Weekend reading: Shifting targets edition

Posted on by Nick Bunker

This is a weekly post we publish on Fridays with links to articles that touch on economic inequality and growth. The first section is a round-up of what Equitable Growth published this week and the second is the work we’re highlighting from elsewhere. We won’t be the first to share these articles, but we hope by taking a look back at the whole week, we can put them in context.

Equitable Growth round-up

Some critics of the disability insurance system in the United States think it is too easy to access. They argue that if the cost of applying for disability goes up, then the people who don’t really need disability coverage will be the ones to not apply. New research finds, in fact, the opposite happens.

The Federal Reserve raised interest rates on Wednesday afternoon despite data showing a weakening in inflation. Given that inflation has been below 2 percent for almost five years, perhaps it’s time to rethink the current targeting regime.

Seventeen percent of workers in the United States have unpredictable, variable schedules as the result of “lean labor strategies.” The effects of these kind of schedules are just now starting to be understood. Bridget Ansel rounds up some research in this area.

The Kansas supply-side tax cut experiment failed. Understanding why it failed is important given that the same model underlies the proposed tax reform of the Trump administration. Greg Leiserson runs through the flaws in the line of thinking bedind the Kansas experiment.

A tax deduction for migrating birds? Kavya Vaghul shows how conservation easements have been exploited and turned into another inequitable feature of the U.S. tax system.

Links from around the web

The number of job openings as a share of total employment is near historic highs. The time it takes to fill an open job is also quite high. Is this a sign of a major skill-gap in the labor market? Noam Scheiber talks to a number of researchers and they all don’t think that’s the case. [nyt]

Over the courses of the current U.S. economic recovery, the Federal Reserve has continuously underestimated how much lower the unemployment rate can go. Cardiff Garcia floats the idea that this discounting of how much the labor market can heal is behind its “continued failure to produce an economy that sustainably keeps inflation near the target, and which includes healthier wage growth.” [ft alphaville]

“It is not just that tax cuts didn’t achieve their purpose,” writes Max Ehrenfreund. “New research suggests that the cuts were, in fact, counterproductive.” Here’s his look at new research on the Kansas tax cuts. [wonkblog]

“Today’s inconspicuous consumption is a far more pernicious form of status spending than the conspicuous consumption of Veblen’s time,” argues Elizabeth Currid-Halkett. She finds that spending by elites is now less about demonstrating financial capital and more about showing off cultural capital than in the Robber Baron era. [aeon]

The effects of a losing your job might have an effect on you for the rest of your life, but also on your community and the young people who live there. Alana Semuels writes about new research connecting widespread layoffs in a community to lower rates of college attendance rates for low-income children. [the atlantic]

Friday figure

Figure from “Time for the Fed to look beyond 2 percent target inflation?” by Nick Bunker

Must- and Should-Reads: June 16, 2017

Posted on by Brad DeLong

Interesting Reads:

Must-Read: Janet Yellen and Nancy Marchall Genzer: Janet Yellen Interested in Reevaluating 2%

Posted on by Brad DeLong

Must-Read: Janet Yellen gets it right. As I find myself saying a lot these days, if I were the Fed I would appoint an Inflation Target Level Technical Advisory Commission to write a report, and make Ben Bernanke and Larry Summers co-chair it:

Janet Yellen and Nancy Marchall Genzer: Janet Yellen Interested in Reevaluating 2% https://www.c-span.org/video/?c4673824/janet-yellen-interested-reevaluating-2: “Nancy Marchall Genzer, Marketplace: ‘Recently, a group of economists sent the Fed a letter…

…disagreeing with your 2% inflation target and saying they would like the economy to run a bit hotter. They don’t think the labor market is so tight. You say you’re committed to the 2% target, but what do you say to them?”

