather than “Net Zero” goals.

· Unlike “Net Zero” targets in California or Europe, New York mandates an 85% absolute reduction in gross greenhouse gas emissions by 2050. Only 15% can be offset, effectively forcing the removal of fossil fuel infrastructure.

· A legally binding 40% reduction by 2030. As of March 2026, New York has achieved only a 9% reduction, leaving a massive gap to close in just four years.

· The original law requires a 20-year timeframe for methane, weighting its warming impact significantly higher than the 100-year standard used globally.

The CLCPA serves as a “framework law,” delegating specific enforcement to state agencies, primarily the Department of Environmental Conservation (DEC).

Affected Sectors

• Electric Power: 70% renewable by 2030; 100% zero-emission by 2040.

• Transportation: Economy-wide caps on fuel suppliers and distributors.

• Buildings: Large buildings face strict emissions limits; new construction under seven stories must be all-electric as of January 1, 2026.

• Waste/Heavy Industry: New “Part 253” regulations (effective 2026) require industrial sources to monitor and report all emissions data.

If the DEC fails to meet targets, it faces litigation, Article 78 proceedings. Under Environmental Conservation Law Article 71, violations of reporting rules carry fines of up to $18,000 for initial violations and $15,000 per day for continued non-compliance. Under Cap-and-Invest, firms exceeding their cap must buy allowances. Failure to do so triggers a “penalty multiple” (typically 3x the market price).

“Cap-and-Invest” was not written into the 2019 law. It was adopted as the “preferred mechanism” through administrative action: The Climate Action Council’s “Scoping Plan” recommended Cap-and-Invest as the primary enforcement tool. Governor Hochul formally endorsed the mechanism.

The implementation of the law has been stalled by executive caution and judicial intervention. The Hochul administration failed to meet a January 1, 2024, deadline to finalize regulations citing economic infeasibility and inflation.

An Ulster County Supreme Court judge ruled that the state could not ignore statutory deadlines. The judge ordered the DEC to finalize regulations by February 6, 2026.

In November 2025, the state appealed, triggering an automatic stay that paused the court’s deadline. As of March 25, 2026, the case is pending in the Appellate Division.

Governor Hochul is now attempting to rewrite the law through the April 1, 2026 budget: Her proposed revisions include:

· Moving mandatory enforcement to the end of 2030.

· Shifting to 100-year methane accounting to make natural gas look 25% “cleaner” on paper.

· Adding a midpoint milestone to stretch out the compliance timeline.

Comments:

Comment One: Scaling back ambitious climate initiatives is basically the new normal both by states in the United States and among nations.

Cap-and-trade and cap-and-invest programs have demonstrated measurable success in reducing emissions, particularly in the power sector where compliance is concentrated and alternatives are readily available. However, their expansion to economy-wide systems—especially in transportation and buildings—has proven more difficult, with a growing number of jurisdictions delaying implementation, scaling back requirements, or modifying timelines in response to cost, complexity, and political constraints.

U.S. State Climate Policy Status (March 2026)

· New York: Following a 2025 court ruling that found the state in violation of its own deadlines, Governor Kathy Hochulis now seeking to use the April 2026 budget to legally delay enforcement until 2030 and weaken methane accounting standards.

· Massachusetts: The Healey administration officially delayed the Clean Heat Standard (a tax on fossil heating fuels) from 2026 to 2028, citing the need to protect residents from projected annual heating bill increases of up to $425.

· California: While emissions reporting (SB 253) is moving forward for late 2026, a Ninth Circuit injunction has paused the Climate-Related Financial Risk Act (SB 261), making reporting voluntary until the court issues a final ruling.

· Washington: Lawmakers are currently fighting to protect Climate Commitment Act (CCA) revenues from being diverted to general budget gaps, while linkage with California’s carbon market has been pushed to 2027 to help stabilize record-high gas prices.

· Pennsylvania: The state officially exited the Regional Greenhouse Gas Initiative (RGGI) in late 2025 after a multi-year budget impasse, with Governor Shapiro signing a repeal that permanently blocks the state’s carbon-cap participation.

· Maryland: The legislature is currently debating a moratorium (SB 834) on the EmPOWER program, which would pause greenhouse gas reduction targets for utilities until at least 2027 to curb rising electricity surcharges.

· Oregon: After a “defend-and-deliver” 2026 legislative session, several major climate investments were sidelined due to a looming budget gap for 2027, leaving the Climate Resilience Superfund in a holding pattern.

· Illinois: While the state continues its fossil fuel phase-out, new 2026 legislation (SB 3664) has been introduced to create an Energy Choice Commission to re-evaluate the economic impact of current mandates on industrial competitiveness.

International Climate Policy Status (March 2026)

· China: The newly adopted 15th Five-Year Plan sets a slightly lower carbon reduction target, includes a data revision that lowers required emissions, and allows for the use of coal as a strategic stabilizer.

· European Union: On March 10, 2026, the EU formally postponed the launch of ETS2 (the carbon cap on home heating and vehicle fuels) until January 1, 2028, to prevent a populist backlash over rising energy costs and allow more time for “social buffer” funding.

· Canada: New changes transition to a purely industrial pricing model, this shift is projected by the Canadian Climate Institute to create a 15–20% shortfall in meeting 2030 targets due to the loss of consumer price signals.

· United Kingdom: In late 2025, the government issued a “Pragmatic Realignment” of its Carbon Budget after court rulings found previous plans unachievable; the 2026 strategy prioritizes energy security and nuclear expansion over immediate emissions cuts in transport.

· Australia: As of March 2026, the government is moving to exempt approximately 1,500 medium-sized firms from mandatory climate disclosure laws, citing regulatory burden concerns.

· India: The Ministry of Power announced it will revisit and likely approve several new coal-fired power projects originally sidelined in 2024, citing the need to ensure grid stability for a rapidly expanding industrial base.

Comment Two: Incentives as Political and Economic Justification for Target Modification

New York’s extensive financial incentives for heat pumps, distributed solar, and other clean energy technologies are not just implementation tools -- they are increasingly central to the political viability of modifying the state’s rigid climate targets.

New York offers some of the most generous energy subsidies in the country, including upfront rebates for air- and ground-source heat pumps, income-tiered subsidies for rooftop and community solar, and performance-based incentives for energy storage -- often exceeding comparable offerings in states such as California and Massachusetts in both scope and direct consumer support. As Governor Kathy Hochul seeks to delay enforcement timelines and introduce more flexible compliance mechanisms, reaffirming and possibly expanding these subsidies may be necessary to maintain credibility with stakeholders who supported the original CLCPA framework.

Comment Three: Linking Target Flexibility to Utility Reform and Market Access

Governor Kathy Hochul’s effort to relax or delay certain climate mandates could be more effectively paired with structural reforms in utility behavior, particularly around interconnection, grid access, and support for distributed energy resources such as battery storage. Despite ambitious targets for storage and distributed generation, New York’s interconnection system remains slower and more utility-controlled than more market-oriented regions such as Texas or more streamlined operators in parts of the Midwest and New England.

Recent experience with battery storage projects highlights how utility processes can become a binding constraint on clean energy deployment in New York. In New York City, interconnection requirements imposed by Consolidated Edison have added roughly $21 million in upgrade costs per project, leading to multiple cancellations and placing significant planned investment at risk.

In addition, the state’s shift from full net metering to the more complex VDER system, along with new fees and changing credit rules, has made it harder for developers and consumers to predict the value of selling excess solar power back to the grid.

Developers continue to encounter uncertainty over upgrade charges, shifting compensation frameworks, and utility-controlled approval processes, all of which slow deployment of clean energy projects even where policy support exists. Addressing these issues would reduce structural barriers and improve system efficiency and would have political value in demonstrating to the governor’s critics that the state was moving forward on environmental goals despite the proposed rollback to the climate law.

Comment Four: The Limits of Second-Best Climate Policy

New York and California have adopted different policy tools to reduce transportation emissions, but both reflect departures from the economically efficient approach of directly pricing carbon. New York’s cap-and-invest system applies an upstream constraint on fuel suppliers, generating revenue that is recycled into subsidies while indirectly embedding emissions costs into fuel prices. California, by contrast, relies more heavily on regulatory mandates, including zero-emission vehicle requirements and a planned phase-out of internal combustion engine sales. While these approaches differ in design, both seek to achieve emissions reductions without imposing a transparent, economy-wide price on carbon consumption.

Most economists view such systems as second-best alternatives to direct carbon pricing, such as fuel taxes or emissions-based vehicle fees. These more direct approaches would impose costs transparently on higher-emitting behavior while allowing markets to determine the most efficient path to decarbonization.

By comparison, upstream cap systems and technology mandates introduce complexity, obscure price signals, and require ongoing policy adjustments. New York’s cap-and-invest framework, in particular, can be understood as a politically feasible substitute for a carbon tax—one that generates similar revenue but with less transparency and greater administrative burden.

Comment Five: Building Electrification Mandates and the Shift Toward Flexibility
New York’s building sector strategy relies heavily on regulatory mandates, including emissions caps on large buildings and requirements that most new construction under seven stories be all-electric as of 2026. This framework is broadly similar to approaches adopted in jurisdictions such as California and cities like Boston, which use building codes to accelerate electrification. However, Governor Kathy Hochul has moved to soften implementation by delaying enforcement, emphasizing affordability and grid readiness, and placing greater weight on subsidies and phased adoption. This does not eliminate the mandate-based framework, but it does shift New York away from the more rigid, front-loaded versions seen elsewhere.

From an economic perspective, these mandate-driven approaches are generally viewed as second-best instruments relative to directly pricing emissions from building energy use. A first-best approach would impose a transparent carbon price directly on heating fuels such as natural gas or heating oil, allowing property owners to respond by choosing the most cost-effective combination of electrification, efficiency improvements, or alternative technologies.

The primary political challenge with such an approach is that it would directly raise heating costs for households, making it more visible and broadly distributed than building-specific mandates.

One potential alternative would combine a broad carbon price on heating fuels with targeted rebates to households and smaller building owners, offsetting the distributional impact while preserving incentives for efficiency and electrification. While such systems can address equity concerns and improve economic efficiency, they remain politically challenging due to the visibility of higher energy costs and the need for sustained, credible rebate mechanisms.

Conclusion

New York and numerous other jurisdictions are increasingly relying on second-best environmental policies as ambitious climate goals encounter the realities of cost. Rollbacks and delays are occurring not because objectives have changed, but because the economic and institutional challenges of implementation become more apparent as policies move from design to execution.

The next phase of climate policy should focus less on expanding targets and more on improving policy design. More direct, transparent approaches -- combined with reforms that reduce institutional bottlenecks and better align incentives -- may offer a more durable path forward. Without such adjustments, further delays and incremental rollbacks are likely.

Authors Note: For more on Policy, Politics and Personal Finance go to www.economicmemos.com. Get 20 percent off annual membership total $48 with this coupon. https://www.economicmemos.com/56428713

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The “Goldilocks” era of private credit is officially over with Jamie Dimon’s observation that the cockroaches are beginning to emerge from the walls.

With the primary stock index for private lending hitting its lowest point of the year and major funds like Morgan Stanley and BlackRock blocking investors from withdrawing their cash, a critical question has emerged: Is this a temporary liquidity hiccup, or the first sign of a systemic credit event?

Key Issues:

· The Liquidity Mirage: Many private credit funds are blocking promised withdrawals of up to 5% of their investment each quarter, leaving investors with no choice but to sell their shares at a 30% loss in unofficial secondary markets.

· The Shadow Default Wave: Lenders are reporting a “safe” 2% default rate by quietly restructuring failing loans behind closed doors, masking a “true” distress rate of 9% that is only visible when you look at how many companies can no longer pay their original terms.

· The PIK Snowball: Struggling companies are skipping cash interest payments and instead adding that debt to their total loan balance (Payment-in-Kind), creating a mountain of compound interest that they will never realistically be able to repay.

· The EBITDA Fiction: Lenders approved massive loans based on “projected” future earnings that never actually happened, leaving companies without the real-world cash flow needed to pay today’s 12% interest rates.

· The Software & AI Displacement: Approximately 25% of all private credit is now concentrated in the software sector, but these loans are under immense stress as Generative AI allows customers to build their own tools rather than paying for “sticky” subscriptions, gutting the collateral lenders relied on.

· The Insurance Contagion: Life insurance companies have shifted billions into these private loans to chase higher returns, meaning a crash in private credit could directly threaten the safety of annuities and insurance policies held by regular families.

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Unlock the full analysis below, featuring our exclusive 11 Questions and Answers on problems in this industry and the continuing deregulation push which would expand access to retirement accounts and less sophisticated investors. The blog is relatively inexpensive, and free subscribers are offered one free post under the paywall.

The continued growth and deregulation of private credit markets

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Introduction:

The Make Billionaires Pay Their Fair Share Act (March 2026), sponsored by Senator Sanders and Congressman Khann applies a 5 percent tax on household net worth exceeding $1 billion. It is projected to impact 938 billionaires in the United States. The objective of this memo is to evaluate the impact of this bill on the world’s richest person, Elon Musk, and his ventures.

Background on Elon Musk and his ventures and possible wealth tax effects:

Elon Musk, the world’s richest person, has an estimated net worth of $840 billion with $3 billion in liquid assets. Based on his current net worth estimate Elon Musk would have a $42 billion annual tax bill under the Sanders-Khanna proposal.

Elon Musk’s massive net worth is primarily distributed across four major ventures: Tesla, a public leader in electric vehicles and robotics; SpaceX, a private aerospace giant that now includes the xAI artificial intelligence division and the X social media platform; The Boring Company, a startup focused on underground tunnel infrastructure; Neuralink, a biotech firm developing high-bandwidth brain-machine interfaces. He also has personal holdings in various cryptocurrencies and smaller investments.

Most of the funds for the annual tax bill would come from sales of shares in Tesla and SpaceX. EV sales are now rapidly dropping because of the expiration of the EV tax credit and other financial incentives impacting EVs. The high valuation of Tesla stock stems from expectations that this firm will become a leader in autonomous driving and robotics, activities that require additional capital expenditures.

Annual mandatory selling of Tesla stock to raise funds to cover the tax bill would depress the stock price and increase the cost of capital at a time when Tesla needs more funds for capital expenditures and research and development.

Under the tax bill Elon Musk would owe $27 billion annually on Space X alone. SpaceX is private, Musk cannot simply sell a few thousand shares on an app to cover the bill; he would have to find massive institutional buyers or sovereign wealth funds willing to participate in private rounds every single year, potentially at a discount to the official valuation.

In high-risk ventures like SpaceX, founder control is what allows the company to prioritize multi-decade goals over short-term dividends. If Musk is forced by the tax code to dilute his ownership by 5% every year, he would eventually be outvoted by institutional investors who would likely pivot the company to maximize Starlink’s satellite internet profits while cutting the expensive, non-profitable development of the Starship Mars colony.

There are significant rumors that SpaceX will go public through an IPO. The wealth tax would likely reduce the incentive for Space X to go public because in the absence of a publicly traded price Musk could argue for a lower valuation.

Using Tesla as a “piggy bank” to pay the multi-billion dollar annual tax on SpaceX’s valuation would rapidly deplete Musk’s 12–20% stake in the carmaker. Within a few years, he would lose his voting majority at Tesla, potentially leading to a change in leadership that might move away from his long-term bets on robotics and AI.

This forced liquidation is particularly hazardous given Tesla’s current 2026 pivot. To maintain its lead in the global AI race, Tesla has signaled it will double its capital expenditures to over $20 billion this year, funding massive new data centers for FSD (Full Self-Driving) training and the transition of its Fremont facility into a dedicated production line for the Optimus Gen 3 humanoid robot.

· Watch: “The Humanoid Robot Revolution: What’s Coming in 2026”

o This video breaks down how Tesla Optimus and FSD are moving from demos to factory deployment in early 2026, providing visual context for why Musk views this as a $25 trillion opportunity that he cannot afford to lose control of.

Critically, this tax arrives as Tesla navigates its most vulnerable period since the Model 3 ramp. The domestic EV market has cooled into a ‘structural winter’ following the September 2025 repeal of the $7,500 federal tax credit and the rollback of state-level purchase incentives. With Tesla’s U.S. sales dropping 7% in 2025 and inventory levels hitting a record 149-day supply, the company has been forced to cannibalize its own margins to remain competitive against cheaper imports.

Forcing Musk to offload billions in stock during this downturn would be a ‘double-hit’: it would dry up the company’s internal cash reserves while simultaneously crushing investor confidence at a time when the stock’s premium is no longer supported by car sales, but solely by the promise of future AI breakthroughs.

Using Tesla as a source of tax liquidity would not only dilute Musk’s voting power but also signal to the market a lack of ‘founder conviction’ during the company’s most capital-intensive phase. Such large-scale, mandatory sales would likely depress the stock valuation, creating a feedback loop that increases the cost of capital and potentially starves these high-risk robotics projects of the very cash they need to survive.

Simultaneously, the tax bill for SpaceX would continue to rise as the company succeeds, eventually forcing him to sell SpaceX shares anyway once the Tesla reserves are exhausted.

Neuralink and the Boring company are smaller, but Musk might be forced to sell shares an act that leads to a higher cost of capital for these startups also.

The bill does contain a clause, initiated by Ro Khanna, to protect startups in a building phase with little or no cash. Under this rule, a founder can postpone their tax payments until a “liquidity event,” such as an IPO or a total sale of the company. This prevents a visionary from being forced to sell off pieces of a fragile, young company just to satisfy the IRS, which would otherwise dilute their control before the business is even off the ground.

The deferral clause would currently apply to Neuralink and The Boring Company but not to SpaceX, which is very profitable. SpaceX might be able to lose a lot of money on Starship and become eligible for deferral.

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Elon Musk is currently backed into a $42 billion corner—but he isn’t out of moves yet. Below the fold, we dive into the three ‘nuclear options’ Musk’s legal team is likely prepping for 2026, including the specific Supreme Court precedent that could strike down the Sanders-Khanna Act entirely. Upgrade to paid to unlock the full strategic breakdown and the ‘Exit Tax’ warning that changes everything.

Elon Musk’s potential responses to wealth tax:

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The wave of wealth tax proposals started in California and has moved to Washington DC. What follows is a description of key proposals and my assessment.

California’s “One-Time” Lever: The 2026 Billionaire Tax Act

California is currently navigating a high-stakes local experiment, known as the 2026 Billionaire Tax Act, a proposed statewide ballot measure for November 2026 that would impose a one-time 5% excise tax on individuals with a net worth exceeding $1 billion.

• The Retroactive Snapshot: The tax applies to individuals residing in California as of January 1, 2026. This retroactive “snapshot” is a deliberate attempt to prevent capital flight, though it has already sparked legal challenges and a notable exodus of ultra-high-net-worth residents prior to the deadline.

• The Liquidity Compromise: Acknowledging the “Illiquidity Trap” mentioned earlier, the act allows billionaires to pay the 5% bill in annual installments of 1% over five years, though these deferrals come with a 7.5% annual charge.

• Allocation: 90% of the projected $100 billion in revenue is earmarked for the Billionaire Tax Health Account to shore up Medi-Cal and public health services following federal funding shifts, with the remaining 10% designated for food assistance and K-14 education.

See my previous memo on the California initiative.

The Sanders-Khanna “Make Billionaires Pay Their Fair Share” Act

Introduced in March 2026, this is the most aggressive and direct redistribution model we have seen to date.

• The Mechanism: A 5% annual wealth tax on net worth exceeding $1 billion.

• The “Social Dividend”: Unlike previous versions, this bill specifically earmarks revenue to fund $3,000 direct annual payments to individuals in households earning $150,000 or less. For a family of four, this is effectively a $12,000 “wealth rebate.”

· Enforcement: To prevent a billionaire exodus, the bill includes a 60% “Exit Tax” on the total wealth of any billionaire who renounces their U.S. citizenship. Just like Hotel California, you can check out anytime you like, but we’re keeping more than half your luggage.

The Warren “Ultra-Millionaire Tax” Act

Senator Warren’s model remains the benchmark for “broad-base” wealth taxation, targeting the top 0.05% of households.

• The Mechanism: A 2% annual tax on net worth between $50 million and $1 billion, with a surtax bringing the rate to 6% for everything above $1 billion.

• Objective: The focus here is on structural social investment -- funding universal childcare, canceling student debt, and expanding Medicare—rather than direct cash transfers.

• Auditing: The bill mandates a 30% minimum audit rate for the affected group and provides $100 billion in new funding for the IRS to develop specialized valuation tools.

The Biden “Billionaire Minimum Income Tax” (BMIT)

The Biden BMIT: A ‘Billionaire’ tax that somehow manages to find its way into the pockets of anyone with $100 million. Apparently, in D.C., ‘Billionaire’ is now a flexible term.

The BMIT is the most technically nuanced of the three, framed as an income tax expansion to survive potential 16th Amendment challenges in the Supreme Court.

• The Mechanism: A 25% minimum tax on the “total income” of households worth over $100 million.

• The Critical Pivot: It redefines “income” to include unrealized capital gains. If your stock portfolio grows by $100 million, you owe tax on that growth even if you haven’t sold a single share.

• Prepayment Logic: This tax functions as a prepayment. When the asset is eventually sold, the taxpayer receives a credit for the BMIT already paid, effectively ending the “buy-borrow-die” strategy where the wealthy live off loans against untaxed assets.

Comments:

Comment One: Lack of liquidity and implications

· The 5% Cash Ceiling: According to the 2026 High-Net-Worth Asset Allocation Study, the average ultra-wealthy portfolio has compressed its cash and currency holdings to just 5% of net worth. This is driven by a “growth-first” shift into private equity and alternative assets (now 28-34% of total wealth).

