Taxes associated with the Affordable Care Act will remain untouched while congressional Republicans work on reforming the rest of the tax code, House Speaker Paul D. Ryan, R-Wis., said following the March 24 decision to pull legislation to repeal and replace the ACA from a planned House vote.
Failure to pass legislation to repeal and replace the ACA will make tax reform more difficult, "but it does not in any way make it impossible," Ryan said at an afternoon press conference. "We are going to proceed with tax reform," he added.
The latest Congressional Budget Office report on the American Health Care Act (AHCA, H.R. 1628) estimated that the legislation, which would have repealed the taxes enacted under the ACA, would have reduced revenues by nearly $1 trillion over the next 10 years. According to a March 24 memo from a senior House GOP aide, Republicans believed that "repealing these taxes first and being able to offset them with Obamacare spending cuts makes tax reform almost 1 trillion dollars easier to achieve by lowering the CBO baseline."
But according to Ryan, failure to pass the AHCA "just means the Obamacare taxes stay with Obamacare. We're going to go fix the rest of the tax code."
Similarly, House Ways and Means Committee Chair Kevin Brady, R-Texas, acknowledged that the AHCA's failure will make tax reform more challenging but said that the challenge is "nothing that is insurmountable." He also told reporters that repeal of the ACA's taxes would not carry over into tax reform. Brady said he wants to avoid dwelling on the AHCA and that Republicans are "going full steam ahead" on tax reform.
President Trump also said in a press conference at the White House that his administration will move on to tax reform -- "which we could have done earlier." Those comments echo remarks made earlier this month at rallies in Nashville, Tennessee, and Louisville, Kentucky, at which Trump indicated he would have preferred doing tax reform first instead of healthcare reform.
The senior House GOP aide's memo explains that Republicans had decided to tackle repealing and replacing the ACA before moving to tax reform because the House, Senate, and White House haven't come to an agreement on a specific tax reform plan. "On repeal and replace, there is agreement," the memo says. "Even if there was agreement, tax reform takes a long time. Drafting tax legislation takes months. Regardless of the health care debate, we would not be ready to move until the summer anyway."
Differences have persisted between the House, Senate, and White House over the border-adjustable tax proposal in House Republicans' "A Better Way" tax reform blueprint, but Brady expressed confidence that tax reform will ultimately include a border adjustment "with modifications."
"We've still got a lot of work to do with the White House," Brady said, noting that his office has had "a lot of discussions" with the Trump administration about how to change border adjustments in tax reform. While he ruled out carveouts for specific industries, Brady said, "We are exploring a number of options with the import industry."
Treasury Secretary Steven Mnuchin said earlier the same day that the current version of the border-adjustable tax is unlikely to be part of the White House plan on tax reform.
Not So Fast
Ways and Means member Kenny Marchant, R-Texas, told reporters that Republicans will be more successful as they transition to working on tax reform. "We started to prepare for tax reform right after the election," Marchant said. "Remember, healthcare reform was a multi-committee process, so our committee was not as in control as we will be in tax reform."
However, several stakeholders consider tax reform more complicated than Trump and others suggest, especially with Republicans abandoning the AHCA and leaving the ACA's revenues in place.
George K. Yin, former chief of staff of the Joint Committee on Taxation, explained that without repeal of the ACA taxes, tax reform will have to generate more revenue. Failure of this attempt to repeal and replace the ACA also "diminishes the president's ability to convince Congress to take a tough vote on some other important initiatives, such as a controversial tax reform bill," he added.
"It also diminishes the president's stature in the public's eye, which also hurts his ability to bend Congress in his favor," said Yin, now a professor at the University of Virginia School of Law.
Mark Mazur, former Treasury assistant secretary for tax policy and now director of the Urban-Brookings Tax Policy Center, told Tax Analysts that failure of the AHCA might force Republicans to revisit the idea of whether they can pass "big, complex, hard" legislation with only Republican votes. He noted that the AHCA is substantively a tax bill and that major parts of the tax code unrelated to healthcare are in the bill, such as the 3.8 percent net investment income tax.
Scott Greenberg of the Tax Foundation said failure of the AHCA "is not as bad for tax reform as many people imagine." How much the AHCA failure affects a tax reform bill depends on how intent lawmakers are on repealing ACA taxes compared with other taxes, he said.
Greenberg pointed out that Congress could scale back other tax cuts instead of repealing ACA taxes and that lawmakers could find other tax expenditures outside the framework they have been using. One option that Greenberg described as difficult politically but logical conceptually would be financing the repeal of ACA taxes by capping the exclusion for employer-sponsored health insurance.
Healthcare Next Steps?
At his press conference, Ryan said he wasn't sure what the next step for addressing healthcare would be, telling reporters, "Obamacare is the law of the land; it's going to remain the law of the land until it's replaced. We did not have quite the votes to replace this law, and so we're going to be living with Obamacare for the foreseeable future."
Earlier in the afternoon, Ryan spoke to Trump, who agreed with Ryan to cancel the scheduled vote on the AHCA just hours before it was to be held, according to Ryan.
Overall, the AHCA was a good bill, Trump told reporters after the vote was canceled. He blamed Democrats for the failure of the bill, saying, "When you get no votes from the other side -- meaning the Democrats -- it's really a difficult situation." He predicted that the ACA would collapse and that Democrats would participate in drafting a new bill then.
The AHCA would have repealed most of the tax increases enacted under the ACA, including the NII tax, the medical device excise tax, the 10 percent sales tax on tanning services, and the annual fees on pharmaceutical manufacturers and health insurers. The latest manager's amendment to the bill, released late March 23, would have retained the 0.9 percent Medicare surcharge on high-income earners for six years.
That manager's amendment, which also would have eliminated the ACA's essential health benefits, was introduced as a last-minute attempt to appease both conservative and moderate House Republicans after an expected March 23 vote on the legislation had to be postponed for lack of support.
Brady said the AHCA's failure indicates a need for greater engagement with his fellow lawmakers about the reconciliation process, in addition to policy substance.
"One lesson is that we have a lot of new members who are still learning about the constraints of reconciliation and these odd Senate rules that can put guardrails around what the House wants to do," Brady said. "Those same guardrails just apply differently [but] will be present in tax reform."
David van den Berg, Jonathan Curry, and Luca Gattoni-Celli contributed to this article.