Janet Yellen: “At the time when we adopted the 2% target… in 2012… we have a very thorough discussion of the factors that should determine what our inflation objective should be. I believe that was a well thought out decision…. At the moment, we are highly focused on trying to achieve our 2 percent objective, and we recognize the fact that inflation has been running below and its essential for us to move inflation back to that objective.

“Now we’ve learned a lot in the meantime. And assessments of the level of the neutral likely level currently and going forward of the neutral federal funds rate have changed and are are quite a bit lower than where they stood in 2012 or earlier years. That means that the economy has the potential where policy could be constrained by the zero lower bound more frequently than at the time when we adopted our 2% objective….

“It’s that recognition that causes people to think that we might be better off with a higher inflation objectives. This is one of our most critical decisions and one we’re attentive to evidence and outside thinking. It’s one that we will be reconsidering at some future time. It’s important for our decisions to be informed by a wide range of views and research, which is ongoing inside and outside the Fed. But a reconsideration of that objective needs to take into account not only benefits of a higher inflation target, but also the potential costs. It needs to be a balanced assessment.

“I would say that this is one of the most important questions facing monetary policy around the world in the future. We very much look forward to seeing research by economists that will help inform our future decisions on this…”

As you know if you have been reading this weblog http://www.bradford-delong.com/2017/06/yes-the-zlb-is-a-big-deal-or-brad-goes-down-a-rabbit-hole.html, I have been playing with adding in the zero lower bound on the short-term safe nominal policy interest rate to the setup of Larry Ball (1997): EFFICIENT RULES FOR MONETARY POLICY http://delong.typepad.com/ball-1997-efficient-rules.pdf:

MathType 2017 06 11 Ball 1997 Optimal Taylor Rule Calibration pdf PDF

For Ball’s baseline case, with the zero lower bound on the nominal policy rate imposed, with equal shock variances of 0.000, with equal weights on reducing the variance of output and of inflation, with an r* = 1%, and with a 2% symmetric inflation target, the optimal monetary policy rule in the absence of the zero lower bound blows up the economy in a bad way about 1/3 of the time every twenty-five year generation:

2017 06 12 Notes on Ball 1997 Efficient Rules for Monetary Policy numbers

The quickest-and-dirtiest way to eliminate this singularity is to impose a maximum rate of deflation -πmin on the economy: that eliminates the Fisherian debt-deflation death spiral that is implicit in Ball’s (1997) setup with the zero lower bound added in:

MathType 2017 06 11 Ball 1997 Optimal Taylor Rule Calibration pdf PDF

Setting πmin at -1.5%/year gives us an average monetary stabilization loss function of -0.00093 for the monetary policy rule optimal without considering the zero lower bound, along with some truly extended periods with the economy at the zero lower bound and with deflation at its speed limit:

2017 06 12 Notes on Ball 1997 Efficient Rules for Monetary Policy numbers

Shifting from a 2% to a 5% symmetric inflation target gets us a loss function of -0.00051 and an inflation rate that kisses the deflation speed limit only 0.3% of the time, with “normal” behavior on the part of the Ball setup:

2017 06 12 Notes on Ball 1997 Efficient Rules for Monetary Policy numbers

As I have said, this is neither the right model nor the right calibration. It is, however, a baseline to start thinking about what the right model and the right calibration are, as it is the setup Ball (1997) put forward to assess under what circumstances interest rate rules would be optimal—and what interest rate rule would be optimal.

What is the optimal interest rate rule conditional on the inflation target π* and the Wicksellian neutral real policy rate r*? I want to get comfortable with a model and calibration I can defend before I start the numerical optimization…

It’s no surprise that the Kansas tax cut experiment failed to create jobs

Posted on by Meghan Miller
A joint session of the legislature meets in the House Chambers in Topeka, Kansas.

A supermajority of Kansas legislators last week voted to roll back Gov. Sam Brownback’s (R) signature tax cuts, overriding his veto. The tax cuts, enacted in two stages in 2012 and 2013, caused a recurring series of budget crises and cutbacks that angered voters and in turn spurred a bipartisan coalition of legislators to reverse several of their most harmful elements.