· The Inherent Conflict: In a scenario like the proposed 5% annual Sanders tax, a billionaire with average liquidity would be forced to exhaust 100% of their available cash just to cover the first year’s tax bill.

· Forced Liquidation Spiral: Because “liquid” buffers are also required for operational costs -- such as interest on debt, capital calls for private ventures, and business reinvestment—any tax exceeding 1-2% of net worth would likely lead to the “fire sale” of core holdings.

· The “Paper Wealth” Paradox: Since over 50% of billionaire wealth is typically held in public equities (often concentrated founder shares), large-scale selling to meet tax obligations risks “market signaling” issues, potentially driving down the stock price and further eroding the tax base itself.

Lawmakers seem to think a billion-dollar valuation is a giant swimming pool of gold coins but you can’t pay a 5% tax bill with 5% of a factory’s roof or a fractional share of an unreleased AI algorithm.

Comment Two: The Constitutional “Apportionment” Wall

The primary legal hurdle is the 16th Amendment.

· The Direct Tax Conflict: The Constitution requires “direct taxes” to be apportioned by population. Because a wealth tax is a tax on ownership (not a transaction), it faces a likely Supreme Court strike-down. This creates “policy whiplash,” driving capital flight “just in case” the tax is enacted.

Comment Three: International Evidence (The European Exodus)

Europe has already run this experiment. In 1990, twelve European nations had wealth taxes; by 2026, almost all have been repealed (including France, Sweden, and Germany).

· The Revenue Paradox: France’s wealth tax reportedly raised €3.5 billion annually but cost the state €7 billion in lost VAT and income tax as 42,000 millionaires fled the country.

We’re desperately trying to import a European tax model that Europe itself has been frantically refunding and repealing for the last 30 years because their millionaires developed a sudden, passionate interest in moving to Switzerland.

Comment Four: The “Innovation Ceiling” (The Microsoft/Apple Test)

The most destructive impact is on the pre-revenue “Unicorn” phase.

· The Cost of Capital: A 5% wealth tax acts as a 5% “interest rate” on equity, raising the hurdle rate for every dollar of startup investment.

· Stifling the Future: If you had taxed Microsoft or Apple at 5% of their paper valuation the moment they hit $1 billion -- long before they were profitable -- the capital siphoned away would have drastically slowed the infrastructure they built. For today’s AI startups, this is a “penalty for success” that incentivizes selling out to incumbents just to pay the IRS.

Comment Five: The Philanthropy Paradox

By taxing wealth out of existence, the state effectively dismantles the engine of private philanthropy, replacing surgical, long-term capital with the broad, often inefficient spending of a centralized bureaucracy.

The Gilded Age: Giving “Everything” Away

The tradition of radical distribution is a fundamental pillar of American capital. In the early 20th century, the titans of industry shifted from accumulation to near-total liquidation for the public good:

· Andrew Carnegie: Living by the mantra, “The man who dies rich, dies disgraced,” Carnegie distributed over 90% of his fortune (nearly $14 billion in today’s dollars). His wealth built over 2,500 libraries and anchored institutions like Carnegie Mellon that still drive innovation a century later.

· The Rockefeller Legacy: John D. Rockefeller distributed over $500 million—creating the modern school of public health. When wealth is taxed at the source, the “seed corn” for these multi-generational engines is consumed before it can ever be planted.

Interesting video on the Gilded Age:

https://daily.jstor.org/philanthropy-and-the-gilded-age/

Modern “Philanthro-Capitalism”

Today’s ultra-wealthy continue this tradition, though with a focus on systemic “moonshots” that political cycles often ignore:

· The Gates & Buffett Pledges: Warren Buffett has committed 99% of his wealth to be distributed during his lifetime or at death. The Gates Foundation has used this concentrated capital to move the needle on global polio eradication—a feat of logistics and funding the public sector struggled to maintain.

· The San Francisco Impact: Mark Zuckerberg and Priscilla Chan have mirrored this with the Chan Zuckerberg Initiative, pledging 99% of their Meta shares. Locally, they provided a $75 million gift—the largest private gift to a public hospital in U.S. history—to San Francisco General, funding the critical trauma technology and seismic upgrades that tax bonds alone couldn’t cover.

So, the progressives who want a wealth tax to fund their vision of government are willing to sacrifice these projects. The tradeoff exists for two reasons. First, the money reallocated to government projects can’t be given to philanthropic projects. Second and arguably more importantly, taxes that reduce capital accumulation and economic growth will impede the existence of fortunes available for any purpose.

Conclusion: The Collision of Populism and Pragmatism

The three federal frameworks and the California initiative analyzed in this memo represent a significant shift in the American fiscal narrative—moving from taxing what citizens earn to taxing what they build. While the political appeal of a “Social Dividend” is undeniable in an era of high wealth concentration, the structural impediments outlined in our six comments suggest a profound disconnect between legislative intent and economic reality.

My cynicism regarding the practicality of these proposals is rooted not in ideology, but in the mechanical failures inherent to taxing illiquid, unrealized value.

The evidence from the European exodus and the “Innovation Ceiling” suggests that a wealth tax does not simply redistribute static piles of gold. Instead, it siphons the very capital required for high-risk, long-term R&D. If we mandate the extraction of capital from the frontier to pay for the present, we stop the next Microsoft, Apple, or SpaceX before they can reach maturity.

Subsequent essays will look essay on the likely concrete impacts of these wealth tax proposals on capital formation and economic growth.

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This paper synthesizes data from nine leading economic surveys to document a profound and growing trend of economic pessimism across the United States. Traditional economic measures of unemployment and inflation no longer track household perceptions of whether they are better off or not. Future research must develop a “New Cost of Living” framework that accounts for cash-flow burdens often excluded from current price indices including the CPI. This includes investigating the impact of rising healthcare cost-sharing (including higher deductibles and any increase in premiums paid by households) and the total cost of entry for first-time homebuyers. By refining these metrics, researchers can better explain the structural anxiety and “housing resignation” now surfacing in national sentiment data.

Key Findings

· Systemic Decoupling of Sentiment and Growth: Evidence from nine major surveys shows that consumer sentiment remains at near-recessionary levels despite strong headline GDP and employment data, suggesting a structural rather in the American mood.

· The Death of Intergenerational Optimism: Data from Pew, Gallup, and the WSJ-NORC poll reveal a historic collapse in the “American Dream,” with 75% of adults lacking confidence that the next generation will be better off—a sentiment driven by the perceived breakdown of the link between hard work and financial success.

· The “Housing Resignation” Phenomenon: Recent research into real estate trends confirms that skyrocketing nominal prices and institutional dominance have forced Millennials and Gen Z into a state of “housing resignation,” where the goal of homeownership is increasingly viewed as an impossibility regardless of individual effort.

· The Failure of the Traditional Misery Index: A critical finding of this study is that the traditional Misery Index is fundamentally flawed. Inflation is the change in an average price, which is not a measure of affordability. The CPI does not measure the share of health care paid by households, the costs for homebuyers, or the actual ticket price of a new improved item. As a result many other factors impact the household budget and financial outlook.

Introduction:

For much of the postwar period, there was a broadly shared assumption in economics and politics that personal financial well-being moved with the overall economy. When inflation and unemployment rose, households felt worse off. When growth accelerated, unemployment fell, and real incomes increased, sentiment improved.

This logic motivated the development of the “misery index,” a concept popularized by Arthur Okun. It shaped the famous 1980 presidential debate when Ronald Reagan asked -- “Are you better off than you were four years ago?” It was the underpinning of the model Ray Fair used to predict outcomes of presidential elections.

The relationship between the actual economy and economic sentiment is now weaker. Despite relatively strong headline macroeconomic indicators economic pessimism as measured by a number of indicators is on an upward trend and is in many cases near long term highs. Two recent highly publicized papers Matt Stoller’s “The Boomcession” (2026) and Lee and Yoo Giving Up: The impact of Decreasing Housing Affordability on Consumption, Work Effort and Investment (2026), document rising economic pessimism in a period where the macroeconomic indicators appear strong.

Matt Stoller argues that pessimism measured by the University of Michigan Consumer Sentiment Index, despite strong economic trends, reflects concentrated market power and persistent high prices in essential sectors, leaving households feeling squeezed and lacking economic agency even as headline GDP growth and employment data appear robust. His analysis draws on publicly available macroeconomic indicators and consumer sentiment surveys, is primarily descriptive, contrasting strong aggregate performance with weak household sentiment and evidence of elevated markups.

Lee and Yoo observe that declining homeownership expectation, driven by high mortgage rates and institutional investor dominance in single-family rentals, have pushed many Millennials and Gen Z households into a “housing resignation,” where abandoning the goal of buying a home reshapes savings and consumption behavior and weakens confidence in future living standards. They combine nationally representative survey data on housing expectations with housing market indicators such as mortgage rates, price-to-income ratios, and institutional investor purchase activity. Their empirical approach links changes in stated homeownership intentions to observed shifts in saving and spending patterns over time.

This memo reviews evidence comparing current and past values of questions designed to measure economic pessimism from several surveys including – (1) the University of Michigan Consumer Sentiment Index, (2) the Conference Board, (3) the Wall Street Journal-NORC poll, (4) the General Social Survey, (5) Gallup, (6) Pew Research Center, (7) the Harris Poll Real Estate Survey, (8) The Survey of Consumer Expectations, and (9) the National Finance Capability Study.

The objective of this analysis is to identify and document the long-term upward trend in economic pessimism across multiple decades and data sources; it is an examination of systemic structural shifts and is not intended to assign political blame to any specific administration or policy cycle. The paper concludes with a discussion of future research on why the disconnect between economic measure and pessimism measure exists and research proposing economic measure that better reflect the experiences of households.

Supporting Evidence on the Rise of Economic Pessimism:

The University of Michigan Consumer Sentiment Index:

The University of Michigan Consumer Sentiment Index is a monthly, nationally representative survey of U.S. households conducted since 1946. The survey typically samples about 500 respondents per month and produces both preliminary and final estimates. The headline Consumer Sentiment Index is constructed from five core questions covering: (1) personal financial situation compared to a year ago, (2) expected personal financial situation a year ahead, (3) expected business conditions over the next year, (4) expected business conditions over the next five years, and (5) current buying conditions for major household durables. The index is benchmarked to 1966 = 100, allowing nearly eight decades of comparison across business cycles, inflation shocks, and recessions. Detailed time series are publicly available.

· Current level vs. historical context: Recent readings (2023–2024) have generally been in the low-to-mid 60s. This is well below typical expansion-era levels (mid-80s to 90s), below the late-1990s peak above 110, and closer to recessionary trough ranges (mid-50s in 2008–2009). The index briefly fell to near 50 in mid-2022 during the inflation surge — one of the lowest readings outside the early 1980s. While sentiment has partially recovered from that trough, it remains significantly below long-run expansion norms.

For a detailed press release on the latest University of Michigan consumer sentiment results and components, see the University of Michigan’s report: Final Results for February 2026 (University of Michigan Surveys of Consumers).

The Conference Board Consumer Confidence Index:

The Conference Board Consumer Confidence Index is a monthly, nationally representative survey of roughly 3,000 U.S. households conducted by The Conference Board since 1967. The index is composed of two core subcomponents — the Present Situation Index (consumers’ assessment of current business and labor market conditions) and the Expectations Index (short-term outlook for income, business conditions, and employment) — and is benchmarked to 1985 = 100, enabling comparison across more than five decades of economic cycles and sentiment shifts. The Expectations Index is often highlighted because readings below 80 have historically been associated with increased probability of recession. Historical time series and documentation are published monthly.

· Current and pre-pandemic context: In January 2026, the Consumer Confidence Index fell to 84.5 (1985=100), down sharply from 94.2 in December 2025 and marking the lowest overall confidence reading since around 2014. This 84.5 reading sits well below its pre-pandemic level in early 2020 — for example, the index was around 132–135 in February 2020 — highlighting a large erosion of confidence compared with a robust pre-COVID outlook. The dive in 2026 reflects drops in both the Present Situation and Expectations subindices, with the Expectations Index at 65.1, well below the recession-warning threshold of 80.

For a detailed press release on the January 2026 index reading and components, see the Conference Board’s report: Consumer Confidence Fell Sharply in January 2026 (Conference Board press release).

The Wall Street Journal- NORC Center Poll:

The Wall Street Journal–NORC Center Poll is a recurring, nationally representative public opinion survey conducted by t NORC at the University of Chicago in partnership with The Wall Street Journal. The July 10–23, 2025 wave included 1,527 U.S. adults (margin of sampling error ±3.4 percentage points at the 95% confidence level) and is part of a long-running series of WSJ-sponsored polls dating back to 1987 that track core questions about economic opportunity, living standards, and belief in upward mobility. The series uses repeated nationally representative cross-sections rather than a panel design, enabling multi-decade comparison of consistent items.

· Share saying they have a good chance of improving their standard of living: 25% in July 2025, a record low in the series dating to 1987; prior recent readings were roughly 28%–29% in 2023–2024, indicating further decline.

· Confidence that children’s generation will have a better life: More than 75% report lacking confidence that life will be better for the next generation, reflecting historically elevated pessimism about intergenerational mobility.

· Belief that hard work leads to success: Roughly 70% say the idea that hard work leads to success either does not hold anymore or never did, among the highest skeptical readings recorded in the series’ modern tracking period.

For detailed reporting on the July 10–23, 2025 Wall Street Journal–NORC Center Poll, including results on confidence in standard of living, beliefs about the next generation’s prospects, and views on whether hard work leads to success, see this Axios article summarizing the WSJ poll results.

The General Social Survey:

The General Social Survey (GSS), conducted by NORC at the University of Chicago since 1972, is a nationally representative repeated cross-section survey of U.S. adults fielded roughly every one to two years. Typical sample sizes range from approximately 1,500 to 3,000 respondents per wave (larger in some earlier years). The GSS provides more than five decades of time-series data on economic attitudes, perceived mobility, financial satisfaction, class identification, and confidence in institutions. Public-use datasets, questionnaires, and detailed documentation are freely available. Not every economic sentiment question is asked in every single wave, so some long-run comparisons require using the years in which a variable was fielded consistently.

· Hard work vs. luck in getting ahead: In the late 1980s and 1990s, roughly 60–65% of respondents said hard work was more important than luck in getting ahead. In recent waves (2021–2022), that share has fallen to roughly 45–50%, while the share emphasizing luck or connections has risen from approximately 35–40% in the 1990s to about 50–55% recently — among the most skeptical readings in the series.

· Satisfaction with financial situation: During the late-1990s expansion, approximately 35–40% reported being “very satisfied” with their financial situation. During the Great Recession (2008–2010), that share fell to roughly 20–25%. In the most recent waves (2021–2022), “very satisfied” has been around the high-20% range, below late-1990s highs and closer to long-run averages than peak optimism periods.

· Subjective class identification (working class): In the 1990s and early 2000s, about 40–42% identified as working class. In recent waves (2021–2022), that share has risen to roughly 45–47%, while identification as middle class has declined several points relative to late-20th-century levels.

· Expectations that children will have a better standard of living: In the 1990s, around 60–65% believed children would have better lives than their parents. Following the Great Recession, that share fell into the mid-40% range. Recent readings remain around the mid-40% level, well below late-20th-century optimism and near post-2008 troughs.

· Confidence in major economic institutions (banks, big business): In the 1970s, confidence in banks and major corporations often exceeded 40–50% expressing “a great deal” or “quite a lot” of confidence. After the 2008 financial crisis, those shares fell into the 20–30% range and have remained roughly within that band in recent waves, far below late-20th-century highs.

The GSS also provides an excellent interactive data tracker through its Data Explorer tool, which allows users to search specific variables, review exact question wording, and generate time-series trend charts across decades. Readers can directly explore and verify trends by visiting the GSS Trends portal here: https://gssdataexplorer.norc.org/trends#

Gallup

Gallup has asked versions of the “better life for the next generation” question for several decades, with consistent trend data available since the late 1990s (and related standard-of-living and generational optimism questions dating back earlier). The specific item asking whether “today’s children will have a better life than their parents” has been tracked in modern form since the late 1990s, allowing roughly 25+ years of direct comparison. Recent readings (42% in 2022 saying youth will have a better life) represent among the lowest levels recorded in that multi-decade trend series.

· Belief that today’s youth will have a better life than their parents: In 2022, 42% of Americans said today’s children are likely to have a better life than their parents, down from roughly 60% in the late 2010s. The 2022 reading represents a sharp break from pre-pandemic optimism and is near historic lows in Gallup’s long-term tracking.

· Belief that today’s youth will be worse off: Correspondingly, the share saying today’s youth will be worse off rose into the majority range (roughly mid-50% range in 2022), compared with substantially lower readings during the late-2010s economic expansion.

The most recent Gallup result for this exact question (“how likely it is that today’s children will have a better life than their parents”) that I can find is from Gallup’s September 2022 poll:

Pew Research Center

Pew Research Center is a nonpartisan research organization that conducts nationally representative surveys in the United States (typically samples of about 5,000–10,000 adults depending on the study) and cross-national surveys through its Global Attitudes Survey. Pew has regularly examined perceptions of economic opportunity, intergenerational mobility, and children’s financial futures. Both the U.S. and global surveys have been available since around mid 2010s.

· U.S. view that children will be financially worse off than their parents: Approximately three-quarters of U.S. adults (around 74–75% in recent surveys) say children growing up today will be financially worse off than their parents. This represents one of the highest levels of intergenerational pessimism measured in recent decades.

· Global comparison: Across countries surveyed in Pew’s global studies, the median share saying children will be financially worse off is 57%. The U.S. figure is significantly higher than the global median, indicating comparatively elevated pessimism about intergenerational mobility in the United States.

The Harris Poll Real Estate Survey:

The Status of Real Estate in 2024 (fielded Jan 19–21, 2024; n = 2,047 U.S. adults) included a comparable prior wave fielded Nov 11–13, 2022 (n = 1,980). Respondents were asked on a 5-point agree/disagree scale to evaluate several statements about housing affordability and mobility, including whether hard work is enough to purchase a desired home. Based on publicly released materials, the “no matter how hard I work…” item appears in the 2022 and 2024 real estate waves; there is no publicly documented multi-year trend prior to 2022 for this exact wording, suggesting it is a relatively recent tracking item rather than a long-running decade-scale series.

· Housing mobility pessimism: 42% of U.S. adults in 2024 agreed with the statement “No matter how hard I work, I’ll never be able to afford a home I really love,” up slightly from 40% in 2022. Among Gen Z, agreement reached 46% in 2024.

· Perceived inheritance barrier: 71% of adults in 2024 agreed that they would need to be gifted or inherit money to own a home anytime soon, up sharply from 60% in 2022 — an 11-point increase in two years.

· American Dream is dead” (renters): 57% of renters in 2024 agreed that “The American Dream of owning a home is dead.” A directly comparable 2022 renter figure for this exact item is not reported in the published toplines.

The most recent Harris poll results on the status of real estate in 2024.

Survey of Consumer Expectations:

The Federal Reserve Bank of New York’s Federal Reserve Bank of New York Survey of Consumer Expectations (SCE) is a monthly, nationally representative panel survey that has tracked U.S. household expectations since June 2013. The survey typically collects responses from roughly 1,300 rotating panel respondents per month (producing annual samples in the several-thousand range), and covers inflation expectations, labor market prospects, income growth, credit access, and household financial risks. Because it is fielded monthly, it offers high-frequency time series back to 2013. Core labor market and financial fragility measures have been consistently tracked since inception, though specific modules and wording refinements have evolved over time. Public time series and downloadable microdata are available through the New York Fed’s Center for Microeconomic Data.

· Perceived job-finding probability (if separated from current employer): The mean perceived probability of finding a job within three months if one were to lose their job recently fell to about 43%, the lowest level recorded since the series began in 2013. The measure peaked during the 2021–2022 labor market expansion when job switching was strong and has since declined steadily as hiring conditions cooled.

· Probability of job loss (next 12 months): The mean perceived probability of losing one’s job has risen above 15% in recent readings, up from lower levels during the 2021–2022 labor market peak. However, it remains below its pandemic-era high of roughly 21% in April 2020, indicating elevated but not record insecurity.

· Probability unemployment rate will be higher one year ahead: The share of respondents expecting the national unemployment rate to rise over the next year has remained elevated relative to mid-2010s norms, fluctuating in the high-30% to low-40% range recently, consistent with softening labor market expectations but not at its historic maximum.

· Probability of missing a minimum debt payment (next 3 months): The mean perceived probability of missing a minimum debt payment has climbed to roughly 15% in recent data, its highest level in several years and well above pre-pandemic readings, though still below its early-series peak around 2013 and the spike during 2020.

In summary, the job-finding probability has recently reached a historical low, and the debt delinquency probability is at its highest in several years, while job-loss expectations and broader unemployment expectations are elevated compared with recent norms but not necessarily at all-time peaks. These patterns suggest that several key pessimism indicators in the SCE are unusually weak relative to much of the 2013–2025 period.

Recent SCE report on labor market expectations.

The National Financial Capability Study:

I am very appreciative of the people who put together this database because it enabled this publication on pre-retirement 401(k) disbursements.

