Obamacare Taxes Complicate GOP’s Repeal Strategy

Republicans eager to scrap the 2010 health-care law are wrestling with whether to immediately cut off the tax revenue it brings in.

Among the thorniest issues GOP lawmakers face as they hash out how to try to dismantle the Affordable Care Act is that getting rid of the health law’s taxes now would eliminate a source of revenue they would need to fund the two- or three-year transition period until any replacement plan is in place. Repealing the taxes would throw into question how to fund the subsidies that help many people get health coverage by offsetting their premium costs, health analysts say.

Ending the taxes now might also mean that Republicans, as they try to write a replacement for the Affordable Care Act, would face a tough vote to approve new taxes, find spending cuts or create a system where fewer people are insured.

But Republicans also want to fulfill a longstanding campaign pledge to gut the health law, which imposed taxes that Republicans say have driven up health-care costs.

“With more than $1 trillion in new taxes, Obamacare is riddled with bad tax policy, and members are currently examining how to best address this issue,” said Senate Finance Committee Chairman Orrin Hatch (R., Utah).

That $1 trillion figure comes from congressional scorekeepers, who estimated last year that repealing all of the taxes used to pay for the ACA would reduce federal revenue by more than that amount over a decade, before accounting for economic growth.

While repealing the health law’s coverage provisions would save the government some money because it would no longer have to defray many people’s health-care costs, a full repeal of the law would cost roughly $350 billion through 2027, according to an estimate released this past week from the Committee for a Responsible Federal Budget, an anti-deficit group. The health law offset its costs both by raising revenue through taxes and finding savings in the Medicare program.

The taxes in question largely fall into two camps: those directly related to health-care costs, such as the so-called Cadillac tax on expensive, employer-provided health-insurance plans, and those levied on wealthy individuals to help pay for the law’s expanded coverage. Because of that, Democrats have said the GOP effort to repeal the health law is really aimed at slashing taxes for the affluent.

“It is a Trojan horse for cutting taxes and raising health-care costs,” said Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee.

Largely because of a 3.8% tax on investment income and a 0.9% payroll tax on top earners, repealing the ACA tax increases would indeed yield a significant tax cut for people at the top of the income distribution. The top 1% of households would get an average tax cut of $32,850 and would draw 57% of the total tax break, according to the Tax Policy Center, a project of the Urban Institute and Brookings Institution.

Both taxes apply to married couples filing jointly with incomes exceeding $250,000 and individuals with incomes exceeding $200,000. Those thresholds aren’t indexed for inflation, meaning that they have been affecting more people each year as incomes rise.

In early 2016, Republicans passed legislation repealing the health law that would have ended those taxes at the end of 2015. But that bill’s passage was symbolic—lawmakers knew that President Barack Obama would veto it, which he did.

This time around, when the legislation could actually become law once Donald Trump is in the White House, Republicans haven’t committed to immediately repealing all of the taxes or Medicare savings.

Republicans will need either to keep the health law’s methods of raising revenue “or be willing to find others” later, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Otherwise, you’re going to end up with a whole lot of debt they didn’t sign up for.”

Sen. John Barrasso of Wyoming, a member of Senate GOP leadership, said its goal is “to repeal as much as we can and do it in a way that provides a smooth transition, so that nobody that has insurance today will lose it tomorrow.”

Drew Angerer/Bloomberg Rep. Pat Tiberi, a senior member of the Ways and Means Committee helping to draft the ACA repeal bill.

Meanwhile, conservative Republicans are pushing to fully repeal the law as soon as possible.

“We’re going to take away the benefits but keep the taxes? Are you kidding me?” scoffed Rep. Jim Jordan (R., Ohio). “That’s the craziest thing I’ve ever heard.”

Business groups, such as the U.S. Chamber of Commerce, are pushing lawmakers to repeal taxes in the law on insurance companies, drug manufacturers and other industries, which they say drive up health-care costs for consumers.

The Senate began the process of repealing much of the law this past week, though the details of the repeal measure aren’t yet set.

Rep. Pat Tiberi (R., Ohio), a senior member of the Ways and Means Committee helping to draft the repeal bill, said he wasn’t sure yet whether the legislation would end the ACA’s taxes immediately or delay those effective dates.

“We have two partners to work with,” he said, referring to both the Senate and Mr. Trump. “There’s just not consensus on it yet and there’s complications to doing it certain ways.”

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