Proponents of the tax cuts argued that they would unleash economic growth and job creation. Yet as numerous subsequent analyses demonstrate, the promised economic growth did not materialize. Tax revenues fell sharply. Job growth and output growth disappointed. Population growth, whether as a cause or consequence of the economic growth, failed to materialize. Finally, last week, state legislators recognized the experiment’s failure and reversed course.

Understanding the reasons that the Kansas tax cut experiment failed to create jobs is particularly important given that the outline for tax reform rolled out by the Trump administration in April shares many features with the Kansas model. U.S. Treasury Secretary Steven Mnuchin says the administration’s plan “is all about jobs, jobs, jobs,” much as Gov. Brownback did in Kansas five years ago. In fact, subsequent reporting suggests that the Trump administration’s tax plan was rolled out in an incomplete state because the president read an op-ed in The New York Times co-authored by some of the same advocates who provided advice to Brownback on his tax plan.

The failure of the Kansas tax cut experiment to create jobs has little to do with Kansas, however, and everything to do with the fact that the underlying economics of tax reform—as envisioned by Gov. Brownback and President Donald Trump—isn’t a good path to jobs. To understand this point, it’s worth considering in turn the two primary types of taxes that were cut under the Kansas plan and in the Trump administration’s outline: taxes on labor income and taxes on business profits.

Claims of supply-side growth from labor income tax cuts rely on the idea that people will be more willing to work when their after-tax wages are higher. This theory posits that labor income tax cuts result in growth because people who could increase their earnings choose not to because tax rates are too high, but it does not take much to see why cutting tax rates for middle- and higher-income families does not create jobs through this mechanism. Middle- and higher-income families already have jobs, even if they are not the jobs they necessarily want.

Claims of supply-side growth from tax cuts on business profits rely on the idea that those cuts will increase the level of investment and that, in turn, will increase productivity. Under this theory, a tax cut on business profits could increase employment by spurring investment, increasing wages, and attracting people into the labor force who are not willing to take a job at current wage rates. For this theory to work, however, it would need to be the case that cutting statutory business tax rates would meaningfully reduce the effective tax rate on an incremental investment such that the tax cut causes businesses to increase investment. Second, it would need to be the case that the reduced tax rate causes businesses to increase investment in a way that increases the wages they would be willing to pay to people who currently choose not to work because wages are too low. Third, it would need to be the case that this increase in wages would be large enough to spur people who currently choose not to work to enter the labor force and seek jobs. And finally, the deficits resulting from the tax cuts would need to be small enough that they increase businesses’ cost of capital by less than the reduction resulting from the lower tax rate, as a higher cost of capital would cause businesses to reduce investment rather than increase it.

These conditions are highly unlikely to hold in practice. Businesses already pay relatively little tax on the incremental return from investments in tangible capital due to tax benefits such as accelerated depreciation and interest deductibility, and they often pay no tax—or even receive a tax subsidy—on marginal investments in intangible capital. Moreover, reducing the statutory tax rate on business income actually increases the effective tax rate on debt-financed investment, which is a common source of financing for investments in tangible capital because businesses deduct interest payments from taxable income.

The so-called crowd out effect from government deficits on debt markets was not a significant concern in Kansas because of balanced-budget requirements and the small size of the state relative to U.S. debt markets, but tax cuts such as those proposed by the Trump administration would cause a substantial increase in federal borrowing and likely lead to meaningful crowd out. Finally, even if there were an impact on wages despite the questionable empirical validity of the links between business tax rates and take-home pay, it would be tiny relative to the other costs and benefits of work and therefore would likely generate little impact on employment.

Thus, given the underlying economic logic, it should come as no surprise that the Kansas tax cut experiment failed to deliver job growth. Similar reforms at the national level would be no different.