The FINRA Investor Education Foundation’s FINRA Investor Education Foundation National Financial Capability Study (NFCS) is a large, nationally representative, state-by-state survey of U.S. adults conducted every three years since 2009 (waves: 2009, 2012, 2015, 2018, 2021, 2024), with each wave sampling roughly 500 respondents per state plus D.C. (more than 25,000 respondents per wave). Public reports, questionnaires, and datasets are posted for each wave, and FINRA also provides a merged “tracking” file covering multiple waves (at least 2009–2021). Inclusion and comparability of specific “pessimism” or stress indicators is not perfectly uniform before 2018: some questions were added in later waves (for example, financial anxiety/stress items were introduced in 2018), and some items were asked differently prior to 2015, limiting clean comparisons back to 2009/2012 for those measures.

· Spending more than income (cash-flow stress): Share spending more than income was 19% (2018), 19% (2021), and 26% (2024).

· No difficulty covering expenses (day-to-day ease): Share reporting no difficulty covering monthly expenses was 43% (2018), 54% (2021), and 38% (2024).

· Emergency savings buffer (three months of expenses): Share reporting they have set aside enough to cover three months of expenses was 49% (2018), 53% (2021), and 46% (2024).

· Credit card repayment discipline (always pay in full): Share reporting they always pay with credit cards in full was 47% (2018), 59% (2021), and 53% (2024).

· Personal financial satisfaction (subjective well-being): Share satisfied with their personal financial condition was 32% (2018), 33% (2021), and 24% (2024).

· Financial anxiety (sentiment-based pessimism; added in 2018): The NFCS introduced financial anxiety/stress questions in 2018. On the core anxiety item, the share agreeing that thinking about personal finances makes them anxious was 53% (2018), 56% (2021), and 63% (2024).

A paper on the most recent wave of the FINRA survey can be found here.

Conclusion

The collective evidence from these eight major surveys—ranging from the University of Michigan’s long-running index to the 2024 National Financial Capability Study—confirms a sustained and intensifying trend of economic pessimism that is increasingly decoupled from headline growth data. This “Boomcession” sentiment is driven by a combination of eroding purchasing power in essential sectors, a perceived breakdown of the link between effort and reward, and a historic decline in housing affordability.

When 75% of citizens doubt the future of the next generation and nearly two-thirds report that thinking about their finances causes anxiety, it suggests that the “Misery Index” of the future may be defined less by unemployment rates and more by a loss of economic agency and the death of the American Dream.

Future research must critically re-examine why the traditional “Misery Index” is failing as a barometer of the public mood. A primary reason for this divergence is that inflation, as a price index, is not the sole determinant of affordability. Three examples of this include:

· The Consumer Price Index (CPI) relies on “Owners’ Equivalent Rent,” which fails to account for the actual cash-flow burdens facing new homebuyers.

· The CPI does not capture the “hidden” inflation of shifting cost burdens, such as the increase in health insurance deductibles or the growing share of premiums paid by households.

· While hedonic adjustments may lower the CPI value of a computer because it is “better” than a previous model, the nominal cost to acquire that essential technology often remains high, squeezing household liquidity in ways the index ignores.

A misery index that incorporates information on the actual determinants of affordability might be more in line with survey data on household views on the economy than the original misery index.

The public mood is not just “bad”—it is becoming structurally cynical. The macro economy is growing but the cost of participation for the average person is prohibitive, and a large portion of our population no longer sees a viable path towards the middle class.

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Many economists (Gary Becker, Nada Eissa, Hilary Hoynes and others) have examined issues related to marriage, marginal tax rates and work incentives. Robert Moffit clarified that the phase-out of benefits is equivalent to higher implicit marginal tax rates.

There are additional AGI linked programs distorting behavior today. A recent SSRN paper shows how a decision to maximize liquidity in working years can motivate workers to choose conventional retirement accounts over Roth accounts, a decision that can backfire badly in retirement. A recent short post shows that a $20,000 salary increase does not go very far for people with student debt payments and insurance premiums linked to their AGI.

A new paper titled, Not Your Father’s Marginal Tax Rate and Marriage Penalty, shows how these stacked programs can push effective marginal rates into the 40 to 55 percent range, not because Congress raised statutory income tax rates, but because eligibility thresholds and percentage-based repayment formulas amplify income changes. The analysis also shows these new programs create and incentive for people to remain single.

In many cases, the largest burdens arise from design features such as abrupt subsidy cutoffs and full-income repayment jumps, not from the income tax schedule itself.

The full 3700 word essay is available to paid subscribers.

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The Supreme Court’s 6-3 decision on February 20, 2026, striking down the administration’s global tariffs, is a landmark for the separation of powers. It also serves as a significant validation of the analysis I published here months ago. In my previous post, The Legal Case Against Tariffs, I argued—well ahead of the current headlines—that these levies did not address a bona fide emergency.

Much like the student debt discharge of the Biden era, these claims of “emergency” were a mere pretext to seize powers explicitly reserved for Congress. The Court has now officially drawn the same line I highlighted early on -- the executive branch cannot use vague “emergency” statutes to bypass the legislative process.

The Refund Mess: $1,600 and the “Pass-Through” Problem

A critical difference between the student debt saga and this tariff crisis is the preliminary injunction. Biden’s debt discharge was halted before money moved; Trump’s tariffs were not. The government has already collected over $133 billion in duties that have now been declared unlawful.

• The Household Burden: Data from the Tax Foundation and recent consumer price indices suggest these tariffs cost the average household more than $1,600 per year.

• The Recovery Problem: Who is due the refund? The importer of record (the company) paid the duty at the border, or the consumer paid the inflated price at the shelf.

• A Potential Solution: One equitable path would be a flat $1,600 refund to households to cover passed-along costs, with companies receiving the remainder to cover unrecovered margins.

Litigation: A David vs. Goliath Battle

Currently, the only path to a refund is through the U.S. Court of International Trade (CIT). This creates a massive barrier for the “little guy”:

• Class Actions: While a class action would be the most efficient way to help small firms and consumers, they are notoriously difficult to certify in trade court.

• The “Lawyer Tax”: Even if successful, legal fees typically devour 30% of the recovery.

• The Deadline: Small companies are less equipped to sue, and if they didn’t formally protest their “liquidated” entries within 180 days, that money may be legally trapped in the Treasury forever.

The War Powers Trap: Why Iran is Different

There is a segment of the political left currently feeling “gleeful” about this ruling, believing it paves the way for Congress to use similar logic to invoke the War Powers Act and block the administration from military engagement with Iran.

I do not share this view. The Court just checked the President’s economic reach. Military “emergencies” are a much more complex legal thicket. Congress has the power to declare war but the president, the Commander in Chief, has to have the power to act quickly and use force when necessary.

Constitutional vs. Statutory: The tariff defeat was largely a matter of statutory interpretation—the Court ruled that the IEEPA simply doesn’t grant taxing power. War powers involve the intersection of the Constitution and the 1973 War Powers Resolution, a “political question” the Court often avoids.

The “Pretext” Bar: It is much easier for a court to prove that “trade deficits” are a pretext for a tax than it is to prove that “imminent threats” in the Middle East are a pretext for military action.

History warns that while the Court can safely correct an executive’s accounting error, it is ill-equipped to second-guess a tactical one. Consider the 1999 NATO bombing in Kosovo: When members of Congress sued to stop the campaign because the 60-day limit of the War Powers Resolution had passed, the courts refused to intervene, labeling it a ‘political question.’ Had the judiciary forced a mid-operation halt, it would have shattered a multinational alliance and likely led to a humanitarian catastrophe on the ground.

Forcing a President to litigate a withdrawal in the ‘zone of twilight’ between branches risks creating a vacuum of authority that, in a flashpoint like Iran, could prove far more dangerous than the action it seeks to restrain.

Linking the two may feel like a consistent “anti-emergency” stance, but legally, they are different animals. Those hoping the tariff ruling is a blueprint for stopping a war in Iran are likely overestimating the Court’s willingness to manage the battlefield from the bench.

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In our current political system, most policy proposals are designed to pander to the extremes of the party. Republicans who are slightly right of center and Democrats who are slightly left, who probably have more in common with each other than the people controlling their party, have very little input on the development and enactment of policy.

The consequence is lack of permanent meaningful progress on a wide variety of financial and economic issues. Initiatives on health care, student debt, and energy and the environment, taxes, and education adopted in one administration are reversed or phased out in the next one. The problem of entitlement spending is ignored despite the measurable costs of delay.

The nation is not on the right course and the inability of the two-party system to address economic problems is the primary reason. The primary purpose of this memo is to succinctly describe how the political process is impeding progress in seven areas – (1) entitlement reform, (2) tax and budget policy (3) health insurance coverage, (4) student debt, (5) incentives and rules shaping retirement savings, (6) energy and the environment, and (7) education reforms.

Entitlement Reform

Republicans and Democrats sharply differ on entitlement reform with Republicans in general favoring changes to benefits and Democrats favoring additional revenue.

Republican positions on entitlement reform fall into four camps – fiscal hawks favoring cuts to benefits, pragmatists favoring more gradual adjustments (mostly on the benefit side), reformers who want to divert existing tax revenue into private accounts, and supply siders who believe the imbalance will disappear due to economic growth from the President’s agenda.

Democratic policymakers generally favor closing projected entitlement gaps through higher revenues, particularly from upper-income households. Proposals include raising or extending payroll taxes on higher earners, increasing capital gains and other investment income taxes, and expanding corporate tax contributions to sustain scheduled benefits.

A few Senate centrists (Mark Warner, John Hickenlooper, Lisa Murkowski, and Susan Collins) and members of the problem solvers conference in the House have considered bipartisan reform packages based on both adjustments to revenues and taxes.

Neither party has prioritized action on this issue despite current law mandating automatic benefit cuts once the trust fund is depleted, projected to occur in 2033. Continued delay increases both the magnitude of the adjustment required and the likelihood that changes will be implemented suddenly rather than phased in gradually.

· Delaying reform until the depletion date would require a permanent payroll tax increase of roughly 4¼ percentage points—about 0.6 percentage points larger than acting immediately under current Trustees estimates—or an equivalent, abrupt reduction in scheduled benefits.

Social Security provides at least half of total income for about half of retirees, and it provides 90% or more of total income for roughly 25% of retirees. Reform to Social Security must therefore proceed in tandem with policies that reduce barriers to private saving, given the central role the program plays in retirement income.

A broader discussion on the need to advance solutions that address both Social Security’s finances and household saving constraints can be found here.

Tax and Budget Policy

Tax policy reflects a deep philosophical divide about the size and role of government.

Republicans generally prioritize lower marginal tax rates, particularly on capital gains and business income, arguing that investment and growth expand the economic base and ultimately strengthen revenues.

Democrats tend to favor higher rates on upper-income households and capital gains to finance social programs and address inequality; proposals such as a federal wealth tax illustrate the breadth of that ambition, though questions remain about administrative feasibility and revenue stability.

The divergence is especially pronounced on capital gains. Republican opposed all tax hikes but their assertion that increases in capital gains tax rates would be largely offset by declines in capital gains realizations has support in the economic literature.

An alternative approach which could raise more money than simply raising tax rates on capital gains involves expanding the capital gains tax base by eliminating 1031 exchanges, by reducing the step-up in basis at death and even by a small tax on unrealized gains upon death. One discussion of the literature on capital gains realizations with insights on the housing market can be found here.

Layered on top of this divide is a budget process increasingly built around sunset provisions and temporary policies. Major tax packages and spending initiatives are structured to expire within ten years, creating recurring “fiscal cliffs.” When control of the White House changes—from the Bush administration to Obama, from Obama to Trump, from Trump to Biden, and most recently from Biden to Trump the incoming administration confronts scheduled expirations, which will automatically trigger abrupt tax increases unless reversed by Congress.

As a result, most of the tax changes in a new tax bill are used to either prevent the automatic tax increase or fund new initiatives rather than reduce the trajectory of the ratio of debt to GDP. Tax policy impacts every sector of the economy, hence, these tax changes often disrupt important programs, as demonstrated by the recent impact of the 2025 tax bill on ACA state health insurance exchanges.

Health insurance coverage

The Republican Party has demonstrated over many years that expanding and improving health insurance coverage is not a governing priority. Their central focus has remained tax reduction rather than structural expansion of coverage or stabilization of insurance markets.

The progressive wing of the Democratic Party is increasingly tied to Medicare for All. The centrist wing of the Democratic party appears more focused on managing progressive expectations than on advancing and defending pragmatic reforms. A useful discussion of the conflict between progressives and centrists on Medicare for All can be found here.

The central consequence of the divides, both between and within parties, has been paralysis followed by policy whiplash. Rather than durable reform, health coverage has swung back and forth with each change in administration.

In the first Trump term, key Obama-era initiatives were scaled back or eliminated. The Biden administration restored many of those provisions and layered on temporary premium subsidy enhancements and Medicaid expansions. The second Trump term then reversed those expansions and allowed enhanced ACA premium subsidies to lapse. The instability culminated in a government shutdown fight centered on whether premium subsidies would be extended.

The current congress allowed the enhanced premium subsidy to lapse, a decision that is increasing costs and resulting in the loss of health insurance coverage for many households. Both parties deserve blame for this outcome, the Democratic party by making the enhanced credits temporary when they could have prioritized permanent credits and the Republican party for basically being indifferent about health care.

The ACA premium tax credit is not perfect, but it and Medicaid are the only options for most working-age households without employer-based insurance. Interestingly, the 2025 tax bill cut both programs.

State exchange health insurance market can and should be improved. Go here for a discussion of potential improvements.

The test over enhanced premium tax credits was in some ways the canary in the coal mine for the coming battle over the likely reaction to pending automatic cuts to Social Security benefits. Failure to act on automatic Social Security benefits, projected to occur around 2033, would impact more households and have a large effect on the overall economy than the decision to allow the enhanced ACA premium tax credits to lapse.

Financial distress caused by gaps in health insurance coverage increase medical debt can reduce quality and access to health services which reduces life expectancy and creates financial hardship by increasing medically related debt. The increase in medical debt makes it difficult for people to save for retirement, which makes it more difficult to implement a Social Security reform based on the assumption that household savings increase.

Student Debt Policy

Student debt policy reflects another sharp philosophical divide.

The Biden student debt policy was motivated by the progressive wing of the party, which has the goal of free college or debt-free college. The administration attempted to implement broad-based student loan discharges through two primary mechanisms: an initial effort grounded in the HEROES Act and a subsequent regulatory approach undertaken by the Department of Education pursuant to its authority under the Higher Education Act.

Biden also enacted an executive order to expand IDR loans (the SAVE act). Both the broad debt discharge efforts and the proposed SAVE program were either overturned or halted by the courts and eventually killed by the Trump administration.

Republicans, by contrast, have emphasized limiting federal exposure and curbing what they view as open-ended subsidies. The 2025 tax bill included a complete overhaul of student loan programs in the United States including the consolidation of all IDR student loans to one new program (RAP) and significant limitations on student use of federal loan programs.

The new student loan provisions were enacted without any Democratic input. It is accurate to say that Republicans are responsible for student loan policy and they appear to have gone too far.

· The increase in required payments prior to any loan discharge (360 verified payments under RAP) increases the likelihood that borrowers will approach retirement still carrying student debt.

· The elimination of most deferments and forbearances makes it harder for borrowers who experience abrupt job transitions or other financial hardships to every reach the full 360 qualifying payments.

· Payment tiers that are not indexed to inflation will quickly result in sharply higher student loan payments, undermining the ability of the RAP loan to keep payments affordable for future borrowers. The discussion of the impact of inflation or RAP payments can be found here.

· The current RAP loan payments increase implicit marginal tax rates, which in conjunction with ACA premium tax credits that are linked to AGI, will substantially reduce disposable income after an increase in AGI. See this paper.

· The provision of the RAP loan program applying the rate in each income category to all income instead of just incremental income can result in a small increase in income leading to a large increase in payments

· Borrowing caps and restrictions on graduate lending fall heavily on physicians leading to large increases in total student debt during residency and fellowship programs. This change could impact health care costs and access to training. Published here on my blog and at NASFAA.

Any student debt framework that increases long-run household indebtedness or impedes private retirement savings makes comprehensive Social Security reform more difficult to achieve. Neither current political party is offering an economically efficient way to reduce student debt burdens to facilitate additional savings for retirement and other purposes.

Savings Incentives

Unlike other economic issues, retirement savings incentives have drawn meaningful bipartisan cooperation. Congress enacted the SECURE Act in 2019 and followed with SECURE 2.0 Act in 2022, both designed to expand access to tax-advantaged retirement savings.

The original SECURE Act raised the required minimum distribution age, removed age limits for traditional IRA contributions, facilitated pooled employer plans to expand small-business access, and extended eligibility to long-term part-time workers. These changes modestly broadened participation and modernized plan rules.

SECURE ACT 2.0 added automatic enrollment requirements for many new employer plans, enhanced startup tax credits for small businesses, increased catch-up contribution limits for older workers, and replaced the Saver’s Credit with a federal “Saver’s Match” intended to boost incentives for lower-income households. The legislation reflects serious bipartisan effort to strengthen retirement security.

These reforms do not address the core problem: millions of households lack both sufficient income and financial margin to save meaningfully for retirement. Many provisions enhance tax advantages for workers already participating in plans rather than materially increasing net saving among households burdened by medical costs, housing expenses, or student debt.

A more detailed evaluation of SECURE 2.0, including distributional effects and long-term fiscal implications, is available at Economic Memos: https://www.economicmemos.com/p/evaluating-the-secure-act-20

Energy and the Environment:

Energy policy under President Biden and President Trump reflects sharp partisan differences — but also an uncomfortable similarity Both administrations based decisions on energy projects on its predetermined preferences rather than the economics of the proposal or even the national interest.

President Biden entered office committed to rapid decarbonization. The Inflation Reduction Act and aggressive EPA rulemaking tilted incentives decisively toward wind, solar, batteries, and electric vehicles. Federal oil and gas leasing slowed. Methane rules tightened. Pipeline politics became symbolic. Even when U.S. oil production later hit record highs — largely driven by private-land drilling and global prices — the federal message was clear: fossil fuels faced regulatory headwinds and a narrowing long-term runway.

President Trump’s return brought an equally forceful reversal. Withdrawal from the Paris Agreement, regulatory rollbacks, and a reopening of federal leasing re-centered oil, gas, and coal. At the same time, offshore wind permitting stalled and renewable tax preferences were narrowed.

On the surface, these are opposing philosophies. Biden favored wind; Trump favored LNG and oil. But neither Biden’s opposition to LNG nor Trump’s opposition to wind can be supported by a rigorous economic analysis and in both cases the administration’s actions were contrary to the national interest.

A more detailed examination of how Biden’s approach to LNG and Trump’s approach to wind favored political considerations over economic ones can be found here: https://www.economicmemos.com/p/trump-and-biden-on-wind-and-lng

Education Policy: Philosophical Divide and the Case for Competition

Education policy reflects a fundamental divide between the parties about the role of government and markets in delivering core public services.

The Democratic Party perspective emphasizes strengthening traditional public school systems through increased funding, regulatory oversight, and equity-driven accountability. The Republican Party perspective prioritizes parental authority and school choice.

The dispute is not primarily about funding levels, although funding is never irrelevant. The deeper dispute concerns whether the education system should be organized primarily as a public monopoly or as a regulated market with multiple competing providers.

This dispute is a traditional microeconomic and industrial organization question.

Is K–12 education best understood as a competitive market, or as a natural monopoly?

A natural monopoly exists when scale economies are so strong that a single provider can supply the market at lower average cost than multiple firms. In some rural areas, with sparse population and high fixed costs, that characterization is plausible. Moreover, in many communities there is strong political and cultural support for a neighborhood school.

Competition between schools is not the only way to bring Choice can be achieved by competition among providers inside a single school. Both the recent essay in The New York Times by Luis Elorza and the essay on Economic Memos titled Competition in the Education Industry: An Industrial Organization discuss how educational opportunities can be expanded and improved by allowing multiple education providers access to students inside a school. The Times article explicitly compares this approach to the one taken by Apple when it chose to open its App store to outside developers.

In this framework, competition occurs not through price but through institutional performance and parental choice. Providers compete on instructional models, culture, specialization, and results. The state maintains guardrails to protect equity and prevent cream-skimming.

Now personalize the situation. A middle-school student is struggling in math: the textbook is dense, the pace is misaligned, and the teacher is overwhelmed. Unless the parents are wealthy, there is little practical alternative—private tutoring costs hundreds per month, test-prep firms charge thousands, and specialized programs are geographically limited.

Under a modular course system, that student could enroll in math with a different approved provider while remaining in the same school for other subjects. Course-level competition makes targeted substitution possible and broadens access in a way whole-school choice often cannot.

The policy debate properly defined is not about eliminating schools but allowing the consumers (the students and parents) the right and ability to gravitate towards the courses giving the best outcomes.

Conclusion

Across entitlement reform, tax and budget policy, health insurance coverage, student debt, retirement savings, energy, and education, the pattern is consistent: neither party has demonstrated the capacity to deliver durable, economically coherent reform.

Republicans emphasize tax reduction, deregulation, and fiscal restraint, yet repeatedly defer structural entitlement adjustments, tolerate debt expansion when in power, and design student loan and health insurance retrenchments that create new distortions.

Democrats prioritize distributional goals and expansion of public programs, yet rely on temporary measures, aggressive executive action vulnerable to reversal, and revenue assumptions that often understate long-term fiscal constraints.

The result is not progress but pendulum swings—initiatives layered on, scaled back, reversed, and reinstated with each change in administration.

