Even as House taxwriters touted passage of the American Health Care Act and its impact on tax reform, Senate lawmakers promised to make major changes to the legislation in order to win approval under the upper chamber’s strict budget reconciliation rules.
The AHCA (H.R. 1628), which passed the House May 4 on a 217-213 vote, would eliminate nearly $1 trillion in taxes enacted as part of the Affordable Care Act that House Ways and Means Committee Chair Kevin Brady, R-Texas, called a “major drag on our economy.” Brady told reporters that the House’s action would create momentum among congressional Republicans for tax reform.
Ways and Means member Tom Reed, R-N.Y., also touted the flexibility for tax reform that final passage of the AHCA would bring lawmakers, telling Tax Analysts that repealing the ACA would open up “baseline issues” and “revenue neutrality possibilities.”
The House-passed bill would retroactively eliminate many of the ACA’s tax provisions to the beginning of 2017, including the 3.8 percent net investment income tax and the medical device excise tax. The measure would eliminate the tax on tanning salons, reduce the income threshold for the medical expense deduction, and delay implementation of the “Cadillac” tax on high-cost healthcare plans for one year, until 2026. It also would provide a new refundable tax credit for the purchase of health insurance and would expand the use of health savings accounts.
Although Reed called the May 4 vote “a great step forward,” he acknowledged the difficulties ahead, saying he would be “dreaming” if he thought the Senate would simply rubber-stamp the House bill. “I think obviously the Senate is going to weigh in. Hopefully they improve the bill, and we’ll see what comes out of the Senate down the road,” he said.
To win the necessary votes for House passage, Republicans agreed to change the coverage requirements for preexisting conditions; however, those and other last-minute amendments to healthcare policy were not scored by the Congressional Budget Office. The CBO in March estimated the underlying bill would leave 24 million additional Americans without insurance by 2026. The CBO also estimated the AHCA would reduce federal deficits by $337 billion from 2017 to 2026.
House Democrats criticized the legislation for its focus on lowering taxes for wealthy Americans, and promised to remind voters in the upcoming 2018 elections.
“This bill was about tax cuts and not about the health care of the American people,” Ways and Means member John B. Larson, D-Conn., said in a statement. “Consider the fact that the 400 wealthiest Americans will receive, on average, a $7 million tax cut, while 24 million people will lose their health insurance.”
Senators See Changes Ahead
Senate Finance Committee member John Thune, R-S.D., told reporters that the AHCA, in its current form, may not meet the requirements to qualify for a simple majority vote under the Senate’s budget reconciliation rules. “There are questions about that,” he said. “But I think the more important question in the Senate is what we take up and ultimately take to the floor, whether it can withstand a Byrd challenge.”
Under the so-called Byrd rule, Senate lawmakers can strip out provisions that have no budgetary impact. Also, legislation cannot increase deficits in the long term outside the budget window — typically 10 years — so the AHCA’s tax policies may have to have sunset dates, much like the 2001 and 2003 Bush tax cuts did.
Senate Rules Committee Chair Roy Blunt, R-Mo., told reporters that the controversial provisions in the AHCA dealing with preexisting conditions and the definition of essential health benefits may be scrapped if they cannot move through the budget reconciliation process. Those amendments were key to winning support from House Republican moderates and conservatives.
“I think it’s safe to say that while there’s a lot of interest in the Senate, the Senate has largely been waiting to see if and when the House got its job done before we look carefully at what that final bill was,” Blunt said.
Thune added that he expects the Senate to work on a “separate process” to produce healthcare legislation. “There are a lot of features in the House bill that we will build on, I’m sure. There’s probably some parts of the bill we like, and I’m sure there are parts the Senate will have different ideas about,” he said.
Thune told reporters that an amendment to implement a means test for the AHCA’s refundable tax credit, increasing the value for low-income families, “is still very much in play.” He added that House leadership understands that senators want to change the bill’s tax credit provisions.
Republican Sen. Rand Paul of Kentucky, a vocal opponent of the AHCA, told reporters he would like to bend the legislation to his liking. “I’m still open-minded, and I do want to vote for a repeal bill, but I’m still troubled by the fact there are hundreds of billions of dollars in this bill that would go from the Treasury — the taxpayers’ money — to insurance companies, and I don't like that,” Paul said.
Finance Chair Orrin G. Hatch, R-Utah, said that it is important to repeal and replace the Affordable Care Act before being able to tackle tax reform. He said that Republicans are not yet on the same page because “there are a thousand different ideas on what tax reform should amount to,” and that for fundamental tax reform to occur, Democrats must get “over their dislike for the president.”
Hatch also said that while it is likely that the Senate version of the healthcare bill will have to be more moderate in order to get 60 votes, it is “very unlikely we’ll ever get any Democrats on board,” adding, “There’s not a lot of indication that they’re going to help us pass anything.”
However, Hatch said that he doesn’t think that the Senate necessarily needs to get 60 votes. “That may be the final result, but I think there’s a chance that we might be able to do it even in reconciliation. If that’s so, it only takes 51 votes and we have those votes, I think,” he said.
Impact on Tax Reform
The House vote came a little over a month after a March 23 failed attempt by Republicans to pass legislation in the House, when conservative and moderate lawmakers differed on how much of the ACA to repeal. At the time, President Trump and other top Republicans indicated they would pivot from the healthcare reform effort to tax reform.
Ways and Means Tax Policy Subcommittee Chair Peter J. Roskam, R-Ill., told reporters the AHCA’s passage provides “momentum” for working on tax reform when the House returns from recess the week of May 15. Asked whether the AHCA would make tax reform easier, Roskam suggested the savings from the healthcare legislation are “helpful on that front, but not dispositive.”
Ways and Means member James B. Renacci, R-Ohio, told Tax Analysts that passing the AHCA allows the committee to shift its focus solely to tax reform. He added that the healthcare tax savings in the AHCA would not directly relate to the business tax rate reductions, but may help on the individual side. “The president also talks about reducing individual rates; so does the blueprint, and this does help get those rates down,” he said.
But Ways and Means member Kenny Marchant, R-Texas, told reporters that savings from the AHCA would make it easier to reduce corporate and passthrough business income tax rates to 15 percent in tax reform — but “not quite halfway,” and would still require a “significant pay-for to get down” to that rate. “It will take a whole lot less growth to cover it,” Marchant said.
Among the 20 House Republicans who voted against the AHCA with Democrats were Ways and Means members David G. Reichert of Washington and Patrick Meehan of Pennsylvania.
Asha Glover and David van den Berg contributed to this article.
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