If federal policymakers are looking for a supply-side tax reform that would create jobs, then they could expand the Earned Income Tax Credit, or EITC, for low-income families, particularly workers without dependent children. The EITC provides a substantial boost in take-home pay for low-income workers with children and encourages workers who are out of the labor force to seek jobs. A substantial academic literature finds that the EITC boosts labor supply, creating jobs. Notably, these labor supply effects result from a boost in wages far larger than anything on offer from even the most optimistic assessment of the impact of business tax cuts. The EITC boosts pre-tax wages for families with one, two, and three or more children by 34 percent, 40 percent, and 45 percent, respectively. Even an unprecedentedly large expansion of the EITC could be accomplished for a fraction of the cost of President Trump’s high-income and business tax cuts.

Must-Read: Lawrence Summers: 5 reasons the Fed may be making a mistake

Posted on by Brad DeLong

Must-Read: Lawrence Summers: 5 reasons the Fed may be making a mistake http://delong.typepad.com/summers5-reasons.zip: “The… paradigm… is highly problematic.  Much better would be a “shoot only when you see the whites of the eyes of inflation” paradigm…

…more credible, more likely to result in the Fed’s satisfying its dual mandate, reduce risks of recession, and increase the economy’s resilience when recession comes. Many of my friends have recently issued a statement asserting that the Fed should change its inflation target…. I think that this issue is logically subsequent to the question of how policy should be made in the near term with the given 2 percent inflation target…. First, the Fed is not credible with the markets…. Markets do not share the Fed’s view that inflation acceleration is a major risk.  Indeed they do not believe the Fed will attain its 2 percent inflation target for a long time to come….Second, the Fed regularly proclaims that it has a symmetric commitment…. So why would the Fed want to be projecting only 2 percent inflation entering the 11th year of recovery with an unemployment rate clearly below their estimate of the NAIRU?… The PCE core price level is a full 4.3 percent where it would be had it risen by the Fed’s target amount over the past decade…. Policy should be set with a view to modestly raise target inflation, perhaps 2.3 or even 2.5 percent inflation, during a boom with the expectation that inflation will decline during the next recession…. Third… we have little ability to judge when inflation will accelerate in a major way. The Phillips curve is at most barely present in data for the past 25 years. And as Staiger, Stock and Watson demonstrated years ago, the NAIRU, assuming such a thing exists, can only be estimated with extreme imprecision…. In recent months both overall and core inflation have come down along with market and survey measures of inflation expectations… contrary to all the Fed staff models….

Fourth… there is good reason to believe that a given level of rates is much less expansionary than it used to be given the structural forces operating to raise saving propensities and reduce investment propensities. I am not sure that a 2 percent funds rate is especially expansionary in the current environment…. Fifth, a “whites of their eyes” paradigm… require[s] the Fed… simply needs to assert that its objective is to assure that inflation averages 2 percent over long periods of time… inflation is… very difficult to forecast… focus on inflation and inflation expectations data rather than measures of output and employment in forecasting inflation. With these principles internalized, the Fed would lower its interest-rate forecasts to those of the market and be more credible. It would allow inflation to get closer to target and give employment and output more room to run…

Should-Read: David Cutler and Emily Gee: Coverage Losses Under the ACA Repeal Bill for Congressional Districts in All States

Posted on by Brad DeLong

Should-Read: David Cutler and Emily Gee: Coverage Losses Under the ACA Repeal Bill for Congressional Districts in All States: “Within a decade, on average, an additional 55,000 more individuals in each congressional district, or nearly 8 percent… would lack coverage… https://www.americanprogress.org/issues/healthcare/news/2017/03/21/428914/coverage-losses-aca-repeal-bill-congressional-districts-states/

…We provide estimates of coverage losses for all 435 congressional districts of the 115th Congress as well as the District of Columbia… people who would be uninsured under the House bill instead of having health insurance through the workplace, Medicaid, and the exchanges and other private coverage. Our numbers reflect that states that have expanded Medicaid to low-income adults under the ACA would face drastic cuts to federal matching funds for the program starting in 2020 and that expansion would no longer be a viable option by 2026 for states that have not already done so.