Nowhere is the cost of delay clearer than Social Security. Postponing reform until trust fund depletion, currently projected around 2033, would require a permanent payroll tax increase of roughly 4¼ percentage points—about 0.6 percentage points larger than acting today under current Trustees estimates—or an equivalent abrupt reduction in scheduled benefits. Delayed action converts a manageable, phased adjustment into a sudden and economically disruptive correction. The failure to address predictable arithmetic is not ideological disagreement; it is sustained avoidance of governing responsibility.

This instability carries measurable economic costs. Temporary tax and spending provisions undermine long-term planning. Health insurance expansions that lapse and student debt policies that oscillate create financial uncertainty for households and employers. Energy policy alternates between regulatory constraint and regulatory rollback rather than applying consistent economic criteria. Even in retirement policy, where bipartisan cooperation has been real, incentives alone cannot overcome stagnant income growth, rising medical debt, and educational borrowing burdens.

A viable third-party economic platform would begin from a different premise: durable reform requires combining elements traditionally claimed by both parties—measured entitlement adjustments with revenue reform, stable tax policy paired with base broadening, market competition alongside targeted safety nets, and energy and education rules guided by economic performance rather than ideology.

The objective has to become the betterment of society not partisan advantage. The analysis presented here casts doubt about whether this objective is achievable in our current two-party system.

About This Blog

This is a foundational post for the blog because it defines its core mission: advancing durable, economically grounded policy beyond the constraints of the two-party system. It serves as a framework for many of the analyses that follow. Most material here will remain free and accessible in order to encourage open and serious discussion. Support through free or paid subscription helps sustain the work and is appreciated.

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This paper identifies the limited but real set of U.S. House districts where a centrist or third-party candidate could plausibly compete in 2026 without functioning primarily as a spoiler. It starts from a simple premise: if a third party is to exercise real governing influence, it must combine electoral discipline with a substantive, forward-looking policy agenda, which would improve economic outcomes and prospects for Americans, rather than symbolic participation. Using explicit screening criteria and district-level classification, the paper distinguishes districts where a major party has ceased to function as a viable governing option from districts that are merely competitive, and explains where third-party entry is realistic and where it is not. The analysis presented here suggests that a third-party effort concentrated on gaining House seats could obtain real political influence much sooner than the political establishment realizes.

Key Findings

• The current two-party system is increasingly effective at blocking change while failing to produce durable solutions to widely acknowledged problems in housing affordability, health care costs, fiscal sustainability, and economic security. Voters dissatisfied with outcomes but alienated by ideological extremism lack a credible governing alternative.

• There is no realistic near-term path for a third party to achieve governing power at the presidential or U.S. Senate level. Presidential races are prohibitively nationalized and structurally winner-take-all, while Senate races are prohibitively expensive and dominated by entrenched party brands.

• The U.S. House of Representatives is the only federal institution in which a third party can plausibly gain durable governing leverage without first achieving national dominance. House races are less expensive, more candidate-sensitive, and capable of producing balance-of-power dynamics with relatively small seat totals.

• Using explicit screening criteria, this paper identifies 53 U.S. House districts in the 2026 cycle where a centrist or third-party candidate could plausibly compete without primarily functioning as a spoiler. Districts dominated by a single party at roughly 70 percent or more of the vote are excluded.

• Electoral closeness alone is insufficient to generate viable centrist opportunity. In addition to recent margins, districts are screened for party brand durability, nomination dynamics, ballot-access constraints, and the likelihood that a third-party candidacy could replace rather than fragment an existing governing coalition.

• Five mechanisms generate centrist opportunity: Democratic brand nonviability, Republican brand nonviability, even partisan balance combined with nomination instability, right-wing primary extremism, and progressive primary overreach. These mechanisms frequently overlap within the same district.

• The 53 districts identified can be grouped into five mutually exclusive categories reflecting their dominant pattern, including rural replacement districts, one-party urban and suburban districts, true swing districts, extremism-driven off-ramps, and progressive runaway primary districts.

• Primary election outcomes play a decisive role in shaping centrist opportunity in several districts. Third-party viability often depends less on baseline partisan balance than on whether primary electorates nominate candidates misaligned with the general-election median.

• Several states with recent close House races, including New Mexico, Washington, and Oregon, are deliberately excluded from the opportunity set. In these states, party brands and nomination processes remain sufficiently functional that third-party entry would likely fragment rather than replace existing coalitions.

• Entire states—including Texas and Florida—produce no plausible centrist opportunities in the 2026 cycle due to combinations of restrictive ballot-access rules, high media costs, entrenched party organizations, and high-propensity partisan turnout.

• A centrist third party that focuses narrowly on the House, secures a relatively small but cohesive bloc of seats, and aligns with the bipartisan Problem Solvers Caucus could plausibly exert disproportionate influence over House leadership and agenda-setting in a closely divided chamber.

• That influence would only be durable if anchored in a substantive, forward-looking economic agenda focused on affordability, household financial security, and long-term system sustainability rather than procedural obstruction or ideological signaling.

Introduction

This paper starts from a premise that has become increasingly mainstream: the United States is on the wrong trajectory, and the existing two-party system has shown limited capacity to correct course.

Polling over the past several years consistently shows that a majority of Americans believe the country is headed in the wrong direction and that their children will not enjoy the same economic opportunities they had. Public confidence in upward mobility, affordability, and institutional competence has eroded sharply.

That erosion is visible across multiple policy domains.

Housing affordability has deteriorated to the point where many younger Americans are abandoning expectations of homeownership.

Long-forecast fiscal challenges facing Social Security and Medicare remain unresolved despite years of bipartisan acknowledgment.

Health policy is moving in reverse, with the failure to sustain enhanced premium tax credits reducing coverage while fundamental problems of affordability, cost growth, and system design remain unaddressed.

Budget brinkmanship and government shutdown threats have become routine features of governance rather than exceptional failures.

Political discourse has simultaneously become more vitriolic and less constructive, with incentives in both major parties rewarding ideological performance over coalition-building and problem-solving.

The contemporary two-party system has become effective at blocking change while remaining unable to produce durable solutions to widely recognized problems. Voters dissatisfied with outcomes but alienated by ideological extremism are left without a credible governing alternative.

The second motivation for this paper is pragmatic. There is no realistic near-term path for a third-party breakthrough at the presidential or U.S. Senate level.

Presidential races are prohibitively expensive, nationally polarized, and historically unforgiving to new entrants. Senate races combine high costs with winner-take-all dynamics that strongly favor entrenched party brands. In both arenas, third-party efforts are far more likely to function as spoilers than as durable governing alternatives.

The House of Representatives is different. House races are less expensive, less nationalized, and more sensitive to candidate quality and local conditions. Control of the chamber often turns on a relatively small number of seats, making concentrated gains meaningful even without majority support. The House is therefore the only institution where a third party can plausibly acquire real governing leverage without first achieving national dominance.

A third party that secures even a modest bloc—on the order of ten to twenty seats—could, in combination with the existing problem-solvers caucus, plausibly hold the balance of power in a closely divided House. Such a bloc could influence the formation of a governing majority and condition its support on procedural reforms or substantive policy commitments. In practice, this would move the House toward a more coalition-oriented mode of governance, in which power is assembled through negotiation rather than assumed through party labels alone.

This paper therefore focuses narrowly on identifying where a third-party entry could plausibly succeed in House races, and where it cannot. It seeks to identify the races where the third party might win, get some influence and not be a spoiler between two candidates from the currently dominant parties.

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Where Centrist Third-Party Candidates Can Actually Compete in 2026: A framework for identifying plausibly competitive third-party House opportunities

The analysis that follows identifies a limited set of 2026 U.S. House districts where a centrist or third-party candidate could plausibly compete. It is not a comprehensive inventory and does not attempt to forecast outcomes.

Districts in which one major party reliably receives roughly 70 percent or more of the general-election vote are excluded from consideration. Even where such districts exhibit intense primary competition or internal factional conflict, third-party entry is not realistically viable under current conditions.

This screening rule is necessarily imperfect: some lopsided outcomes reflect weak nominees rather than stable voter preferences. Nonetheless, it excludes cases where third-party intervention would almost certainly be irrelevant or purely symbolic.

Electoral closeness alone is also insufficient to generate viable centrist opportunity. In addition to recent margins, the analysis applies several material filters: the durability of party brands, the capacity of dominant parties to nominate candidates aligned with the general-election median, ballot-access and procedural constraints, and the likelihood that a third-party candidacy would replace rather than fragment an existing governing coalition. These additional filters explain why some recent swing districts are excluded despite narrow outcomes.

Districts included in this memo exhibit one or more of the following factors. A single district may qualify under multiple factors.

Factor 1 — Democratic brand nonviability
Districts where Democratic nominees are not functioning as a credible general-election alternative under current political conditions, reflecting structural disadvantage rather than temporary candidate mismatch.

AK-AL; CO-03; MT-01, MT-02; WY-AL; SD-AL; ND-AL; NE-03; IA-02, IA-03; KS-02; MN-07; MO-03, MO-06, MO-07; PA-15, PA-16; KY-04; WV-02; NV-02; NM-02.

Total districts exhibiting Factor 1: 21

Factor 2 — Republican brand nonviability
Districts where Republicans are structurally noncompetitive in general elections and outcomes are determined within the dominant coalition rather than between parties.

CA-12, CA-17, CA-30, CA-32, CA-34, CA-37, CA-47, CA-51; IL-07; MA-07; MD-04; NY-16; NY-21; PA-12.

Total districts exhibiting Factor 2: 16 (see procedural note on California below)

Factor 3 — Even partisan balance

Districts with persistent two-party competition and narrow recent margins where neither party’s nomination process reliably produces candidates aligned with the general-election median.

CO-08; PA-07, PA-08; AZ-01, AZ-06; MI-07; NJ-07; NC-01, NC-13; VA-02; WI-03.
Total districts exhibiting Factor 3: 11

Factor 4 — Right-wing extremism risk

Districts where Republican primary dynamics or incumbents consistently alienate moderate general-election voters.

CO-05; CO-04; GA-14; OH-12, OH-14; PA-15, PA-16; MO-03; KS-02.
Total districts exhibiting Factor 4: 9

Factor 5 — Progressive extremism

Districts where Democratic primary outcomes routinely produce nominees misaligned with district medians.

NY-10; NY-12; NY-16; NY-21; PA-12; CA-34; CA-37.
Total districts exhibiting Factor 5: 7

Overlap and total flagged universe

Because districts may exhibit more than one factor, the factor lists contain 64 total factor assignments across 53 unique House districts, reflecting 11 overlapping cases. Explicit counts are shown to ensure transparency in classification.

Total unique districts exhibiting at least one factor: 53

Procedural note on California’s top-two primary

California’s top-two (“jungle”) primary system creates a narrow procedural pathway for a centrist or nonaligned candidate in otherwise one-party districts when the dominant-party field fragments and the opposing party is structurally weak. California districts appear here solely because this pathway exists. Absent the top-two system, they would not meet the competitiveness threshold applied elsewhere.

Categories of potentially competitive districts

Each district is assigned to one and only one category based on its dominant or recurring pattern. Categories are mutually exclusive even though the underlying factors are not.

Category A — Rural replacement districts
Dominant pattern: Democratic brand nonviability, often combined with extremism risk on the right.

AK-AL; CO-03; MT-01, MT-02; WY-AL; SD-AL; ND-AL; NE-03; IA-02, IA-03; KS-02; MN-07; MO-03, MO-06, MO-07; PA-15, PA-16; KY-04; WV-02; NV-02; NM-02.
Total districts in Category A: 21

Category B — One-party urban and suburban districts
Dominant pattern: Republican brand nonviability, with procedural viability concentrated in California.

CA-12, CA-17, CA-30, CA-32, CA-47, CA-51; IL-07; MA-07; MD-04.
Total districts in Category B: 9

Category C — True swing districts
Dominant pattern: Even partisan balance combined with nomination instability.

CO-08; PA-07, PA-08; AZ-01, AZ-06; MI-07; NJ-07; NC-01, NC-13; VA-02; WI-03.
Total districts in Category C: 11

Category D — Potential movement towards right fringe in Republican party

CO-05; CO-04; GA-14; OH-12; OH-14.
Total districts in Category D: 5

Category E — Potential movement towards left fringe in Democrat Party

NY-10; NY-12; NY-16; NY-21; PA-12; CA-34; CA-37.
Total districts in Category E: 7

Category reconciliation check

Category totals sum to 53, exactly matching the number of unique districts identified under the factor framework.

Role of primary outcomes in shaping centrist opportunity

The classifications above describe structural conditions rather than fixed outcomes. In several districts identified here, the viability of a centrist or third-party candidacy will depend materially on the nominees produced by the major-party primary process.

Centrist opportunity expands when primary electorates generate nominees misaligned with the general-election median. This dynamic operates in both ideological directions. In some rural and exurban districts, hardline Republican primary victories can weaken otherwise durable party brands, creating space for a centrist candidate to consolidate rather than split the governing coalition. A parallel mechanism applies in selected urban, suburban, and swing districts where progressive primary outcomes shift Democratic nominees meaningfully left of district medians.

Accordingly, the districts identified in this memo should be understood as a conditional watch list rather than a static roster. In several cases, centrist opportunity will turn less on baseline partisan balance than on evolving nomination dynamics. As the 2026 cycle develops, close monitoring of primary contests will be necessary to distinguish districts where third-party entry could plausibly replace a failing nominee from those where restraint remains the correct strategic choice.

States producing no plausible centrist opportunities

Under the criteria applied here, the following states produce no U.S. House districts worth tracking in the 2026 cycle: Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oregon, South Carolina, Tennessee, and Texas.

In much of the Deep South, Democratic collapse reflects partisan realignment rather than ideological vacancy, leaving no displaced center to consolidate.

Oregon differs in form rather than outcome. Polarization there is geographically clean rather than electorally unstable, with ultra-blue metropolitan districts and reliably red rural districts separated by a small number of competitive but brand-stable seats. While individual Oregon races may be close, existing party structures continue to supply nominees capable of assembling majority coalitions, leaving little room for third-party replacement under current conditions.

Texas and Florida merit special notice. Although frequently cited as potential targets, both fail every mechanism that generates centrist opportunity. Ballot-access rules require early commitment before nomination dynamics are known, media markets are prohibitively expensive even for ostensibly rural districts, party brands are fully institutionalized, and turnout is dominated by high-propensity partisan voters. Taken together, these conditions eliminate any realistic centrist path in 2026, even in districts that may appear demographically tempting in isolation.

Implications and Conclusions

The analysis above leads to a clear strategic implication: there is a narrow but real pathway for a centrist third party to acquire durable governing influence in the U.S. House of Representatives over the next two election cycles. That pathway does not exist at the presidential level and does not plausibly exist in the Senate under current political and institutional conditions. Everything depends on whether the third party behaves like a governing institution rather than a protest vehicle.

House races are the only federal contests where a third party can realistically win seats, accumulate bargaining power, and translate votes into policy leverage. Even in relatively inexpensive media markets, Senate races are prohibitively costly and structurally nationalized. The Iowa experience illustrates this contrast clearly: competitive House races typically require single-digit millions of dollars, while Senate races quickly escalate into tens of millions even in smaller states. In large or competitive states such as Texas and North Carolina, Senate races regularly exceed one hundred million dollars, with spending driven not by persuasion but by national partisan mobilization. These cost dynamics alone make Senate contests an inefficient and strategically unsound target for a new party attempting to build durable representation.

The presidency is even less viable. Presidential races are fully nationalized, winner-take-all exercises dominated by two entrenched party brands with deep donor, ballot-access, and media advantages. Third-party presidential efforts almost inevitably function as spoilers rather than governing entrants, and they risk discrediting any downstream effort to build legislative credibility. Concentration on the House is therefore not merely a tactical choice but a prerequisite for success.

A limited caveat applies to Maine and Alaska, which possess idiosyncratic electoral features that marginally reduce the structural barriers facing non-major-party candidates, including ranked-choice voting and a weaker attachment to national party brands. In both states, a centrist or independent Senate candidacy is not mechanically impossible. Nonetheless, such efforts remain long shots and should be understood as exceptions that prove the general rule rather than counterexamples to it. More importantly, even in Maine and Alaska, Senate contests risk diverting scarce organizational attention, donor capital, and candidate recruitment away from the House, where the same resources are far more likely to translate into durable governing leverage. Any engagement in these Senate races should therefore be strictly subordinate to a House-first strategy.

If a centrist third party were to secure a relatively small but cohesive bloc of seats, its influence would be disproportionate to its size. In a closely divided House, a group of ten to twenty members, particularly when aligned with the existing bipartisan Problem Solvers Caucus, could determine control of the chamber. Speaker elections already demonstrate the fragility of party discipline under polarized conditions. In a scenario where Republicans hold a narrow numerical edge but cannot unify behind a Speaker, a third party could credibly insist on selecting the Speaker and conditioning its support on a negotiated governing agenda. The alternative would be to allow the Democratic leader, currently Hakeem Jeffries, to assume the Speakership. That choice point gives a centrist bloc real leverage rather than symbolic influence.

That leverage would only be sustainable, however, if it is exercised constructively. A third party that limits itself to procedural obstruction or ideological signaling would quickly lose credibility with both voters and potential coalition partners. To function as a governing force, the party must present a substantive, forward-looking policy agenda that speaks directly to voter concerns about affordability, economic security, and long-term growth.

In that respect, the agenda should be centered on the economy, understood through the lens of household finances rather than abstract macroeconomic indicators. Rising costs of living are not a single-issue problem; they are the cumulative effect of policy failures across multiple domains. Existing analyses highlight two especially important dimensions. One examines how rising electricity and energy costs feed directly into inflation and erode affordability across housing, goods, and services. Another evaluates the economy through its concrete impact on household balance sheets, concentrating on four areas where stress is most acute and policy responses are weakest: health insurance affordability, student debt burdens, inadequate retirement saving, and the long-term instability of Social Security. Taken together, these perspectives point toward a centrist governing platform focused on cost containment, system design, and long-run sustainability rather than ideological positioning.

The uneven geographic distribution of centrist opportunity is not a weakness of this framework but one of its central conclusions. Viable third-party entry does not arise simply where voters describe themselves as moderate. It arises where existing party structures fail to supply candidates capable of assembling and governing a durable coalition. In those districts, a centrist candidacy can sometimes replace a failing party brand rather than fragment the electorate. Where those conditions do not exist, restraint is not caution but strategic discipline.

If a centrist third party concentrates on the House, targets only districts where replacement rather than spoilage is plausible and anchors its coalition role in a substantive economic agenda, it could plausibly acquire real governing influence after 2026 and, under favorable conditions, compete for majority control later in the decade. If it does not, the opportunity identified here will close quickly and may not reappear under current institutional conditions.

Author’s Note

The analysis in this paper draws on and complements two longer-form economic analyses by the author that examine affordability and household financial stress from distinct but related perspectives.

One paper focuses on the role of electricity and energy costs in driving inflation and eroding affordability across the broader economy. It examines how rising power costs transmit through housing, goods, and services, amplifying cost-of-living pressures even where headline inflation appears to be moderating. It also discusses how Trump Administration restrictions on renewable energy are contributing to the spike in electricity prices, which appears linked to higher inflation. That analysis is available at:
https://www.economicmemos.com/p/rising-power-costs-rising-prices

A second paper evaluates the U.S. economy through its impact on household balance sheets rather than aggregate indicators. It concentrates on four areas where economic stress is most acute and policy responses are weakest: health insurance affordability, student debt burdens, the adequacy of retirement saving, and the long-term financing of Social Security. That analysis is available at:
https://www.economicmemos.com/p/neither-party-is-solving-the-household

Together, these pieces are intended to inform a centrist policy framework focused on cost containment, household economic security, and long-term system sustainability rather than short-term partisan positioning.

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Key Results

· Electricity prices are rising roughly 2.5× faster than overall inflation, creating a direct input cost channel for inflation persistence.

· Utilities across major states are pursuing large, multi-year base-rate increases tied to grid investment, demand growth, and capital costs.

· Rapid expansion of AI data centers is driving structural electricity demand growth that current systems were not designed to absorb cheaply or quickly.

· Trump administration tax and regulatory actions are slowing renewable energy deployment at the exact moment new supply is most needed.

· Politically constrained energy supply—under both parties—raises long-run electricity prices and exacerbates inflation and affordability risks.

Introduction:

During the 2024 campaign, Donald Trump repeatedly emphasized two economic claims. First, inflation had spun out of control under the Biden administration, with food prices—especially eggs—serving as the most frequently cited example. Second, the Biden administration’s energy policy, particularly its restrictions on oil production and drilling, was portrayed as a key driver of higher prices and weaker economic growth.

Now that Trump has returned to office, inflation is lower than at its peak during the Biden years but remains meaningfully above target. Electricity prices, in particular, continue to rise faster than overall inflation. Utilities across much of the country are seeking additional rate increases, citing higher capital costs and rapidly growing demand, including demand from AI data centers. Because electricity is a core input into nearly all economic activity, sustained increases in electricity prices risk feeding back into broader inflation pressures.

At the same time, the administration has taken several steps that may further strain electricity supply over the medium term. These include efforts to rescind or weaken tax incentives for solar and wind power, along with new regulatory actions targeting wind projects and likely to affect solar development as well. Democrats have been slow to recognize that, despite different rhetoric, the Trump administration is repeating elements of the Biden energy-policy mistake it once criticized: constraining energy supply in ways that raise prices and risk undermining economic growth.

Recent increases in electricity prices and overall inflation

Recent inflation data show that electricity prices are rising far faster than overall consumer prices. Using Consumer Price Index data from the Bureau of Labor Statistics, electricity prices increased substantially over the most recent year, with gains that exceed headline inflation at both the national and regional level.

