While the House of Representatives will vote on its own tax reform plan tomorrow and Republican leaders are confident it will pass, the Senate has been moving forward with its own plan that includes major differences to the bill being considered in the House. Primarily, the two plans as they are known right now differ in the number of tax brackets that they include, with the Senate plan retaining as many as seven different brackets based on income levels while the House plan would shrink the number of brackets to three. Additionally, the Senate plan would eliminate the deduction for state and local taxes entirely whereas the House plan would limit the deduction to $10,000. On the other hand, the Senate plan keeps the entire mortgage interest deduction in place while the House plan would cap the deduction at $500,000, a 50% reduction from the current cap of $1,000,000. The Senate plan would also delay reductions in the corporate tax rate by one year in an effort to get around deficit concerns, and changes the way that the tax code treats so-called “pass-through” business entities such as LLCs and Subchapter-S corporations to a significant degree. Additionally, the Senate plan would keep the adoption tax credit as well as deductions for medical expenses and would increase the exemption for the Estate Tax so that it is effectively doubled whereas the House plan would eliminate the Estate Tax entirely.
Perhaps the most significant change, though, is the one announced yesterday, and it has nothing to do with taxes per se. Instead, it would reignite the debate over health care reform by eliminating the Affordable Care Act’s health insurance mandate:
WASHINGTON — Senate Republicans have decided to include the repeal of the Affordable Care Act’s requirement that most people have health insurance into the sprawling tax rewrite, merging the fight over health care with the high-stakes effort to cut taxes.
They also have made a calculated gamble to help speed their bill to passage on a party-line vote: Republicans revealed late Tuesday they would set all of their tax cuts for individuals to expire at the end of 2025, to comply with a procedural requirement. Their deep cut in the corporate tax rate would remain permanent.
Both the expiration decision and the move to tuck the repeal of the so-called individual mandate into the tax overhaul are attempts by Republicans to solve two problems: math and politics. Repealing the mandate, a longstanding Republican goal, would save hundreds of billions of dollars over the next decade. That would free up money that is earmarked to expand middle-class tax cuts.
Setting individual provisions to expire helps hold down the overall cost of the bill, which can add no more than $1.5 trillion to the deficit over 10 years and cannot add to deficits after 10 years. Mandate repeal could also help secure the votes of the most conservative senators, enabling lawmakers to pass the bill along party lines.
The decision to set individual provisions to expire at the end of 2025 could set up a potential “fiscal cliff” situation then, akin to the one President Barack Obama and Congress faced at the end of 2012. Those breaks include tax-rate reductions, the near-doubling of the standard deduction and a provision to reduce the number of Americans who would have to pay the estate tax. Republicans made those changes to stay within Senate rules that allow them to pass the bill on a party-line vote; as promised, they did not set expiration dates on the bill’s corporate rate cut.
If the bill were to become law, and Congress did not seek to make those provisions permanent, tax bills would rise for vast parts of the country in 2026.
The mandate repeal would save more than $300 billion over a decade but result in 13 million fewer Americans being covered by health insurance by the end of that period, according to the Congressional Budget Office. Republicans said on Tuesday that they would use the savings — which stem from reduced government spending to subsidize health coverage — to pay for an expansion of the middle-class tax cuts that lawmakers had proposed
Middle-class measures in the revised tax plan released late Tuesday include expanding the child tax credit to $2,000 a child, up from $1,650 in the original version of the Senate plan, and three reductions in marginal tax rates. One rate would fall to 22 percent from 22.5 percent; another to 24 percent from 25 percent; and another to 32 percent from 32.5 percent.
On the House side, members of the Rules Committee met Tuesday evening, one day earlier than scheduled, to pave the way for a floor vote on Thursday.
Democrats said the mandate repeal would underwrite tax cuts for the rich at the expense of people who buy insurance on the individual market.
“The people this is going to hit are middle-class people that ostensibly this whole bill was supposed to be about helping,” said Senator Claire McCaskill, Democrat of Missouri and a member of the Finance Committee.
Average health insurance premiums in the individual market would increase by about 10 percent, but insurance markets would remain stable in almost all parts of the country, the budget office found.
President Trump has urged his fellow Republicans to repeal the mandate in their tax bill, and in recent days, the idea has gained steam in the Senate Republican conference as lawmakers try to come up with a plan that can receive at least 50 votes.