Should-Read: Dodge Cahan and Niklas Potrafke: The Democratic-Republican Presidential Growth Gap and the Partisan Balance of the State Governments

Posted on by Brad DeLong

Should-Read: Dodge Cahan and Niklas Potrafke: The Democratic-Republican Presidential Growth Gap and the Partisan Balance of the State Governments: “Higher economic growth was generated during Democratic presidencies compared to Republican presidencies… http://econpapers.repec.org/paper/cesceswps/_5f6517.htm

…Blinder and Watson (2016) explain that the Democratic-Republican presidential growth gap (D-R growth gap) can hardly be attributed to the policies under Democratic presidents, but Democratic presidents–at least partly–just had good luck, although a substantial gap remains unexplained. A natural place to look for an explanation is the partisan balance at the state level. We show that pronounced national GDP growth was generated when a larger share of US states had Democratic governors and unified Democratic state governments. However, this fact does not explain the D-R growth gap. To the contrary, given the tendency of electoral support at the state level to swing away from the party of the incumbent president, this works against the D-R growth gap. In fact, the D-R presidential growth gap at the national level might have been even larger were it not for the mitigating dynamics of state politics (by about 0.3-0.6 percentage points). These results suggest that the D-R growth gap is an even bigger puzzle than Blinder and Watson’s findings would suggest…

Conservation easements and tax policies in the United States

Posted on by Meghan Miller
A group of birds migrate, March 2015, in Montgomery, Alabama.

When President Donald Trump was asked a question about the biggest winners from his proposed tax cuts being the wealthiest Americans during a conversation with The Economist last month, he pointed to how that might not be the case because those at the top may lose several tax deductions. Musing on the number of deductions currently available, he remarked that “they have deductions for birds flying across America.”

At first glance, this seemed outlandish. But it turned out that President Trump was referring to a 2009 case involving Alabama’s Kiva Dunes resort and golf course, migratory birds, and the resulting conservation easement used to claim a charitable deduction.

Conservations easements, in theory, have good, environmentally oriented intentions. Created in the 1970s, conservation easements are voluntary legal agreements by which the landowner donates his or her land—or a piece of the land—to a public charity, trust, or government agency in order to restrict further development and protect it for conservation or historical preservation purposes. By donating the easement, the landowner can claim the value of the easement as a charitable deduction. This tax deduction for donations of conservation easements, in practice, has kindled significant abuse, according to a new report by Adam Looney at the Urban-Brookings Tax Policy Center.

Looney relies on administrative data from the Internal Revenue Service to explore the increasing use of conservation easements in charitable deductions by taxpayers and real estate developers and expose how they are misusing them. Between 2010 and 2012, he finds that taxpayers claimed an average of $1.05 billion in charitable deductions on conservation easement donations. By 2014, this value reached $3.2 billion.

Along with the rise in charitable deductions claimed, the data show that deductions for conservation easement donations are taken by taxpayers in states that have small shares of conserved land. What’s more, the donated easement land is concentrated in places with large real estate developments, including golf and country clubs, and high-cost resort areas, such as Martha’s Vineyard in Massachusetts and Jackson Hole in Wyoming. In many ways, this indicates that conservation easements are not being used for the purposes for which they were established.

To make matters worse, some landowners may be illegally abusing the provision. Some donate their conservation easements and get highly inflated appraisals for their easement land, which allows them to take a larger deduction. Others donate land that may not qualify for conservation status in the first place.

Donors aren’t the only ones taking advantage of the conservation easement loophole, though. Recipient organizations—the donees—are equally responsible for utilizing it. Looney spotlights two important trends about the donees. First, there are very few donee organizations that handle the majority of the donations, and second, many fail to report these donations as gifts on their tax returns.