Nationally, electricity prices rose 6.7 percent from December 2024 to December 2025. Over the same period, the CPI for all items increased 2.7 percent, roughly 2.5 times the pace of overall inflation.

This divergence is not confined to a single region. Electricity prices increased 10.0 percent in the Northeast, 11.4 percent in the Midwest, and 5.5 percent in the South over the same period, while remaining below overall CPI inflation only in the West.

These consumer price increases are corroborated by upstream producer price data. The Producer Price Index for industrial electric power rose 5.6 percent from December 2024 to December 2025. This increase indicates that electricity-related cost pressures are appearing at the producer level as well as in retail electricity bills to consumers.

When electricity prices rise faster than overall inflation, these higher input costs can reinforce broader inflationary pressures and contribute to persistence over time.

The link between Electricity Prices and Future Inflation

There is a large economic literature linking energy price shocks to higher inflation and weaker real growth. Most of the foundational evidence focuses on oil and gas shocks during the 1970s, when energy costs rose sharply and fed into broad wage–price dynamics but there is substantial literature on the impact of electricity prices on future inflation.

Some academic studies:

Work by Kilian and coauthors shows that sustained increases in energy prices can spill over into core inflation through input costs and inflation expectations rather than remaining confined to headline measures.
Kilian et al. (2022), “Energy Price Shocks and Inflation,” Federal Reserve Bank of Dallas Working Paper
https://www.dallasfed.org/~/media/documents/research/papers/2022/wp2224.pdf

Recent IMF analysis similarly finds that energy prices were a major contributor to post-pandemic inflation and that these effects persisted beyond the energy sector, particularly in Europe where electricity prices transmitted gas price shocks to households and firms.
IMF (2025), “The Energy Origins of the Global Inflation Surge”
https://www.imf.org/en/Publications/WP/Issues/2025/05/09/The-Energy-Origins-of-the-Global-Inflation-Surge-566804

Central bank research, including from the Federal Reserve Bank of Kansas City, suggests that energy price pass-through to core inflation is smaller today than during the 1970s oil shocks, reflecting better-anchored expectations and institutional changes. These findings are best interpreted as ruling out a return to 1970s-style wage–price spirals rather than eliminating the possibility of persistence from sustained energy cost increases.
Leduc and Wilson, “Has the Pass-Through of Energy Prices to Inflation Changed?”
https://www.kansascityfed.org/documents/5321/pdf-rwp09-06.pdf

Bednář et al. use European data to show that electricity price increases spill over into inflation excluding electricity itself, particularly after 2009, suggesting effects beyond mechanical CPI weighting.
Bednář et al. (2022), “Energy Prices Impact on Inflationary Spiral,” Energies
https://www.mdpi.com/1996-1073/15/9/3443

Patzelt and Reis show that increases in household energy prices raise inflation expectations in a persistent manner. Electricity is not isolated empirically, but electricity bills are among the most visible and salient household energy expenditures, making the results directly relevant for electricity-driven inflation persistence.
Patzelt and Reis, “Energy Prices and Anchoring of Inflation Expectations”
https://personal.lse.ac.uk/reisr/papers/99-oilanchoring.pdf

Firm-level evidence also supports gradual and persistent pass-through from cost shocks into prices. Bils et al. show that firms typically adjust prices slowly when input costs rise, and that price increases tend not to reverse quickly once implemented. Electricity is not modeled separately, but as a basic, hard-to-substitute input, sustained increases in electricity prices plausibly feed into broader prices over time.
Bils et al., “Input Cost Shocks and Firm Pricing,” NBER Working Paper
https://www.nber.org/papers/w22281

Time-series evidence linking electricity prices and inflation is more heterogeneous. Vector autoregression and Granger-causality studies that explicitly include electricity prices find mixed directional relationships across countries. In some cases, electricity prices Granger-cause CPI inflation; in others, inflation predicts electricity prices, or no statistically strong relationship appears.
For example:
“Electricity Prices, Renewable Energy, and Inflation,” VAR evidence for Latin America
https://e-ahuri.org/wp-content/uploads/1-Ahuri1494.pdf

Related VAR studies in emerging markets similarly find that electricity prices and inflation interact over time, but with country-specific dynamics rather than a universal causal ordering.
Kabir (2025), TEM Journal
https://www.temjournal.com/content/144/TEMJournalNovember2025_3107_3117.pdf

The consistent takeaway from this literature is not the existence of a universal causal rule, but that electricity prices and inflation interact in ways that can support persistence, particularly in regulated systems where price adjustments are delayed and then implemented in discrete steps. These dynamics align with a view of electricity prices as a potential amplifier of inflation persistence rather than as a one-time shock.

Recent utility rate filings and implications for electricity prices

Recent developments in regulated utility rate cases provide direct and contemporaneous evidence of continued upward pressure on electricity prices.

High-profile and increasingly contentious rate proceedings in large states including New York, California, New Jersey, and Colorado point to sustained increases in customer bills.

Some examples of recent rate hikes:

The scale and structure of rate filings in 2024 and 2025 suggest that current price increases likely reflect the early stages of a broader, filing-driven adjustment process that will continue to work through retail electricity prices over time.

In New York, major investor-owned utilities have sought multi-year rate increases tied to grid investment, reliability, and electrification-related capital spending. Consolidated Edison and National Grid have both faced public opposition and regulatory scrutiny over the size of requested increases, but filings nonetheless point to materially higher average bills even after expected regulatory modifications.

In California, utilities including Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric have pursued large base-rate increases driven by wildfire mitigation, hardening investments, and system resilience. Although rate design and approval timing vary, cumulative increases remain substantial and have drawn political and consumer backlash.

In New Jersey, Public Service Electric & Gas and other utilities have filed for rate increases linked to grid modernization, storm hardening, and rising capital expenditures associated with load growth and reliability standards. Rate cases have prompted extensive public hearings and political attention, with regulators weighing affordability concerns against infrastructure investment requirements.

In Colorado, Xcel Energy has filed rate cases reflecting transmission investment, resource replacement, and demand growth, with regulators explicitly citing system expansion and infrastructure needs as drivers of higher costs passed through to customers.
https://www.denverpost.com/2024/01/18/xcel-energy-colorado-rate-increase/

Broader Studies and Databases:

Beyond individual state cases, the clearest public signal on the aggregate magnitude of recent rate activity comes from PowerLines, a project that tracks utility rate increase requests and approvals using public utility commission dockets and contemporaneous reporting. PowerLines estimates that utilities requested and/or received approval for more than $34 billion in electric and natural gas rate increases through the first three quarters of 2025, affecting approximately 124 million customers nationwide. PowerLines characterizes this total as more than double the comparable amount in 2024 and among the highest levels of rate increase activity observed in recent years.

While PowerLines does not publish a fully standardized utility- or state-level dataset and relies on public reporting rather than a unified regulatory database, its quarterly aggregates provide a useful top-level indicator that the dollar volume of rate filings in 2025 was unusually large.

Industry research from S&P Global Market Intelligence points in the same direction using a different methodology. Drawing on its Regulatory Research Associates rate case database, S&P reports that U.S. investor-owned utilities requested a record amount of rate increases in 2025, even as the number of new rate cases declined relative to 2024. This pattern implies fewer but substantially larger filings, consistent with utilities pursuing broad base-rate resets tied to capital spending, grid hardening, system expansion, and rising demand rather than incremental adjustments.

Other commonly cited public data sources are less informative for assessing forward-looking price pressure. The Bureau of Labor Statistics and the U.S. Energy Information Administration provide high-quality data on realized electricity prices and inflation, but do not track filed or pending rate cases. State public utility commissions publish primary docket materials, but there is no centralized national database suitable for systematic aggregation. As a result, public assessment of the rate-filing pipeline necessarily relies on partial aggregations such as PowerLines and high-level industry summaries from vendors such as S&P Global.

Electricity inflation is already evident in realized price data, rate hikes are ongoing across major states, and utilities continue to pursue large base-rate resets.

Two factors – ongoing increases in demand from growth of AI data centers and reduced supply in renewables – from Trump Administration regulatory and tax actions – threaten to exacerbate these trends.

Structural growth in electricity demand from AI data centers

Electricity demand growth is shifting structurally as AI data centers expand rapidly across multiple regions of the United States.

Unlike many historical sources of load growth, AI-related demand is highly concentrated, continuous, and capital intensive. Large data centers require reliable, around-the-clock power, placing sustained demands on generation capacity, transmission infrastructure, and local distribution networks. The growth of AI computing is increasingly intersecting with electricity affordability debates at the state, regional, and local level.

Recent reporting documents how this demand surge is already reshaping electricity markets and regulatory discussions.

In parts of Virginia and Maryland with dense data-center development, wholesale electricity prices have risen sharply over recent years, and those increases are feeding into retail rates faced by households and small businesses. In the Mid-Atlantic more broadly, grid operators serving large multi-state regions, including PJM, are weighing proposals to manage the affordability and reliability implications of rapidly growing large-load customers. At the local level, communities in states such as Georgia, Maryland, and New Jersey have debated moratoria, zoning restrictions, and special rate structures in response to concerns that data center growth is contributing to higher electricity bills and straining grid infrastructure.

The link between AI-driven demand growth and consumer electricity prices is well grounded in standard demand and cost pass-through dynamics rather than analytically ambiguous. Electric systems were not designed for sudden additions of hundreds of megawatts of continuous load in specific locations, and the resulting generation, transmission, and distribution investments are typically financed through regulated rates. As a result, even when data centers ultimately support regional economic growth, their expansion can place upward pressure on electricity prices during the adjustment period, particularly where cost-allocation rules allow portions of the investment burden to be shared across the broader rate base.

Industry groups and large technology firms broadly acknowledge this adjustment challenge and argue that expanded supply can ultimately benefit consumers if investment keeps pace with demand and if pricing structures prevent cross-subsidization. Utilities and data center operators emphasize commitments to finance new generation and grid upgrades, to pay higher rates reflective of their load characteristics, and to coordinate capacity additions with system planners. These commitments reflect growing awareness of affordability and political risks associated with rising power costs, but they also imply significant execution challenges and long lead times before potential cost relief could materialize.

Recent legal, regulatory, and market analyses reinforce the distinction between clear demand-side pressures and uncertain cost incidence. Research highlights how utility rate design, special contracts, and negotiated tariffs can shift part of the cost of serving large data centers onto other customers, even when utilities assert that industrial load pays its full cost. At the system level, grid operators increasingly frame large-load integration as a reliability and affordability planning challenge, underscoring that price outcomes depend not only on demand growth but on the timing of supply additions and the structure of rate recovery. Consistent with this view, recent reporting shows that regions experiencing rapid data-center growth have also seen sharp increases in wholesale and retail electricity costs, reinforcing the risk that demand expansion translates into persistent price pressure when supply and regulatory adjustments lag.

Mitigating effects are neither automatic nor immediate. Supply additions take time, interconnection and transmission constraints remain binding in many regions, and rate design decisions determine whether industrial load genuinely bears its incremental costs. In the short to medium term, demand growth can outpace supply expansion, and in regulated systems the costs of accelerated investment are typically recovered through customer bills over time rather than absorbed upfront by large users. From a rate-setting perspective,

In this context, policies that slow or discourage new renewable generation appear misaligned with prevailing demand and cost conditions. Instead of easing adjustment pressures in a period of rapid load growth, recent actions affecting renewable supply risk reinforcing the very price dynamics that policymakers have previously sought to avoid.

Policy actions affecting renewable energy supply

Despite branding himself as an “energy growth” president, President Donald Trump is constraining renewable energy supply through tax and regulatory actions in much the same way that President Joe Biden constrained fossil fuel supply. In both cases, executive discretion and political preferences have been allowed to shape energy supply conditions, rather than demand growth, cost minimization, or scientific assessments of system needs.

Tax policy actions affecting solar and wind under Trump:

The One Big Beautiful Bill Act (H.R. 1), enacted in July 2025, significantly weakens clean-energy tax incentives that had previously supported wind and solar investment. The legislation accelerates phaseouts and tightens eligibility criteria for production and investment tax credits, reducing their effective value and increasing financing costs. Legal and tax analyses highlight that the law disrupts previously stable investment assumptions and raises policy risk premiums for new projects.

https://www.fticonsulting.com/insights/articles/h-r-1-energy-transition

Subsequent executive guidance directs Treasury to interpret these credits narrowly and frames them as market-distorting subsidies, reinforcing investor expectations that renewable incentives will continue to erode.
https://www.whitehouse.gov/presidential-actions/2025/07/ending-market-distorting-subsidies-for-unreliable-foreign%E2%80%91controlled-energy-sources/

The effects are not limited to utility-scale projects. Reporting indicates that residential solar credits are ending earlier than previously expected, with industry forecasts pointing to a sharp contraction in installations beginning in 2026, directly reducing demand for new renewable capacity.
https://www.ft.com/content/7704e28a-5ec3-4921-acc7-bbbd1fb97980

Regulatory and legal actions affecting wind and solar under Trump:

A direct parallel to federal leasing restrictions imposed on fossil fuels under the Biden administration can be found in Trump-era actions affecting wind. On January 20, 2025, the administration issued a memorandum temporarily withdrawing all areas of the Outer Continental Shelf from consideration for new or renewed offshore wind leasing, pending a review of leasing and permitting practices. This action effectively halted new offshore wind development across federal waters.
https://www.whitehouse.gov/presidential-actions/2025/01/temporary-withdrawal-of-all-areas-on-the-outer-continental-shelf-from-offshore-wind-leasing-and-review-of-the-federal-governments-leasing-and-permitting-practices-for-wind-projects/

Congressional analysis describes the memorandum as suspending offshore wind leasing and delaying project approvals while reviews proceed, increasing regulatory risk and pushing back construction timelines even for projects with advanced development status.
https://www.congress.gov/crs-product/IN12509

The administration has also emphasized ending what it characterizes as preferential treatment for wind and solar in federal permitting and land-use decisions. This posture increases uncertainty for utility-scale solar projects that depend on federal land access, environmental review, or coordinated permitting.
https://www.whitehouse.gov/presidential-actions/2025/07/ending-market-distorting-subsidies-for-unreliable-foreign%E2%80%91controlled-energy-sources/

These actions are occurring at a time when electricity demand growth is accelerating, and regulated utilities are already seeking sizable rate increases to recover rising capital costs.

Similarities Between Trump and Biden:

The animus that the Trump Administration is displaying towards renewables is similar to the animus the Biden administration displayed towards fossil fuels.

Executive actions directing federal regulators to assess climate-related financial risk raised expectations that fossil fuel activities would face higher scrutiny and capital costs over time.

Critics argued that this policy signaling discouraged lending and investment during and after the COVID period, with long-run implications for supply growth.
https://www.federalregister.gov/documents/2021/05/25/2021-11168/climate-related-financial-risk

Under the Biden administration, federal control over land access was used to constrain fossil fuel supply. In January 2021, the Department of the Interior paused new oil and natural gas leasing on public lands and offshore waters while conducting a programmatic review, reducing expected future supply growth.

https://www.doi.gov/pressreleases/fact-sheet-president-biden-take-action-uphold-commitment-restore-balance-public-lands

Under the Trump administration, federal control over offshore areas is being used in a similar manner to constrain renewable supply. The 2025 withdrawal of the Outer Continental Shelf from offshore wind leasing prevents any new wind development in federal waters during the review period. The mechanisms differ, but the economic effect is comparable: delayed capacity additions and higher long-run costs.

Implication

The core risk is not the specific energy technology favored or disfavored, but the growing tendency for energy supply conditions to be dictated by political preference rather than system needs. By constraining renewable deployment through tax and permitting policy, the current administration risks repeating the same supply-side error it once criticized under Biden-era fossil fuel restrictions. In an environment of strong electricity demand growth, politicized supply restraint increases cost pressures and contributes to higher long-run electricity prices.

Conclusion

Electricity inflation is no longer a theoretical risk or a future concern. Prices are already rising faster than headline inflation, utility rate hikes are locked into regulatory pipelines, and demand from AI data centers is arriving faster than supply can respond. Against this backdrop, Trump administration actions that weaken wind and solar deployment are not neutral corrections—they actively tighten an already strained system.

The deeper economic story is broader than any single administration: regulated rate dynamics, capital-intensive infrastructure, and structural demand growth all matter. But the immediate political reality is sharper. By constraining renewable supply today, the administration is amplifying near-term electricity price pressure and feeding the very inflation narrative it campaigned against. In energy economics, physics still beats politics—and the power bill always shows up on time.

Author’s Note

I’m keeping this post free and pinned to the web page for the next week or two because electricity prices and inflation have become an immediate economic and political issue, and the analysis should circulate.

For readers who want to support this work, there’s also a Founders Subscription option. From time to time, I may choose to highlight a founder’s perspective in a new Founders’ Viewpoints section, where it adds substance to the discussion. Editorial judgment and acceptance decisions remain entirely with me, and subscriptions can be canceled at any time.

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This memo evaluates a set of housing policy ideas associated with President Trump.

Given his background in real estate, it is not surprising that he has advanced a wide range of proposals touching mortgage finance, taxation, and housing market structure.

The sections below assess which ideas are more likely to improve affordability and housing supply, which are likely to have limited effect, and which could be counterproductive. Several proposals are accompanied by technical appendices, available behind a paywall, that provide more detailed quantitative and institutional analysis.

Monetary Policy and Mortgage Purchases: The goal is to lower interest rates, particularly mortgage rates, through easier monetary policy and targeted mortgage-bond purchases. But the Federal Reserve does not directly control the 10-year Treasury yield or inflation expectations, which are the primary determinants of long-term mortgage rates. Efforts that pressure the Fed or weaken its independence risk raising inflation expectations and could ultimately push long-term rates higher rather than lower.

Some proposals would also direct federal housing agencies, such as Fannie Mae and Freddie Mac, to purchase additional mortgage-backed securities in an effort to push mortgage rates lower. But even purchases on the order of a few hundred billion dollars would be small relative to the overall mortgage market and unlikely to materially affect long-term mortgage rates, which continue to be driven primarily by the 10-year Treasury yield and inflation expectations rather than by incremental agency demand.

Changing Savings Rules Governing 401(k) Plans and 529 Plans: Proposals would allow retirement and education savings to be used more flexibly for non-traditional purposes, such as housing or student debt.

The central risk is increased leakage from retirement systems, which already face substantial early withdrawals and inadequate saving. For empirical evidence on the link between pre-retirement use of 401(k) funds and weaker retirement security, see the technical appendix, which cites the academic literature on this topic starting with one of my own articles.

Benefits flow mainly to households that already have meaningful 401(k) or 529 balances, leaving constrained households largely untouched and raising distributional concerns. Under standard mortgage underwriting, total monthly debt payments—including mortgage, student loans, and other consumer debt—generally must remain below roughly 38 percent of income, so households constrained by student debt or low earnings typically cannot qualify for a mortgage regardless of access to 529 funds.

Even without new legislation, many 401(k) plans already permit participant loans for a range of purposes, and recent rule changes have made hardship withdrawals easier in some plans by eliminating prior suspension requirements. The SECURE Act 2.0 further expanded access through limited penalty-free emergency withdrawals and employer-sponsored emergency savings features. In addition, current IRA rules already allow up to $10,000 in penalty-free withdrawals for a first-time home purchase, while extending a similar exception to 401(k) plans would require new legislative authority. Taken together, these existing flexibilities underscore that additional expansions would primarily increase leakage from retirement systems rather than

50-Year Mortgages: This would be a very bad idea. Extending a $500,000 mortgage at 6.0 percent from 30 years to 50 years lowers the monthly payment only modestly, from about $3,000 to about $2,630, a reduction of roughly $370 per month. In exchange, it would substantially increase the share of households carrying mortgage debt into retirement, effectively making mortgage debt in retirement the norm rather than the exception.

Carrying large mortgage balances into retirement materially increases household financial risk by locking retirees into fixed debt service when incomes are stable or declining and vulnerability to health and longevity shocks rises. Compared with a standard 30-year mortgage, a 50-year term dramatically delays principal repayment and makes it far more likely that borrowers will still be servicing mortgage debt well into retirement. This undermines the traditional role of home equity as a source of retirement security and illustrates why extending mortgage maturities addresses monthly payments only superficially while compounding long-run financial risk.

For a detailed assessment of how mortgage debt in retirement affects household balance sheets, tax flexibility, and longevity risk, see:
https://www.economicmemos.com/p/when-mortgage-debt-meets-retirement

Portable Mortgages: Portable mortgages are meant to help homeowners who are locked into very low interest rates by allowing the existing mortgage balance to transfer to a new home at the original rate. In addition, many homeowners may still be reluctant to move if the transaction requires taking on additional borrowing at today’s much higher rates—for example, to purchase a more expensive home, bridge timing gaps, or cover transaction and closing costs.

Making mortgages portable would also be a major change to how U.S. mortgages are structured and sold, since most loans today are designed to be paid off when a home is sold and then bundled for investors based on that expectation. If more loans stay outstanding longer than anticipated, risk shifts to lenders and investors, who may respond by charging higher rates on new mortgages. A useful historical warning is the savings-and-loan crisis, when institutions were damaged because they were stuck holding long-term, low-interest mortgages while their own costs rose; portability could recreate similar risks unless they are carefully priced and managed.

Homeownership Depreciation: This idea has been floated by President Trump as allowing a depreciation-style tax deduction for owner-occupied homes. It would do little for households shut out of buying because of low income or high student-loan debt, since the benefit flows through the income tax system and is largest for higher-income households with substantial tax liability.

