Update 167: Tax Take on Healthcare Bill
House Speaker Sen. Paul Ryan’s press conference yesterday about the new GOP healthcare bill oozed enthusiasm for the legislation to replace the ACA, which he referred to as “a collapsing law doing real damage to families every day in America.”
The House GOP health care overhaul bill involves and implicates the tax code, the national debt, and social policy, as the vehicle for a reverse transfer payment on a scale that rivals if not exceeds the TARP legislation of 2008.
The bill is called “World’s Greatest Healthcare Plan of 2017” but a more modest and informative title might be “The Reverse Robin Hood Tax Care Act of 2017.” The tax take on the bill is below.
Shifts in Tax Liability
The plan itself retains some of the ACA, but guts much of the original sources of funding and reorganizes the qualifications for tax relief. Some major proposed changes in tax liability stem from the elimination of:
The overall tax cuts are sweeping, as they shift benefits for taxpayers from tax credits provided in an income-based model to tax credits through an age-based model. Those likely to be hit hardest by the changes are the low-earning age bookends of the groups under 30 and those over 60.
$600 Billion in Tax Cuts
The entire GOP healthcare plan – coverage and finances – is skewed heavily in the upper class’ favor. As tax credits are a key component to the new plan, those earning $250,000 or more stand to see more in tax cuts than most Americans earn annually. Americans will pay for their future healthcare plans via tax credits, the low earning end of the spectrum will see far fewer credits (in dollars) than those on the higher end.
The bill further repeals a 3.8 percent tax on investment income and a 0.9 percent tax on wages. Repealing the investment tax will reduce federal revenue by $157.6 billion over a 10-year period, the forgone revenue from the wage tax is $117.3 billion over 10 years. The overall estimates of tax cuts from the bill amount to about $600 billion.
The tax cuts extend beyond just those for high-earning individuals, as the bill also offers relief from ACA taxes to fringe industries (indoor tanning, for one) and removes the mandate requiring employers with over 50 full-time or equivalent employees to offer healthcare coverage.
Instead, companies can pay the individual employees directly the amount they would have spent on healthcare coverage, which then becomes taxable income for the employee, reducing the quality of coverage within financial reach of the individual. For those in lower-income groups, the expanded state-level qualification criteria for Medicaid coverage would evaporate after 2020.
The net effect? The bill would exacerbate inequality, reducing taxes for the wealthy at the expense of affordable insurance for millions of ordinary Americans who would lose their health coverage. Millions more will see higher premiums and out-of-pocket costs.
It would be interesting to see how the GOP’s healthcare plan measures on a progressivity scale. While progressivity is not often measured, the little known Kakwani index is used by the World Bank to understand how progressive and redistributive a healthcare system is.
Given the massive tax credits that the rich will benefit from through the plan, there is little reason to believe that the plan is progressive enough to benefit the bulk of Americans. Lawmakers might want to see where this plan falls on the Kakwani index.
As it stands, the American Health Care Act has an uphill climb to the president’s desk. In the event that it passes the House –where it may face enough opposition from the Tea Party that Democratic votes may be required for passage – it faces even greater hurdles in the Senate.
Those in the GOP are already criticizing the plan as “Obamacare Lite,” arguing that it repeals too little of the ACA and does not offer enough solutions. Others like Sen. Rand Paul and Cong. Mark Sanford spoke out together against the replacement plan yesterday and Ted Cruz mentioned his grievance with the bill –that it creates a new entitlement.
But the bill has an advantage available to legislation that qualifies for reconciliation. The Senate still has to provide for the FY 17 budget after the current budget resolution expires in April 28. Including the tax care bill as a reconciliation instruction will leave Democrats near powerless, as passage would require a simple majority, since reconciliation legislation is filibuster-proof.
In addition, the CBO rating has yet to be released, and reports vary on when that could come (March 10, according to Sen. Mitch McConnell, or March 13, according to House Minority Leader Nancy Pelosi). An unfavorable rating could scare off some additional Republican votes.