“We’re optimistic that inserting the individual mandate repeal would be helpful,” said Senator Mitch McConnell, Republican of Kentucky and the majority leader.
But the move risks reviving the contentious debate over health care that Republicans found themselves mired in for much of the year. Previous efforts to dismantle the Affordable Care Act have failed, leaving Republicans with little legislative success to show for their congressional majority.
“This is turning a tax bill into a health care bill, with our colleagues getting an hour’s worth of notice,” said Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee.
In a letter on Tuesday, groups representing doctors, hospitals and insurers urged congressional leaders to keep the individual mandate in place. The groups, which included the American Medical Association and America’s Health Insurance Plans, wrote that “eliminating the individual mandate by itself likely will result in a significant increase in premiums, which would in turn substantially increase the number of uninsured Americans.”
(…)
In tandem with repealing the individual mandate as part of the tax bill, Mr. Thune said that Republicans were committed to advancing a bipartisan measure to stabilize health insurance markets developed by Senators Lamar Alexander, Republican of Tennessee, and Patty Murray, Democrat of Washington. That measure, whose fate has been uncertain, would include two years of funding for subsidies to insurers — known as cost-sharing reduction payments — that Mr. Trump decided to cut off last month.
But Ms. Murray rejected any suggestion that the mandate repeal could be paired with her legislation.
“That is the exact opposite of what we should be doing,” she said. “Americans have stood up and spoken loudly for the last year saying they do not want the markets destabilized, and their provision in the tax bill that they are talking about will really destabilize the marketplaces.”
If this latest Republican attack on the Affordable Care Act sounds familiar, that’s because it should, Essentially, what we’re looking at here is another version of the so-called “skinny repeal” package that was before the Senate at the end of July as it desperately tried to pass some kind of health care legislation prior to the August recess. As with this proposed amendment to the tax bill, that bill would have repealed the individual mandate but taken no other action with respect to any of the provisions of the Affordable Care Act. A Congressional Budget Office analysis conducted at the time projected that the bill would have led to tens of millions of Americans losing health coverage and would have increased premiums significantly across the board for both individual plans and employer-based plans. Other projections also showed that it would have significantly destabilized the health insurance market in general due to the fact that it likely would have led to younger, healthier individuals voluntarily dropping their coverages, meaning that insurance pools would become older, sicker, and more expensive. All in all, it was a bad bill and even Senators who voted for it said they never intended for it to become law. Instead, they wanted it to be the basis to force a conference committee with the House in an effort to put together a bill that could get through both bodies. That effort, though, came to an end when McCain, who had just been diagnosed with cancer, returned to the Senate to deliver a late-night thumbs down that sealed the bill’s fate.
Now, however, the Senate seems intent on reviving that plan, which again was never intended to actually become law, as an add-on to their tax reform package, and the only reason for it seems to be some desire to show that they can deliver on Obamacare repeal after all. Of course, the fact of the matter is that both “skinny repeal” would leave much of the Affordable Care Act in place, albeit in a form that would likely end up being fiscally and structurally unsustainable and lead to even worse health care options for the vast majority of American citizens. Even if you agree with the proposition that the PPACA was bad policy at the time it was adopted and should be replaced, as I generally do, the idea of repealing it only in part and “reforming” it in a manner that would make the healthcare situation far worse for everyone makes utterly no sense at all.
Politically speaking, it’s hard to say what this means for tax reform generally. As I noted, skinny repeal itself failed in the Senate, but it did so thanks only to the fact that three Senators, including McCain, Susan Collins, and Kentucky Senator Rand Paul, ended up voting no on the bill. Whether they would do the same when that same bill is attached to tax reform is an open question. At the same time, though, the fate of tax reform in the Senate was already unclear in the Senate and it doesn’t appear that anyone has even an estimated head count for the bill going forward. As with health care reform, Senate Majority Leader Mitch McConnell only needs 51 votes, or fifty plus Vice-President Pence’s tie-breaking vote, to pass the bill, but that once again means that he can only afford to lose two Senators in the GOP Caucus assuming that he doesn’t get any support from the Democratic side of the aisle, something that seems even less likely if they go forward with this idea of slapping health care onto the tax reform bill.
As it stands, tax reform was the one issue that Republicans were hoping they’d be able to get passed to push back against claims that they haven’t accomplished anything this year. This action by the Senate would seem to guarantee that they’ll go down as being a “Do Nothing Congress” after all.