Depending on design, it could encourage people to stay in their homes longer in order to keep claiming the deduction, potentially reducing turnover. What is the next step -- accelerate depreciation schedules?

A clear and persuasive critique of this idea is provided by the American Enterprise Institute, which explains why homeownership depreciation would largely benefit incumbent owners and worsen housing-market distortions rather than solve affordability problems: https://www.aei.org/economics/trump-gets-housing-taxation-backwards/

Restrictions on Institutional Investors: This is another bad idea that is largely politically motivated and unlikely to meaningfully improve housing affordability. Institutional investors account for a relatively small share of single-family housing overall, and limiting their participation does little to address the core problem of inadequate housing supply. Such restrictions could also reduce rental availability and discourage capital from flowing into housing construction or rehabilitation, potentially tightening markets rather than easing them.

A clear and well-argued explanation of why restricting institutional investors is unlikely to help affordability—and may instead backfire—is provided by the American Enterprise Institute, which carefully distinguishes headline rhetoric from the underlying market realities: https://www.aei.org/housing/why-targeting-investors-wont-fix-the-housing-market/

Eliminating Capital Gains Taxes on Primary Home Sales: Eliminating capital gains taxes on primary home sales could materially increase housing inventory by reducing lock-in effects, especially for older homeowners. Under current law, many households delay moving because remaining in the home until death allows heirs to receive a step-up in basis and avoid capital gains taxes entirely, discouraging downsizing or relocating earlier. Removing capital gains taxes on primary residences would make it easier for some households to move up and potentially free starter homes for younger and first-time buyers.

In that sense, capital gains reform could be one of the more economically meaningful elements of recent housing supply proposals by directly addressing tax-induced lock-in. But approaches that focus narrowly on housing risk could overstate benefits if they are not paired with broader capital gains reform that addresses revenue, step-up in basis, and the treatment of other assets. A housing carve-out may improve mobility at the margin, but a lasting reduction in market distortions would require a more comprehensive framework for capital gains taxation (see Capital Gains Reform Can’t Be Just a Housing Patch: https://www.economicmemos.com/p/capital-gains-reform-cant-be-just)

Technical Appendix:

Technical appendices provide additional information and citations to economic literature on potential adverse impacts of these housing proposals. Appendix A shows that expanded pre-retirement access to 401(k) funds, to facilitate downpayments on houses would likely be associated with increased leakage and weaker retirement outcomes. Appendix B documents that liberalizing expenditures from 529 plans for the purpose of facilitating home ownership would not target the people who are having trouble making their first home purchase. Appendix C analyzes how mortgage portability could shift risk within the mortgage and securitization system without materially improving affordability.

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Executive Summary

Capital gains taxation in the United States is widely debated, but poorly designed. The current system combines relatively high taxes on people who sell appreciated assets with near-complete exemption for gains held until death. This structure discourages asset sales, suppresses market activity, and distorts economic decision-making—most visibly in the housing market.

Older homeowners, with substantial unrealized gains face large tax liabilities if they sell, often remaining in their home until death to allow their heirs to escape capital gains taxes entirely. The result is reduced housing turnover, fewer homes for sale, and diminished mobility.

Relief for homeowners cannot be designed in isolation; a coherent reform must balance mobility, fairness, and revenue by pairing targeted reductions in capital gains taxes on primary residences with base-broadening reforms elsewhere in the system. Capital gains reform should also be evaluated in the context of long-term financing for Social Security and Medicare rather than solely as a general revenue question.

The Problem: How Capital Gains Taxes Freeze Markets

Capital gains taxes differ fundamentally from taxes on wages or consumption. Asset sales are voluntary, and higher statutory rates do not translate one-for-one into higher revenue. Instead, higher capital gains tax rates discourage realizations, leading many taxpayers to delay or avoid selling appreciated assets altogether.

This behavior has broad economic consequences. When assets remain locked in place, capital is allocated less efficiently, market liquidity declines, and economic adjustment slows. These effects are well documented in financial markets, but they are especially pronounced in housing.

Unlike stocks or bonds, selling a principal residence is often driven by life events such as retirement, changes in health, family needs, or job relocation. Tax policy therefore plays an outsized role in shaping housing mobility.

Although current law allows the exclusion of a portion of capital gains on the sale of a principal residence, long-tenured homeowners—particularly in high-cost markets—often face large taxable gains. When combined with the net investment income tax, the resulting liability can materially influence whether a household chooses to move at all.

The step-up in basis at death eliminates capital gains taxes entirely for heirs. These tax rules can incentivize some people to stay put even when downsizing or relocating would otherwise be economically or personally rational.

The combined effect is a reduction in housing supply, particularly among larger and higher-value homes. Fewer properties come to market, transaction volume declines, and housing-related economic activity is suppressed. These dynamics worsen affordability pressures for younger households and first-time buyers.

More broadly, the current capital gains system rewards inactivity and penalizes liquidity. Taxing gains heavily when assets are sold, while fully exempting gains held until death, discourages turnover across both housing and financial markets and freezes assets in place rather than allowing them to be reallocated to higher value uses.

This behavioral response is not speculative. A substantial body of empirical research—much of it developed by Treasury economists in the late 1970s and early 1980s—examined how capital gains tax rates affect realizations, asset turnover, and revenue. That literature consistently found that higher capital gains tax rates reduce realizations, sometimes sharply, and that projected revenue gains from higher rates are often significantly offset by reduced transaction volume. While estimates varied, the central conclusion was that capital gains taxes have unusually large behavioral effects relative to many other forms of taxation.

Most of that early work focused on financial assets rather than housing, but the underlying mechanism is the same: when selling is discretionary, higher tax rates induce taxpayers to defer transactions, alter portfolios less frequently, or avoid realizations altogether. In housing, where transactions are less frequent and gains are often larger and less divisible, these lock-in effects may be even more pronounced.

Recent proposals to substantially increase capital gains tax rates, including those advanced by the Biden and Harris campaigns, tend to emphasize statutory progressivity and projected revenue gains while placing less weight on behavioral responses. In particular, these proposals generally assume that higher rates will yield large and predictable increases in revenue. However, if higher rates discourage a meaningful share of transactions—as the earlier literature suggests—the realized revenue gains may be considerably smaller than anticipated, while the adverse effects on housing turnover, asset mobility, and market liquidity may be substantial.

As a result, debates over capital gains taxation should not be framed solely as questions of fairness or statutory rates. They also hinge on how sensitive asset sales are to taxation and whether higher rates ultimately raise meaningful revenue or instead reinforce lock-in, suppress transactions, and reduce the economic dynamism of both housing and financial markets.

The remainder of this memo develops a coherent capital gains reform framework that addresses housing lock-in while preserving revenue, improving neutrality across assets, and strengthening long-term financing for Social Security and Medicare. The paid section also includes a substantive, curated reading list for readers who want to explore the academic, Treasury, and official-sector literature on capital gains taxation in greater depth.

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The first paper focuses on the Affordable Care Act and the recent debate over extension of the enhanced ACA premium tax credits. The paper finds new subsidies including expanded Medicaid and CHIP benefits and subsidized reinsurance for high cost health care cases could facilitate reduced subsidies on premiums, costs to taxpayers and improved health insurance outcomes. The paper also shows that reduced reliance on AGI-linked premium tax credits would lessen the implicit marginal tax rates created when additional income triggers subsidy phaseouts.

Allocating Health Risk in the ACA: Premiums, Reinsurance, and the Limits of Income-Linked Subsidies
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6098606

The second paper analyzes how AGI-linked programs. (the AGI premium tax credit, Income Driven Replacement student loans and any other subsidy linked to AGI) in combination with actual federal and state income taxes impact marginal tax rates and financial decisions and outcomes during both working years and retirement. The paper demonstrates an increase in de-facto marginal tax rates stemming from new AGI-linked subsidies encourages workers to favor traditional over Roth retirement accounts, a choice that can lead to substantially higher lifetime taxation through greater exposure to Social Security benefit taxation, Medicare premium surcharges, and required minimum distributions in retirement.

Liquidity Today, Tax Traps Tomorrow: AGI-Linked Programs, Pre-Tax Saving, and the Erosion of Flexibility in Retirement
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6101327

For additional research on these and other economic and political topics subscribe to www.economicmemos.com.

Memorandum

Subject: Recent Changes in Consumer Electricity Prices and Underlying Drivers

The change in electricity prices as measured in the CPI was calculated from December 2023 to December 2024 and from December 2024 to December 2025 for four regions and for the nation as a whole.

Electricity inflation is surging in the Trump economy, exacerbating the affordability crisis for U.S. households.

Results by region and for the United States as a whole:

• Northeast: Electricity prices rose 9.0 percent from December 2023 to December 2024 and 10.0 percent from December 2024 to December 2025.

• Midwest: Prices increased 0.7 percent from December 2023 to December 2024, followed by a larger increase of 11.4 percent from December 2024 to December 2025.

• South: Electricity prices rose 0.8 percent from December 2023 to December 2024 and 5.5 percent from December 2024 to December 2025.

• West: Prices increased 3.9 percent from December 2023 to December 2024 and 2.5 percent from December 2024 to December 2025.

• U.S. total: National electricity prices rose 2.8 percent from December 2023 to December 2024 and 6.7 percent from December 2024 to December 2025.

By comparison, the overall CPI for all items rose 2.7 percent over the 12 months ending in December 2025, according to the latest official CPI release from the Bureau of Labor Statistics.

Electricity price increases significantly outpaced headline inflation in most regions over the most recent year, with three of the four Census regions seeing higher electricity price growth than overall CPI growth.

Electricity price inflation was 2.48 time larger than the overall rate of inflation on all goods and services.

The Bureau of Economic Analysis treats electricity as an intermediate input in its Input–Output Accounts, meaning higher electricity prices raise production costs for manufacturing, health care, retail, transportation, and digital services. Unlike many other inputs, electricity is difficult to substitute away from in the short run, so price increases are more likely to be passed through to final prices rather than absorbed by firms. As a result, electricity inflation can have a multiplier effect, pushing up prices economy-wide rather than remaining confined to the energy sector.

When electricity prices rise faster than overall inflation, those higher input costs can reinforce broader inflationary pressures and make inflation more persistent. In this sense, electricity inflation functions less like a narrow relative-price shift and more like a structural cost shock, especially when rising demand is met by constrained supply growth.

Recent reporting highlights that electricity prices face new upward pressure as AI data-center demand surges.

A Reuters article notes that the AI boom—particularly energy-hungry server farms—has contributed to electricity price increases of roughly 6.9 percent in a single year and raised concerns among voters and officials over utility bill affordability.

Tech firms including Microsoft and OpenAI are now publicly engaging with communities and offering pledges to mitigate energy cost impacts as the technology’s infrastructure expands.

The rise in electricity prices documented will be impacted by government regulations on energy supply.

The Trump administration was highly critical of the Biden administration’s regulations of fossil fuels. Inexplicably, the Trump administration actions targeting wind project approvals have increased regulatory uncertainty and will likely impede the growth of new electricity and likely exacerbating the ongoing increases in electricity prices.

Read my essay on how both the Trump and Biden administration are basing energy policy on their political preferences instead of economic, national security and environmental concerns.

There is a lot of irony in the current situation. President Trump returned to office in part on voter frustration with inflation under President Biden. Electricity is a foundational input across the economy. Wind power has been proven to be a viable source of clean electricity. It is Trump’s economy now, and President Trump’s opposition to wind power is exacerbating affordability and could impede future economic growth.

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Some additional reading:

Readers interested in the official BLS and U.S. Energy Information Administration discussions on causes of the electricity price increases can consult BLS CPI household energy documentation (https://www.bls.gov/cpi/factsheets/household-energy.htm) and EIA analysis (https://www.eia.gov/todayinenergy/detail.php?id=65284).

The Reuters article on AI Demand impacting electricity prices is here.

https://www.reuters.com/commentary/breakingviews/us-midterm-elections-are-ripe-ai-backlash-2026-01-22/

https://www.reuters.com/commentary/breakingviews/us-midterm-elections-are-ripe-ai-backlash-2026-01-22/?utm_source=chatgpt.com

Reuters article on Microsoft effort to mitigate impact of AI and data center growth.

https://www.reuters.com/business/microsoft-launches-data-center-initiative-limit-power-costs-water-use-2026-01-13/

Introduction

Both President Biden (in the case of liquefied natural gas) and President Trump (in the case of wind power) used federal regulatory authority to inject uncertainty and friction into the development of energy projects that are widely viewed as economically viable and environmentally beneficial. In both cases, executive and administrative tools were used rather than legislation, courts were quickly drawn in as a backstop, and material market outcomes lagged the regulatory actions.

Both wind power and liquefied natural gas are mature, large-scale energy industries that deliver substantial economic, energy security, and environmental benefits under mainstream economic and energy-system analysis. As a result, federal interventions affecting either sector should clear a high bar of economic, environmental, or security justification.

Onshore wind is among the lowest-cost sources of new electricity generation in much of the United States. It is largely privately financed, relies on domestic construction and operating supply chains, and contributes to grid resilience through geographic diversification. Offshore wind, while more capital intensive, offers scale potential near major load centers and reduces reliance on long-distance transmission. Environmentally, wind provides zero-combustion electricity, reduces local air pollution, and lowers global emissions when it displaces fossil generation. While siting and wildlife impacts require management, the core cost-benefit case for wind is well established in mainstream energy economics.

U.S. LNG export capacity supports domestic natural gas production, improves the U.S. trade balance, and strengthens global energy security. Internationally, LNG has displaced coal in power generation and provided flexibility during major supply disruptions, most notably in Europe following the loss of Russian pipeline gas.

From a climate perspective, LNG is not zero-carbon, but it is materially less emissions-intensive than coal and has played a transitional role in reducing global emissions. Economically, LNG projects are long-lead, capital-intensive investments whose viability depends critically on stable and predictable regulatory expectations.

Taken together, wind and LNG are best understood as complementary components of a pragmatic energy system: domestic supply, diversified risk, and incremental environmental improvement.

The Biden administration’s posture toward wind was largely consistent with its stated worldview. From 2021 through 2024, federal agencies restarted and expanded offshore wind leasing, accelerated permitting, defended approvals in court, and paired those actions with long-duration tax incentives under the Inflation Reduction Act. This approach reflects the president’s concern about the need for decarbonization to reduce climate change.

Under President Trump, wind became a target of regulatory intervention despite rhetoric favoring energy abundance and deregulation.

In January 2025, the administration directed federal agencies to pause processing of wind-related permits and approvals, an action implemented by the Department of the Interior as a broad suspension of federal wind authorizations. That pause was challenged by a coalition of states and subsequently struck down by a federal court as an unlawful, indefinite halt under administrative law.

In December 2025, Interior issued stop-work orders halting several offshore wind projects already under construction, citing national security concerns related primarily to alleged radar interference. Developers immediately filed suit. In early 2026, federal courts allowed multiple projects to resume construction, finding the government’s justification insufficient at the preliminary stage and emphasizing the irreparable harm from delay.

The practical effect of Trump’s regulatory actions is not an immediate reduction in wind generation but heightened regulatory uncertainty for future projects and increased financing risk for capital-intensive developments.

Trump’s approach to wind is difficult to reconcile with the argument that the United States should pursue all available sources of domestic energy, particularly given wind’s cost competitiveness, domestic supply, and strong presence in Republican-led states, particularly Texas.

Republican-led states account for a substantial share of U.S. wind generation and manufacturing, reflecting the technology’s alignment with cost minimization, landowner income, and rural economic development rather than partisan climate policy.

Texas is the largest wind-producing state in the United States by a wide margin, with wind routinely supplying more than one-quarter of total in-state electricity generation and substantially higher shares during peak output periods. Iowa, Oklahoma, Kansas, South Dakota, North Dakota, and Wyoming also rank among the national leaders in wind penetration, capacity additions, or wind-related manufacturing. All are states with long-standing Republican control of statewide offices or legislatures.

Wind development in these states is driven by economics. Fixed-price power purchase agreements from wind projects often undercut new fossil generation, while federal tax credits largely flow to private capital rather than state governments. Lease payments to landowners provide a steady income stream in agricultural regions, and construction activity supports local tax bases without requiring ongoing public expenditure.

Republican elected officials in these states have consistently defended wind as a component of an “all-of-the-above” energy strategy. Texas Governor Greg Abbott has repeatedly emphasized that wind is an integral part of the state’s electricity mix and has supported transmission investments that enabled large-scale deployment across West Texas. While Abbott has criticized federal climate mandates and offshore wind proposals, he has distinguished those positions from Texas’s market-driven onshore wind development, which he has described as a success of competitive electricity markets rather than regulation.

Similarly, Republican governors and legislators in Iowa, Oklahoma, and Kansas have defended wind development as pro-farmer, pro-manufacturing, and consistent with energy independence. Their support has typically been framed in terms of property rights, rural economic growth, and grid resilience rather than emissions reduction.

This state-level Republican support underscores the tension between federal executive actions targeting wind and the revealed preferences of Republican energy-producing states where wind is already a mature, economically embedded industry.

Offshore wind, while more capital intensive, does not obviously impose greater system costs or environmental tradeoffs than other forms of large-scale generation. At the same time, U.S. electricity demand growth—driven in part by data centers and other energy-intensive loads—raises the value of adding deployable capacity from multiple sources. From that perspective, federal actions that impede wind development are difficult to justify as serving energy abundance, cost minimization, or system reliability.

The tension in the Biden administration’s energy policy appears most clearly in its treatment of LNG exports.

In January 2024, the Department of Energy announced an indefinite pause on issuing new authorizations for LNG exports to non-free-trade-agreement countries. The pause was implemented administratively through DOE’s Office of Fossil Energy and Carbon Management, which has statutory responsibility under the Natural Gas Act to determine whether LNG exports are in the “public interest.” The administration framed the pause as necessary to conduct a new review of LNG’s lifecycle greenhouse gas emissions, domestic price effects, and consistency with U.S. climate goals.

The action did not revoke existing export authorizations or restrict ongoing LNG shipments. Instead, it froze the approval pipeline for future projects—precisely those long-lead, capital-intensive facilities whose viability depends on regulatory certainty well before construction begins.

The substantive case for the pause was contested. Economically, U.S. LNG projects were already supplying global markets at scale. Environmentally, U.S. LNG had displaced higher-emissions coal generation abroad. Strategically, LNG exports had become central to European energy security following the loss of Russian pipeline gas. None of these considerations pointed toward an obvious need for a permitting freeze.

Legally, the policy proved vulnerable. States and industry groups challenged the pause as an unlawful, indefinite suspension inconsistent with DOE’s statutory obligation to make case-specific public-interest determinations. Within months, a federal court blocked the pause, requiring DOE to resume processing export applications. LNG exports continued uninterrupted, but uncertainty around future projects increased materially.

Taken together, Biden’s LNG policy is best understood as a response to climate-policy aspirations associated with the Green New Deal coalition rather than as the outcome of a decisive shift in scientific or economic evidence. The administration sought to signal climate seriousness through administrative control points, even where the underlying energy and security tradeoffs were unfavorable.

The Trump administration promoted LNG and treated it as an important instruments of economic growth and geopolitical influence. The Trump administration removed the regulatory barriers created by the Biden administration which impeded export of LNG.

Through DOE, it expedited approvals of LNG export authorizations under the Natural Gas Act, avoiding additional climate or market tests beyond those historically applied. Federal agencies streamlined permitting for associated infrastructure, and the administration publicly encouraged export capacity expansion as part of a broader strategy of “energy dominance.” The result was rapid expansion of U.S. LNG export capacity and the United States’ emergence as the world’s leading LNG exporter by the early 2020s. This approach aligned closely with Trump’s deregulatory rhetoric and his emphasis on maximizing domestic energy production and exports.

The Biden administration’s treatment of LNG and the Trump administration’s treatment of wind reflect a shared governing pattern: the use of executive and administrative discretion to override market signals at critical federal chokepoints for disfavored energy technologies.

In Biden’s case, an administrative pause on LNG export approvals subordinated widely accepted economic, environmental, and geopolitical benefits to aspirational climate objectives associated with the Green New Deal coalition.

In Trump’s case, executive pauses and stop-work orders targeting wind—particularly offshore wind—ran counter to cost competitiveness, domestic energy abundance, and state-level Republican support.

In both instances, the interventions were undertaken without new legislation, justified through expansive interpretations of discretionary authority, and quickly tested in court. The result in each case was not an immediate change in energy production, but higher regulatory uncertainty, delayed investment, and increased project risk—demonstrating how executive preference, rather than science or economics, increasingly shapes U.S. energy outcomes at the margin.

The two appendices that follow are available to paid subscribers. They translate the policy and regulatory analysis above into a practical framework for evaluating companies operating in wind power and liquefied natural gas. Appendix A focuses on wind-exposed firms, distinguishing between pure exposure, regulated utility ownership, and embedded infrastructure. Appendix B focuses on LNG and gas-linked companies, separating infrastructure-backed exporters from upstream producers whose exposure to LNG is indirect but economically meaningful.

Taken together, the appendices are designed to identify business models that can compound value through regulatory turbulence rather than being derailed by it.

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Appendix A. Wind: companies and stocks to study

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Health care expenditures in the United States are heavily skewed, with a small proportion of individuals responsible for the majority of total spending. This concentration of risk inflates private insurance premiums and complicates efficient risk pooling. This analysis examines a hybrid model in which Medicaid assumes responsibility for catastrophic individual expenditures above $50,000 per year, leaving private insurers to cover expenditures between a $5,000 deductible and that threshold. Using recent Medical Expenditure Panel Survey (MEPS) data, the analysis estimates that such a shift could reduce private insurance premiums by approximately 15–25 percent for the working-age population. The findings align closely with results from earlier simulation models of partial reinsurance, suggesting stability in the shape of the health expenditure distribution and confirming the potential of public catastrophic pooling as a premium-stabilization mechanism. More broadly, the results illustrate why policies that lower insurance prices directly can outperform approaches that rely on increasingly large income-based premium subsidies.