Misusing or even scamming the conservation easement provision has cost the federal government several billions of dollars in revenue and may not even be effectively providing conservation benefits. To address these issues, Looney offers some policy solutions that could help ensure that illegal abuses do not persist. In the short term, he argues for increasing the transparency by making easement donations be “listed transactions” at the Internal Revenue Service, requiring donees to include the value of the donation on their tax returns, and creating a more rigorous standard for conservation purposes and who qualifies as a donee organization. To close the loophole altogether, Looney suggest employing an allocated tax credit for donee organizations, where organizations would approach landowners about potential land for conservation or historic preservation.

Conservation easements are just another example of the inequities inherent in the federal tax deduction for charitable contributions. Finding ways to limit the abuse of conservation easements can not only preserve the progressive federal tax system but also more honestly create safe habitats for those migrating birds across America.

A research roundup on unpredictable schedules in the United States

Posted on by Meghan Miller
A clerk checks out a customer’s groceries at a grocery store in Houston, May 2007.

 

For Americans with a 9-to-5 job, it can be hard to imagine the life of a worker with an unpredictable, constantly shifting schedule. But this is the reality for 17 percent of workers in the United States, whose schedules are often a product of “lean labor strategies” that try to align the number of staff working with consumer demand in as close to real time as possible. In doing so, employers may variously give workers only a few days’ notice of their schedule for the coming week, no choice but to work last-minute overtime if things are busy, or the choice to be sent home early without pay when business is slow.

Unpredictable scheduling practices shift the risk of doing business onto workers and their families. And while these kinds of strategies may appear to make good business sense by reducing labor costs, there is growing evidence of the negative economic ramifications not only for workers and their families but also for businesses and the broader U.S. economy. Here’s a brief snapshot of that research:

  1. Unpredictable schedules have hidden costs for businesses, such as turnover and absenteeism. According to research by the University of Chicago’s Susan J. Lambert and Julia R. Henly and the University of Wisconsin-Madison’s Anna Haley-Lock, many workers who have unpredictable schedules are fired or forced to quit to find a job that has more hours and predictability. Other research demonstrates how the resulting high turnover, even in the service industry, can be costly and hurt customer service and overall profitability.
  1. Understaffing can be costly but is not accounted for. Many businesses see labor as a “cost driver” rather than a “sales driver,” which is why many firms have adopted scheduling practices that try to minimize the number of people working. But doing so has left many businesses understaffed. While this may cut down on labor costs in a way that is direct and easy to see, researchers from the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School find that understaffing is costly. In a study of large retail stores, they “establish[ed] the presence of systematic understaffing during peak hours.”
  1. Volatility of hours creates volatility of earnings. Hourly workers with unpredictable schedules may be unable to predict how much they will make from week to week. Research finds that among those who self-reported volatile monthly incomes, 40 percent blamed irregular work schedules, which experts say is one of the leading drivers of the rise in income volatility over the past few decades. Other research also finds a strong association between volatile hours and financial instability.
  1. Unpredictable scheduling disproportionately affects women and people of color. Women and racial and ethnic minorities are more likely to work in the low-wage, hourly jobs in which schedule volatility is prevalent, while other research confirms that black and Latino workers are less likely to receive sufficient notice of their schedules compared with white workers. Nonwhite workers also spend more time and money commuting compared with their white counterparts, which makes being turned away during slow periods more costly.
  1. Unpredictable schedules harm the health of workers—and their families. Research by the University of Pennsylvania’s Kristen Harknett and the University of California, Berkeley’s, Daniel Schneider finds that variability of work hours—but not nonstandard work hours—is associated with financial instability as well as a host of physical and mental health issues. These workers are more stressed out, less likely to have good-quality sleep, and more likely to report “serious psychological distress.” They also spend less time with their children, which other research shows adds stress to these workers’ work-life experiences in ways that can harm kids’ mental and physical health—with lasting effects into adulthood. This means that unpredictable schedules not only hurt today’s workers but can have an effect on our future workforce as well.