1. Introduction

The concentration of health spending among a small subset of individuals poses a persistent challenge to private insurance markets in the United States. A tiny fraction of enrollees generates the majority of total medical costs, resulting in high premiums, adverse selection, and instability in private risk pools.

This analysis explores a hybrid policy design under which the public sector—specifically, Medicaid—functions as a catastrophic insurer, assuming responsibility for medical spending above $50,000 per enrollee per year. Private insurers would continue to cover spending between a $5,000 deductible and that threshold. While Medicaid is typically discussed as a coverage program for particular populations, it already functions implicitly as a payer of last resort for extremely high-cost cases. This framework makes that role explicit and system-wide.

The core question is how much such a policy would reduce private insurance premiums, given the empirical distribution of health expenditures. Using recent Medical Expenditure Panel Survey (MEPS) data, the analysis estimates the expected change in insurer liability and, by extension, in premiums.

This work updates and extends earlier research (Bernstein, 2010), which used a micro-simulation of public reinsurance to study similar mechanisms. Despite differences in method and scope, the estimated effects on premiums are remarkably similar, underscoring the persistence of catastrophic cost concentration in U.S. health care.

2. Background and Related Literature

A broad literature documents the extreme skewness of health expenditures. The Agency for Healthcare Research and Quality reports that the top 1 percent of spenders account for roughly 22–24 percent of all spending, while the top 5 percent account for about half. This long tail drives much of the premium burden in private insurance markets.

Previous policy analyses have examined government-sponsored reinsurance as a corrective mechanism. Cutler (1994) and Blumberg and Holahan (2008) proposed public subsidies for catastrophic claims to stabilize private markets. Bernstein (2010) modeled a public reinsurance system covering 80 percent of claims above $50,000 and estimated average premium reductions of 15–18 percent.

This analysis builds on those foundations by examining a structural hybrid model: instead of partial public co-insurance, Medicaid would act as the payer of last resort for catastrophic cases, fully absorbing costs above a fixed threshold.

3. Analytical Framework

Let X denote an individual’s annual medical expenditure and let d denote the deductible, set at $5,000.

Under a fully private insurance plan, the insurer’s expected liability is the average amount of spending above the deductible, with negative values set to zero:

Under the proposed hybrid system, where Medicaid covers all spending above $50,000, the private insurer’s expected liability becomes the average amount of spending between the deductible and the catastrophic threshold:

Assuming actuarially fair pricing, the proportional change in premiums is given by the reduction in expected insurer liability. Written explicitly, the proportional premium reduction is:

This expression represents the fraction of private insurance premiums eliminated when catastrophic expenditures are shifted from private insurers to Medicaid.

4. Data and Parameterization

The analysis uses data from the Medical Expenditure Panel Survey Household Component for 2018–2022, supplemented by AHRQ Statistical Brief #556.

Key empirical benchmarks for the working-age population (ages 18–64) include:

• 99th percentile of annual spending: $80,990

• 95th percentile of annual spending: $30,206

• Mean spending among the top 1 percent: $147,071

• Share of total expenditures above $50,000: approximately 10–12 percent

Based on these figures, only about 1–3 percent of privately insured individuals exceed the $50,000 threshold in any given year.

To approximate expected post-deductible expenditures:

5. Results

Substituting these empirical values yields a premium ratio of roughly:

Thus, premiums under the hybrid plan would be approximately 16 percent lower than under a fully private plan with the same deductible. Across plausible parameter ranges, the reduction falls between 15 and 25 percent.

At the population level—approximately 160 million privately insured individuals—this corresponds to a transfer of roughly $130–190 billion annually in catastrophic costs from private insurers to Medicaid.

6. Fiscal and Policy Implications

This reallocation would reduce volatility in private insurance premiums and lower average costs for employers and individuals, but it would increase federal and state Medicaid expenditures.

Because Medicaid pays lower provider reimbursement rates than private insurance, the net fiscal impact could be smaller than the gross transfer of liabilities, depending on case mix and cost-control mechanisms.

From a distributional perspective:

• Employers and workers would benefit from lower premiums

• State and federal budgets would bear higher catastrophic costs

• Risk pooling would become more stable across the population

7. Comparison to Bernstein (2010)

The earlier study (Bernstein, 2010, The Geneva Papers on Risk and Insurance) simulated partial public reinsurance covering 80 percent of spending above $50,000 using 1999–2006 MEPS microdata. That work estimated premium reductions of 15–18 percent for privately insured populations.

The current analysis differs in three key respects:

• Full coverage versus co-insurance: Medicaid assumes 100 percent of costs above $50,000

• Analytical transparency: the approach replaces simulation with a closed-form expression

• Updated data and scope: the analysis uses 2018–2022 MEPS data and covers the entire working-age private insurance population

Despite these differences, the quantitative results are nearly identical, suggesting a stable health-expenditure distribution and reinforcing the robustness of catastrophic reinsurance mechanisms.

8. Discussion

The findings confirm that the upper tail of the health-expenditure distribution continues to exert disproportionate influence on private insurance costs. Transferring catastrophic risk to Medicaid would smooth premiums without altering the underlying efficiency of routine medical care delivery.

The approach parallels international models in which public insurance absorbs catastrophic costs while private insurers manage routine risks. Implementation in the United States would require coordination across state and federal Medicaid systems, clear eligibility triggers, and safeguards against adverse provider incentives.

9. Limitations and Future Work

Several caveats apply:

• MEPS underreports extreme outliers due to top-coding; commercial claims data suggest even heavier tails

• The model is static and does not incorporate behavioral responses or provider-payment effects

• Fiscal outcomes depend on Medicaid reimbursement policies and cost-containment rules

Future work should integrate survey and administrative claims data to estimate fiscal exposure more precisely and examine dynamic responses to catastrophic reinsurance.

10. Conclusion

Both analytical and simulation-based evidence indicate that transferring catastrophic claims above $50,000 from private insurers to Medicaid would reduce private insurance premiums by roughly one-fifth while modestly increasing public expenditures.

These results reinforce the case for catastrophic reinsurance as a powerful tool for stabilizing insurance markets. By aligning current estimates with those from earlier work, the analysis highlights the durability of U.S. health-spending concentration and supports renewed consideration of public catastrophic coverage as part of health-system reform.

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References

Agency for Healthcare Research and Quality. Medical Expenditure Panel Survey Statistical Brief #556.

Bernstein, D. (2010). Health Care Reinsurance and Insurance Reform in the United States. The Geneva Papers on Risk and Insurance, 35(4), 588–607.

Blumberg, L., and Holahan, J. (2008). Public Reinsurance: Stabilizing Markets While Protecting Families. Urban Institute.

Cutler, D. (1994). Market Failure in Health Insurance. NBER Working Paper No. 6769.

Health Care Cost Institute. Health Care Cost and Utilization Reports, 2018–2022.

Kaiser Family Foundation. How Concentrated Are Health Care Expenditures?

Milliman. U.S. Stop-Loss Market Survey Reports.

This memorandum analyzes California’s proposed one-time billionaire wealth tax initiative, focusing on a common flaw in tax policy analysis: the systematic underestimation of behavioral responses to tax design. The proposal’s weaknesses stem from arise from predictable reactions to behavior changes from people and firms either directly or indirectly impacted by the tax change and by people and firms concerned about additional tax measures in the future. The analysis identifies six core problem areas: anticipatory residency changes, firm and founder migration incentives, liquidity and valuation constraints, constitutional vulnerability, capital-formation and governance disruption, and the fiscal instability created by funding ongoing programs with one-time revenues. Many of these effects are underweighted or ignored in public-facing analyses of the proposal. Taken together, they suggest a recurring pattern in contemporary progressive tax design in which political signaling and rhetoric substitute for the creation of durable policies.

Introduction: Description of Proposal

A labor union and allied progressive groups are advancing a statewide ballot initiative that would impose a one-time wealth tax of up to 5 percent on individuals and certain trusts with net worth exceeding $1 billion, measured as of January 1, 2026, if they are California residents on that date. The proposal is structured as a combined constitutional amendment and statute, reflecting an effort to authorize and implement the tax simultaneously under California law.

The measure has been cleared for circulation by the California Attorney General but is not yet qualified for the ballot. To appear on the November 2026 statewide ballot, proponents must collect and submit approximately 874,641 valid voter signatures by June 24, 2026, after which signatures would need to be verified by election officials. Until that process is completed, the initiative has no legal effect and may still be amended or withdrawn.

The proposal targets far fewer than 0.001 percent of California residents, making projected revenues highly sensitive to individual behavior and timing.

Core Provisions

Tax trigger: Applies to individuals and certain trusts with net worth exceeding $1 billion, measured as of January 1, 2026, provided the taxpayer is a California resident on that date.

Tax rate and timing: Imposes a one-time tax of up to 5 percent, payable in 2027, with an option to spread payments over up to five years, subject to additional cost.

Covered assets: Includes stocks and securities, business interests, intellectual property, art, and collectibles, while excluding certain real property and some pension or retirement assets.

Use of revenue: Directs approximately 90 percent of revenues to health care, with remaining funds allocated to other social programs, subject to specified constitutional and budgetary carve-outs.

Estimated affected population: Public reporting consistently estimates approximately 180–215 California residents with net worth exceeding $1 billion—often summarized as about 200 billionaires—with actual liability dependent on residency status, asset valuation, and trust structures, making projected revenues highly sensitive to individual behavior and timing.

Key Issues

Issue 1: Residency Date and Migration of High-Risk Individuals

The proposal determines liability based on whether an individual is a California resident on January 1, 2026, even though the tax has not yet been enacted or approved by voters. This fixed, pre-enactment residency snapshot is unusual and materially affects incentives, behavior, and legal risk.

Individuals who were California residents on January 1, 2026, and exceeded the $1 billion threshold would likely remain liable even if they relocate afterward. A handful of residency changes before that date could significantly affect expected revenues.

Individuals who were not California residents on that date would likely fall outside the tax base, even if the measure is enacted later, although, I don’t believe enactment of this law is going to attract new billionaires to California.

The California Legislative Analyst’s Office cautions that behavioral responses could reduce long-term income tax revenues and that relying on one-time funds for ongoing programs creates budget sustainability risks. Migration of taxpayers who are currently high-income taxpayers is not the only behavioral response.

Issue 2: Increased migration of firms from CA

The enactment of a one-time wealth tax will accelerate an existing trend – migration of firms from Texas. I asked ChatGPT to research the existing trend for firms to move away from California because of the tax and regulatory environment.

This is what it found:

Here’s a succinct list of notable companies that have relocated their headquarters (or significantly shifted operations) out of California to other states in recent years — regardless of destination, with many moving to Texas:

📌 Major Firms Leaving California (Headquarters Moves)

Moved to Texas

· Tesla, Inc. – HQ moved from Palo Alto/Silicon Valley to Austin, TX (2021). Wikipedia

· SpaceX – HQ moved from California to Texas (2024). Wikipedia

· Chevron Corporation – HQ moved from San Ramon, CA to Houston, TX (2024–2025). Chevron+1

· Charles Schwab Corp. – HQ moved from San Francisco, CA to Westlake, TX (2019). Business Insider

· Oracle – Relocated HQ from California to Austin, TX (2020). Wikipedia

· Hewlett Packard Enterprise (HPE) – Moved HQ from California to Houston area, TX. TMS

· McKesson – HQ moved from California to Texas (2019). Business Insider

· GAF Energy – Solar tech firm relocated HQ from San Jose, CA to Georgetown, TX (2025). Chron

Moved to Other States

· Palantir Technologies – Moved HQ from California to Denver, CO. TMS

· Realtor.com – Announced HQ relocation from Santa Clara, CA to Austin, TX (2025). Newsweek

📊 Additional Notes on the California Exodus

· California experiences substantial headquarters relocations out of state: between 2018 and 2021, about 265 companies moved HQs out of California. Hoover Institution

· According to one analysis, 196 companies left California from 2020–August 2025, with roughly 54% relocating to Texas. Buildremote

· Not all departures are HQ relocations — some involve senior leadership moves, major office closures, or regional headquarters shifts. ppic.org

Issue 3: Liquidity and Valuation Constraints for Illiquid Billionaire Wealth

Although the proposal targets individuals with net worth exceeding $1 billion, many such individuals hold wealth that is illiquid, difficult to value, or both. In these cases, a one-time wealth tax may require asset sales that are timing-dependent, disruptive, or contested, even when no liquid cash is available.

Illustrative circumstances include founders whose wealth consists almost entirely of equity in pre-IPO or tightly held companies, individuals whose net worth depends on private operating businesses rather than publicly traded securities, households with significant wealth in art, collectibles, or intellectual property where valuation is subjective and liquidation can be slow, and real-estate-heavy individuals where property may be excluded from the tax base but overall wealth composition and limited liquidity still constrain the ability to generate cash without disruptive borrowing or asset sales.

The proposal does not automatically force asset sales, but absent sufficient cash or borrowing capacity, practical compliance may require sales under unfavorable conditions. These circumstances raise valuation disputes, enforcement costs, and economic-efficiency concerns.

Issue 4: Legal and Constitutional Risk

A California state wealth tax of the design proposed is likely to face multiple serious legal challenges if it qualifies and is enacted, and opponents are already signaling litigation risk as a central concern. Leading tax practitioners have identified several plausible constitutional grounds for challenge, including arguments that the measure’s pre-enactment residency trigger could violate federal and state due process principles, that taxing worldwide assets or relying on prior residency could raise Dormant Commerce Clause and apportionment concerns, and that the tax could be construed as a property tax subject to California’s constitutional limits and uniformity requirements.

Additional theories discussed in legal commentary include potential right-to-travel and equal-protection claims, as well as arguments that the tax impermissibly targets a narrow class of taxpayers. Even if such challenges ultimately fail, litigation could delay implementation, increase administrative costs, and inject uncertainty into state budgeting and enforcement.

Issue 5: Founder Equity Concentration and Capital-Formation Risk

Entrepreneurs whose wealth is concentrated almost entirely in company equity, particularly founders of recently public or rapidly scaling firms, may be forced to sell shares at capital-market-sensitive moments to satisfy a large, one-time tax obligation. Such sales risk diluting founder ownership at precisely the stages when control, long-term commitment, and signaling to investors are most critical. Even when sales are purely tax-driven, markets may interpret them as insider pessimism, raising a firm’s cost of capital and complicating future fundraising.

A heuristic example illustrates the capital-formation risk created even by a one-time wealth tax at a 5 percent rate. Consider a startup valued at $30 billion, founded by three equal founders, each owning roughly one-third of the firm and holding little wealth outside company equity. Each founder’s net worth is therefore approximately $10 billion, almost entirely illiquid. A one-time 5 percent wealth tax would generate a tax liability of roughly $500 million per founder. With no liquid assets, founders would need to sell shares to pay the tax. At a $30 billion valuation, that implies each founder must liquidate approximately 1.6–1.7 percent of the entire company, forcing aggregate founder sales of roughly 5 percent of outstanding equity in a compressed time frame.

Even at this lower rate, the timing and concentration effects are material. Five percent of equity sold for tax purposes is equity that cannot be reserved for employee stock options, retention grants, or strategic acquisitions. For a firm that might otherwise target a 10–15 percent option pool, the loss is non-trivial and may require offsetting dilution elsewhere. Moreover, a coordinated reduction in founder ownership at a critical inflection point—IPO or late-stage scaling—can weaken governance stability and insider signaling. Although these sales are tax-mandated rather than discretionary, markets cannot easily distinguish them from reduced founder conviction.

Beyond immediate dilution and signaling effects, early forced reductions in founder ownership can reshape governance and decision-making during periods when firms are most vulnerable—such as early public life, strategic pivots, or macroeconomic downturns—shifting influence toward shorter-term shareholders and away from long-horizon capital stewardship.

A counterfactual application of a one-time wealth tax to Apple during its most fragile period illustrates the timing risk. After being forced out of the company, Steve Jobs rebuilt his career through ventures that were themselves capital-intensive and risky, including Pixar, before ultimately returning to Apple and overseeing products such as the iPhone. Had Jobs been required to liquidate a substantial portion of his equity during Apple’s troubled years, his ability to finance or sustain subsequent ventures could plausibly have been impaired, raising questions about whether Apple’s later resurgence would have occurred on the same timeline.

A contemporary analogue may be forming at OpenAI, which is widely rumored to be preparing for a public offering as early as 2026. Given its unusually equity-intensive compensation model, any forced early liquidation of founder or early-holder stakes under a one-time wealth tax could directly constrain the firm’s capacity to fund employee compensation, retain scarce technical talent, and preserve equity flexibility during a critical phase of organizational and technological scaling.

Similar risks apply to future innovation and philanthropy. Historically, long-term philanthropic efforts have been enabled by compounding founder equity over time, as reflected in the creation of large private foundations. For serial entrepreneurs whose ventures require sustained, long-horizon capital commitment, front-loaded wealth extraction may reduce flexibility to pursue follow-on ventures or moonshot investments.

Issue 6: One-Time Revenues and Funding-Cliff Risk

The proposal would generate a non-recurring source of revenue while directing funds toward programs, particularly in health care, that typically involve continuing operational commitments. Once one-time funds are exhausted, programs may face a funding cliff, creating pressure to replace temporary revenues with permanent funding sources or to reduce services.

This risk is not hypothetical. Under the proposal, approximately 90 percent of the one-time revenue would be earmarked for low-income health care, explicitly to offset reductions associated with Medicaid cuts. However, Medicaid-related needs do not diminish when a temporary revenue source expires. Health-care costs, enrollment pressures, and service obligations are structurally ongoing. As a result, the use of a one-time wealth tax to backfill persistent programmatic gaps effectively converts a temporary fiscal measure into an implicit commitment to sustain spending levels beyond the lifespan of the tax itself.

At the federal level, repeated reliance on temporary funding measures has produced a cycle of recurring fiscal cliffs, including government shutdown threats, expiring continuing resolutions, and short-term fixes to entitlement and tax provisions. Rather than restoring fiscal discipline, these mechanisms have entrenched last-minute negotiations, policy uncertainty, and weakened long-term budget planning. Replicating this approach at the state level risks importing the same instability into California’s fiscal framework—substituting repeated crisis management for durable program financing.

The California Legislative Analyst’s Office has cautioned that reliance on one-time revenues can reduce fiscal flexibility and convert limited interventions into long-term fiscal obligations. Once constituencies, providers, and beneficiaries adjust to higher spending levels, political pressure to maintain funding intensifies, increasing the likelihood that temporary revenues are followed by demands for additional or permanent tax measures rather than programmatic rollback.

Author’s Note

This blog focuses on the economic and financial policies that directly affect U.S. households. Two recent posts have examined structural problems with the Affordable Care Act’s state exchange system.

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Appendices Overview

· Appendix A compiles the primary legal, fiscal, and reporting sources relied upon in the memorandum, including official state documents and contemporaneous legal analysis.

· Appendix B examines residency snapshots, interstate movement, and trust-related timing effects created by the proposal’s fixed liability date.

· Appendix C provides California-specific illustrations of illiquid and hard-to-value billionaire wealth relevant to valuation and enforcement risk.

· Appendix D analyzes the initiative’s hybrid statutory-and-constitutional structure and the implications for potential legal challenges.

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Debates over the Affordable Care Act tend to focus on the size and duration of premium subsidies. As the enhanced premium tax credits once again approach a political deadline, the same arguments have returned: supporters warn that coverage losses will follow if subsidies expire, while critics emphasize the growing fiscal cost of continuing them. Both arguments may be true in the short run. But they distract from a more basic question: whether the structure of coverage itself is driving unnecessary public expense.

This memo explores a specific and underappreciated possibility: that an increase in households where adults obtain coverage through the ACA exchanges while children obtain coverage through the Children’s Health Insurance Program (CHIP) could reduce taxpayer costs without increasing household premiums. The analysis is intentionally preliminary and stylized. Its purpose is not to provide a definitive estimate, but to illustrate a structural mechanism that deserves much more systematic study.

This note builds directly on my earlier post, “The ACA Subsidy Debate Misses the Real Cost Drivers: Why Extending Premium Tax Credits Won’t Fix High Premiums—and What Structural Reforms Would Fix” (December 14, 2025):
https://bernsteinbook1958.substack.com/p/the-aca-subsidy-debate-misses-the

That piece argued that the ACA frequently routes households into the wrong programs, placing low-income adults into subsidized private exchange plans instead of Medicaid, and children into private family exchange plans instead of CHIP, raising premiums and public spending without improving protection.

This memo considers the possibility that taxpayer cost to some families would be reduced if the adult in the household received coverage from state exchangs and the child received coverage under CHIP.

Core illustrative finding

The comparison below examines two coverage configurations for the same household under enhanced ACA premium tax credits.

Household
One adult (age 35) and one child (age 10)

Income
Approximately 250 percent of the federal poverty level (about $52,900)

Option 1: Adult and child both enrolled in the ACA Marketplace

(Enhanced premium tax credits apply to the full family plan)

Taxpayer cost
Approximately $7,160 per year

Household premium
Approximately $2,115 per year
(Set at 4 percent of income under enhanced ACA premium tax credits)

Option 2: Adult enrolled in the ACA Marketplace; child enrolled in CHIP

(Enhanced premium tax credits apply to the adult only; the child receives CHIP coverage)

Taxpayer cost
Approximately $6,200 per year

Household premium
Approximately $2,115 per year
(The same ACA contribution for the adult; no monthly CHIP premium for the child)

What this comparison shows

Household premiums are identical in both cases. This is not a coincidence. Under the enhanced ACA, the household’s required premium contribution for the benchmark plan is fixed as a percentage of income. When the child moves off the exchange and into CHIP, the benchmark premium used to calculate the subsidy falls, and the premium tax credit falls dollar-for-dollar with it. Because the required contribution does not change, the household pays the same amount either way.

More generally, for a given dollar income, adults with dependent children may qualify for larger exchange subsidies than childless adults purchasing identical plans, even when those children are insured through Medicaid or CHIP. This reflects the ACA’s household-based means testing, not differences in insurance coverage.

Taxpayer costs, however, do change meaningfully.

Why taxpayer costs fall when the child is covered by CHIP

The reduction in taxpayer cost is not driven by higher household payments and not by an accounting trick. It reflects a change in the pricing regime used to insure the child.

When the child is covered through the ACA exchange, public dollars effectively purchase coverage at commercial insurance prices embedded in the exchange benchmark premium. Those prices reflect private hospital reimbursement rates, insurer administrative costs, and the pricing dynamics of commercial insurance markets.

When the child is covered through CHIP, public dollars finance pediatric care at Medicaid-like reimbursement rates with lower administrative overhead. Even when benefits are similar, these two pricing systems are not. In most states, CHIP delivers coverage for children at a lower per-capita public cost than subsidized exchange plans.

Put simply, the savings arise because the government stops buying pediatric coverage at commercial prices and instead delivers it at public-program prices.

In addition to the premium and taxpayer effects emphasized here, transferring eligible children from exchange coverage to CHIP typically reduces household out-of-pocket exposure for pediatric care. CHIP programs generally feature minimal or zero premiums, very low copayments, and limited deductibles, whereas exchange silver plans — even with cost-sharing reductions — often retain meaningful deductibles and cost-sharing for children. As a result, while this memo focuses on premiums and public spending, households with children who move from exchange coverage to CHIP will often experience lower point-of-service costs as well. These reductions in out-of-pocket spending are a separate benefit of CHIP enrollment and are not a driver of the taxpayer savings analyzed above.

Network adequacy concerns can cut both ways and vary significantly by state and plan design. While CHIP networks may be more limited in some states, exchange plans—especially lower-cost silver and bronze options—often rely on narrow provider networks as well, so moving children from exchange coverage to CHIP does not uniformly worsen access and in some cases may improve access to pediatric providers.

Why this matters for the subsidy debate

This small example reinforces the broader point made in the earlier post linked above. The ACA’s reliance on premium subsidies treats high insurance prices as fixed and attempts to compensate households after the fact. By contrast, aligning people with the lowest-cost program for which they are already eligible reduces spending at the source without increasing household financial exposure.

Seen this way, the policy question is not only whether to extend or expire enhanced subsidies. It is whether the system is assigning households, and especially children, to the most efficient coverage vehicles available.

Limits of this analysis

This memo examines a single household type using illustrative values. Actual outcomes vary by state, age, benchmark premiums, CHIP costs, and family composition. The analysis also abstracts from differences in cost-sharing, access, and health outcomes. The point is not precision, but mechanism.

The mechanism is real, and it operates independently of the political fight over subsidy generosity.

Where this work needs to go next

This preliminary result points toward a larger analytical agenda. That agenda should include:

• Verifying results using state-specific exchange benchmarks and more detailed CHIP spending data

• Extending the analysis to larger and more diverse household types

• Comparing outcomes under enhanced and non-enhanced ACA subsidy schedules

• Explicitly modeling federal versus state fiscal effects

• Integrating this mechanism with related issues such as Medicaid eligibility, reinsurance, and labor-supply incentives

• Building internal capacity for systematic modeling of ACA–Medicaid–CHIP interactions, rather than treating each policy question in isolation

Debates over subsidy levels will continue. But if the goal is durable affordability and sustainable public spending, program alignment matters at least as much as subsidy size. This memo is an initial step toward making that case concrete.

A detailed methodological appendix documenting assumptions, calculations, and sensitivity checks for the illustrative comparison in this post is provided for paid subscribers below.

Author’s Note

If you found this post useful, it is part of a broader effort to move economic and health-policy debate away from slogans and toward structural analysis that can actually lower costs, improve protection, and reduce waste.

Paid subscriptions support that effort directly. Subscription revenue is used to fund deeper modeling, data purchases, software, and the time required to develop and circulate serious policy work. Over time, the goal is to expand this work further—eventually including dedicated research support—so that proposals like the one discussed here can be evaluated rigorously rather than rhetorically.

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Methodological Appendix (Paid Subscribers)

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American households are moving toward greater financial distress, yet neither major party’s policy process is structured to improve household solvency. This memo examines four interlocking areas—health insurance, student debt, private retirement savings, and Social Security solvency—and shows how each party’s governing incentives produce predictable failures.

Republicans remain anchored to low taxes, limited government, and market primacy, constraining their ability to address structural burdens already embedded in household balance sheets. Democrats are divided between progressive ambition and centrist caution, leading to temporary programs, fiscal sunsets, and executive-branch workarounds that fail durability tests.

Bipartisan reliance on gimmicks and brinkmanship shifts uncertainty onto households and delays unavoidable tradeoffs. Policy failures in health care and student loans suppress private retirement saving, which in turn makes Social Security reform politically and economically infeasible. The result is a stable political equilibrium and an unstable household outcome: solvency risk is repeatedly deferred until it reappears as a fiscal cliff, a premium spike, or automatic benefit reductions.

Introduction

American households are on a path towards increased financial distress and neither major political party has an agenda which could lead to better financial outcomes for American households.

Both parties have consistently put the ideological whims and political needs of their party over the best interests of American households.

Both parties have reinforced this pattern through the routine use of fiscal gimmicks that obscure the true cost of their policy commitments. Temporary programs, artificial sunsets, and delayed implementation are repeatedly used to reduce headline budget scores while shifting real costs and uncertainty onto households. The fiscal imbalance inherited from the Obama administration, the Trump-era tax cuts that were designed to expire and later required renewal, and the enhanced ACA premium tax credits all reflect a bipartisan willingness to rely on temporary structures rather than durable policy design. These tactics allow elected officials to claim restraint while avoiding the political consequences of fully funding their priorities.

At the same time, both parties have shown a persistent willingness to postpone meaningful Social Security reform. By deferring adjustments to benefits, eligibility, or financing, policymakers preserve short-term political advantage at the expense of long-term solvency, leaving future households with fewer options and higher risks.

Republican policy thinking remains anchored to low taxes, limited government, and market primacy. These principles are internally coherent, but constraining when applied to problems that are structural, long-term, and already embedded in household balance sheets.

Republicans routinely favor tax and benefit cuts regardless of the cost to vulnerable households. Moreover, Republicans fail to recognize that required adjustments to entitlements to restore solvency to the Social Security Trust funds and put the nation on a more stable fiscal trajectory require reforms which reduce medical and student loan debt and increase private retirement savings.

Democrats are less unified than Republicans. Progressive Democrats are wedded to expensive politically unfeasible options. – Medicare-for-all and debt-free college even when less expensive solutions exist. Centrist Democrats are aware of the economic tradeoffs, but they consistently favor policy proposal designed to placate the political base of their party rather than thinking through the solutions which will work.

The purpose of this memo is to highlight the processes inside both parties which lead to bad policies and financial outcomes in four areas – health care and health insurance, student debt, retirement savings, and trust fund solvency. The memo builds on many of the memos previously published on this blog. The starting point for this discussion is health care and health insurance because the current dispute over the renewal of the ACA premium tax credits illustrates the potential pitfalls of prioritizing politics over the search for better economic solutions.

Health Insurance

Health insurance is the clearest illustration of how both parties subordinate household financial stability to ideological positioning and short-term political incentives. The result is a system that exposes households to rising premiums, volatile coverage, and unaffordable out-of-pocket costs, while leaving the underlying cost drivers largely untouched.

Republican Failures

Earlier generations of Republican policymakers recognized that a purely employer-based system was incompatible with a modern, mobile labor force. Proposals advanced by figures such as John McCain and Mitt Romney acknowledged the need for viable insurance options for individuals outside traditional employment relationships. That recognition has largely disappeared from current Republican policy thinking.

Today, there is far more internal unity within the Republican Party around a narrower, more rigid approach to health insurance policy. While there are occasional expressions of concern from individual lawmakers, they have not translated into meaningful constraints on party action.

Medicare cuts were enacted as part of the 2025 tax legislation despite public reservations from a small number of Republican senators, including Senator Josh Hawley of Missouri—a state highly reliant on Medicare. This pattern is not unique to Missouri: many Republican-controlled states have populations that depend heavily on Medicare and Medicaid, yet Republican lawmakers have repeatedly supported legislation that reduces or constrains these programs. Party discipline and tax priorities have consistently outweighed constituent exposure to health care costs.

Today’s Republican approach combines Medicaid cuts, opposition to ACA subsidies, and an overreliance on Health Savings Accounts (HSAs).

Cutting Medicaid while simultaneously undermining state exchange plans reduces coverage options for precisely the populations most exposed to job instability, health shocks, and income volatility. These are not abstract effects: failure to renew the enhanced ACA premium tax credits would produce an immediate affordability crisis for millions of households, forcing higher premiums, plan downgrades, or outright loss of coverage.

Republican promotion of HSAs as a substitute for insurance affordability reflects a deeper disconnect from household balance sheet realities. HSAs can work for some households when paired with high-deductible plans—particularly higher-income families with stable cash flow who can fund accounts consistently and absorb upfront costs. But for many lower- and middle-income households, even this structure is difficult in practice. When HSAs are linked to bronze or catastrophic plans, the model often becomes untenable: deductibles are too large relative to income, leading to delayed care or foregone treatment rather than meaningful cost management. In these cases, the approach shifts financial risk onto households without addressing underlying medical prices, while delivering tax benefits that disproportionately accrue to those already least financially constrained.

Recent House action underscores that this unity is not absolute, but it remains politically costly to break from the party line. Four Republican members from swing districts voted with Democrats to allow a vote on extending ACA premium tax credits, signaling localized electoral pressure rather than a broader shift in Republican health policy thinking. These defections highlight the gap between national party priorities and district-level exposure to rising insurance costs.

More broadly, Republicans continue to prioritize tax reduction and fiscal retrenchment without acknowledging that household solvency is already impaired by medical debt and insurance volatility. Entitlement reform discussions that ignore the central role of health costs in driving household distress and federal spending are fundamentally incomplete.

Democratic Failures

Unlike Republicans, Democrats are not unified on health care policy. That diversity of views could, in principle, support pragmatic reform. In practice, it has produced a pattern of rhetorical ambition paired with policy temporariness and institutional fragility. Democrats routinely acknowledge that health insurance affordability is a central threat to household solvency, yet their governing choices repeatedly defer durability in favor of internal coalition management.

The most consequential Democratic failure was the decision to make the enhanced ACA premium tax credits temporary. This was not a technical necessity or a Republican imposition; it was a strategic choice made by the Biden administration and a Democratic Congress. Rather than permanently securing the most effective affordability mechanism in the current system, Democrats chose to allocate political and fiscal capital to a broader set of expansive initiatives, including climate and environmental programs, large-scale infrastructure investments, industrial policy subsidies, and price-control and prescription drug provisions championed by progressive factions. Because these initiatives were pursued simultaneously under budget reconciliation constraints, Democrats relied heavily on temporary authorizations, phase-ins, and sunsets to keep headline costs within procedural limits. As a result, millions of households were left exposed to a scheduled affordability cliff, turning a stabilizing policy into a recurring source of uncertainty tied to election cycles.

Progressive Democrats bear particular responsibility for distorting the party’s health care agenda. It is startling, though no longer surprising, that Medicare for All continues to be reintroduced—most recently in 2025—without a credible transition plan from the existing system. The proposal remains largely unchanged despite years of evidence that such a transition would be economically disruptive, politically fragile, and deeply unsettling for households with employer-based or exchange coverage they value.

Medicare for All now functions less as a governing proposal than as an ideological marker. Its persistence reflects its role in progressive identity politics rather than its feasibility as a policy framework. This comes at a real cost: by centering an all-or-nothing vision, progressives crowd out incremental reforms that could materially improve affordability and stability within the existing system. Most notably, the proposal would eliminate state insurance exchanges, the most functional and adaptable institutional achievement of the ACA. Democrats thus undermine their own most successful reform by refusing to treat it as permanent infrastructure.

Centrist Democrats are not unaware of these tradeoffs. Many recognize that permanently extending ACA subsidies, improving exchange design, and reducing out-of-pocket exposure would deliver immediate gains to household solvency. Yet they have consistently chosen to accommodate progressive messaging priorities rather than force hard internal decisions. The result is a pattern of sunsets, pilot programs, and temporary fixes that weaken both household planning and insurer participation.

More broadly, Democrats share responsibility for failing to confront the structural drivers of health care costs. While they are more willing than Republicans to acknowledge market failures, they have not produced a coherent strategy to restrain cost growth without expanding federal exposure to budgetary risk. Nor have they meaningfully addressed the labor disincentives created by subsidy phaseouts or the instability caused by linking coverage to employment, despite clear evidence that expanding and stabilizing state-based exchanges—or further decoupling insurance from jobs—would reduce coverage losses during job transitions and economic downturns. These omissions reflect a deeper reluctance to make tradeoffs explicit, even when doing so would improve long-term outcomes.

In sum, Democratic health care failures stem not from denial of the problem but from an inability to prioritize durability over coalition politics. By favoring symbolic ambition and temporary relief over institutional permanence, Democrats have left households exposed to the very instability they claim to oppose.

Both Party Failures

Both parties share responsibility for ignoring the core structural problems in health insurance. Neither has offered a serious strategy to control medical cost growth, which continues to drive premiums, deductibles, and out-of-pocket expenses higher than household income growth. Insurers respond by rationing care through narrow networks, aggressive claim denials, and extended review processes—mechanisms that shift administrative and financial burdens onto households while eroding trust in coverage.

Both parties also ignore the high implicit marginal tax rates embedded in ACA premium subsidies. As income rises, households can face steep effective penalties through subsidy phase-outs, discouraging additional work or income gains. This interaction between health insurance affordability and labor incentives receives little attention despite its direct impact on household economic behavior.

Finally, both parties have failed to address the systemic fragility created by tying health insurance to employment. Job transitions, layoffs, and economic downturns routinely trigger coverage disruptions precisely when households are least able to absorb them. This linkage amplifies financial stress during recessions and reinforces the cyclical nature of medical debt accumulation.

In aggregate, these failures reflect a shared unwillingness to treat health insurance as a core component of household solvency rather than a partisan symbol. Until both parties shift from ideological signaling to structural reform, health insurance will remain a central driver of financial instability for American households.

The most troubling feature of current party governance is a growing willingness to govern by brinkmanship. The ongoing dispute over extending the ACA premium tax credits illustrates how both parties are prepared to play chicken with household financial stability in pursuit of political leverage. If this conflict is not resolved, many households reliant on state exchanges will face sharply higher premiums or the loss of insurance altogether. This episode raises a more consequential question: if both parties are willing to risk disruption in a program affecting millions of insured households, will they exercise greater restraint when confronting far larger and more politically sensitive challenges, such as the automatic benefit reductions triggered by Social Security trust fund insolvency?

Student Debt Failures

As with health insurance, student debt policy failures can be traced to a combination of Republican rigidity and focus on tax policy, Democrats emphasizing the whims of the progressive base over solid durable policy, and bipartisan reliance on structurally weak solutions. The result is a system that increases borrowing costs, extends repayment horizons, and undermines household balance sheets at precisely the stage of life when families should be building savings.

Republican Failures

Republicans are highly unified in their view that federal aid to students should be tightly limited and that higher education should not be broadly subsidized. Republican lawmakers have repeatedly argued that workers who did not attend college should not be asked to subsidize those who did, framing student aid as an issue of fairness rather than long-term economic capacity. This position has translated into policy choices that prioritize fiscal restraint over borrower sustainability.

Republicans now largely own federal student loan policy following the comprehensive overhaul enacted in the 2025 tax legislation.

That legislation replaced the SAVE income-driven repayment program with the Repayment Assistance Plan (RAP), which is substantially less generous for many borrowers. Under RAP, monthly payments are higher for a large share of borrowers, income protections are weaker, and some borrowers will now be required to make payments for up to 30 years before any remaining balance is discharged.

RAP introduces sharp payment increases tied to each $10,000 rise in adjusted gross income, creating abrupt effective marginal tax rate cliffs that discourage income growth and career advancement. In addition, RAP payments are not indexed to inflation. Over time, this lack of indexation will steadily increase the real burden of student loan payments, leading to higher delinquency, extended repayment periods, and growing household financial stress.

Republicans have also imposed tighter limits on federal direct student loan borrowing. While intended to constrain costs, these limits will raise borrowing costs for students in high-cost professional programs, particularly young doctors and lawyers. Increased reliance on private credit may deter entry into lower-paying but socially valuable specialties, including primary care and public interest law.

More broadly, Republicans fail to recognize that higher student debt burdens directly impair households’ ability to save for retirement. This omission is particularly consequential given Republican interest in reforming Social Security. Any successful effort to reduce reliance on Social Security benefits requires higher levels of private retirement savings, a goal incompatible with prolonged, inflation-unprotected student loan repayment.

Democratic Failures

Democratic student debt policy has been overwhelmingly shaped by efforts to satisfy progressive demands for free college or universal debt-free education. Proposals advanced by Senator Bernie Sanders and Senator Elizabeth Warren have centered on large-scale federal financing of tuition or broad cancellation of existing student debt, often without sufficient differentiation between borrowers facing genuine affordability constraints and those capable of financing higher education with more limited support.

The fundamental problem with this approach is that public resources are finite and fungible. Many households can already pay for college without this level of government assistance or would require far less support than these proposals provide. Expansive student debt subsidies at this scale necessarily divert funding from other costly priorities, including health care affordability, childcare, housing, infrastructure, climate adaptation, and long-term entitlement solvency. These tradeoffs are rarely confronted directly.

President Biden’s student debt strategy, like the ones advanced by the progressives in the party, did not seek to provide debt relief in the most economically efficient way. In his first attempt at broad loan cancellation, the administration relied on emergency powers under the HEROES Act of 2003, asserting that the COVID-19 pandemic justified sweeping debt relief. That effort was rejected by the Supreme Court, which concluded that the statute did not authorize such a large-scale restructuring of federal student loan obligations.

Following that decision, the administration pursued a second approach grounded in the Department of Education’s authority under the Higher Education Act, particularly provisions allowing the Secretary to compromise, waive, or release federal claims. This second effort was narrower in scope but remained legally contested and institutionally fragile.

At the same time, the Biden administration advanced the SAVE income-driven repayment program, which substantially reduced required payments and accelerated forgiveness for many borrowers. While SAVE improved short-term affordability, it relied heavily on long-term loan discharge rather than repayment and proved politically vulnerable. Legal challenges, administrative uncertainty, and subsequent policy reversal under the Trump administration underscored the program’s lack of durability.

President Biden faced genuine political and legal opposition, but the broader failure remains unchanged. His administration did not establish a student loan framework capable of surviving beyond his presidency. By prioritizing maximal relief and symbolic alignment with the progressive base, the administration crowded out the development of a more modest but durable repayment system that could have provided long-term certainty for borrowers.

Both Party Failures

Both parties rely heavily on income-driven repayment (IDR) programs as the primary mechanism for managing student debt burdens. For many borrowers entering the workforce with low starting salaries, IDR plans are the only feasible option for avoiding delinquency. However, excessive reliance on IDR shifts the system toward prolonged repayment, administrative complexity, and eventual loan discharge rather than affordability and predictability.

A more effective approach would reduce costs on conventional loans during the early years of repayment, when borrowers are most financially constrained. Lower interest rates or capped payments during the first several years after repayment begins would reduce dependence on IDR while preserving incentives to repay principal and limiting the need for large-scale forgiveness.

Financing such reforms would require reallocating existing subsidies rather than expanding total costs. Options include eliminating the tax deductibility of student loan interest, replacing some loan discharges with zero-interest treatment after a fixed repayment period such as 20 years, and making greater use of IRS-administered collection mechanisms, including offsets against tax refunds and certain credits. These changes would improve repayment efficiency while reducing both fiscal exposure and long-term household financial strain.

Taken together, the failures of both parties have produced a student loan system that is harsher than necessary, less durable than advertised, unevenly targeted toward the borrowers most in need, and an inefficient use of taxpayer resources, while remaining vulnerable to future retrenchment driven by fiscal pressures, legal challenges, and renewed inflation concerns. The result is a system poorly aligned with broader goals of household solvency, workforce development, and retirement security.

Private Retirement Savings

Unlike health insurance and student debt, private retirement savings policy is not an area of complete legislative paralysis. Republicans largely succeeded in enacting their preferred framework, and Democrats, in turn, achieved many of their stated objectives—but neither side has sustained a stable, durable policy regime. The core failure is less inaction than pendulum governance: shifting priorities, episodic attention, and reforms designed for short-term wins rather than long-term household outcomes. As a result, retirement policy oscillates between expansion and retrenchment without the consistent focus required to meaningfully improve participation, adequacy, or resilience.

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