Must-Read: David Grabowski, Jonathan Gruber, and Vincent Mor: You’re Probably Going to Need Medicaid

Posted on by Brad DeLong

Must-Read: David Grabowski, Jonathan Gruber, and Vincent Mor: You’re Probably Going to Need Medicaid: “Imagine your mother needs to move into a nursing home… https://www.nytimes.com/2017/06/13/opinion/youre-probably-going-to-need-medicaid.html?ref=opinion&_r=0

…It’s going to cost her almost $100,000 a year. Very few people have private insurance to cover this. Your mother will most likely run out her savings until she qualifies for Medicaid.

This is not a rare event. Roughly one in three people now turning 65 will require nursing home care at some point during his or her life. Over three-quarters of long-stay nursing home residents will eventually be covered by Medicaid. Many American voters think Medicaid is only for low-income adults and their children—for people who aren’t “like them.” But Medicaid is not “somebody else’s” insurance. It is insurance for all of our mothers and fathers and, eventually, for ourselves.

The American Health Care Act that passed the House and is now being debated by the Senate would reduce spending on Medicaid by over $800 billion, the largest single reduction in a social insurance program in our nation’s history. The budget released by President Trump last month would up the ante by slashing another $600 billion over 10 years from the program. Whether the Senate adopts cuts of quite this magnitude or not, any legislation that passes the Republican Congress is likely to include the largest cuts to the Medicaid program since its inception.

Much focus has rightly been placed on the enormous damage this would do to lower-income families and youth. But what has been largely missing from public discussion is the radical implications that such cuts would have for older and disabled Americans.

Medicaid is our nation’s largest safety net for low-income people, accounting for one-sixth of all health care spending in the United States. But few people seem to know that nearly two-thirds of that spending is focused on older and disabled adults—primarily through spending on long-term care services such as nursing homes.

Indeed, Medicaid pays nearly half of nursing home costs for those who need assistance because of medical conditions like Alzheimer’s or stroke. In some states, overall spending on older and disabled adults amounts to as much as three-quarters of Medicaid spending. As a result, there is no way that the program can shrink by 25 percent (as under the A.H.C.A.) or almost 50 percent (as under the Trump budget), without hurting these people.

A large body of research, some of it by us, has shown that cuts to nursing home reimbursement can have devastating effects on vulnerable patients. Many nursing homes would stop admitting Medicaid recipients and those who don’t have enough assets to ensure that they won’t eventually end up on Medicaid. Older and disabled Medicaid beneficiaries can’t pay out of pocket for services and they do not typically have family members able to care for them. The nursing home is a last resort. Where will they go instead?

Those who are admitted to a nursing home may not fare much better. Lowering Medicaid reimbursement rates lead to reductions in staffing, particularly of nurses. Research by one of us shows that a cut in the reimbursement rate of around 10 percent leads to a functional decline of nursing home residents (that is, a decline in their ability to walk or use the bathroom by themselves) of almost 10 percent. It also raises the odds that they will be in persistent pain by 5 percent, and the odds of getting a bedsore by 2 percent.

Finally, these cuts would just shift costs to the rest of the government. Lower-quality nursing home care leads to more hospitalizations, and for Americans over 65, these are paid for by another government program, Medicare. One-quarter of nursing home residents are hospitalized each year, and the daily cost of caring for them more than quadruples when they move to the hospital. Research shows that a reduction in nursing home reimbursements of around 10 percent leads to a 5 percent rise in the odds that residents will be hospitalized. So care for seniors suffers, and the taxpayer pays.

Mr. Trump and the Republicans would lower spending on the frailest and most vulnerable people in our health care system. They would like most Americans to believe that these cuts will not affect them, only their “undeserving” neighbors. But that hides the truth that draconian cuts to Medicaid affect all of our families. They are a direct attack on our elderly, our disabled and our dignity.