By Ryan Ellis
Breathless press accounts in Washington, D.C. recently would leave one believing that Obamacare “repeal and replace” is dying or at the very least losing momentum. In fact, it’s picking up a head of steam as we move into February. Much like a duck paddling ferociously under the water while presenting the image of a serenely floating mallard, Obamacare’s assisted demise is lustily grinding away in the back rooms of the United States Congress.
Nowhere is this momentum more evident than in the tax area. The way things are shaping up, Obamacare repeal and replace is going to turn into a huge tax cut. Those reading the tea leaves would do well to consult two sources as to how and why: the 2015 repeal bill, and the House GOP “Better Way” healthcare blueprint.
Congress’ original plan was to send a near carbon copy of the 2015 Obamacare repeal reconciliation bill (vetoed by President Obama) to President Trump for his speedy signature. Member sentiment, however, indicated that they would prefer to put as much “replace” on this bill as possible, in addition to the repeal.
Their reasoning is sound. The budget reconciliation process being used has the advantage of only requiring 50 votes (plus Vice President Mike Pence) to pass the Senate. Choosing another vehicle means having to get to 60 votes or more, which means that Senate Democrat Leader Chuck Schumer of New York can hold the process hostage.
Policymakers using this mechanism are limited to areas that directly touch on tax and mandatory spending, however–reconciliation’s big “catch” known as the Byrd Rule. That limits what can be done to help save Americans from an utterly failed Obamacare regime which lost 400,000 enrollees in the past year alone, saw a benchmark premium cost spike of 25 percent in that period, and saw more than a third of insurance providers drop out. The death spiral is in full force.
What does all that mean for the prospect of tax relief in Obamacare repeal and replace?
First, it means including ALL the taxes repealed in the 2015 bill. There are (by my reckoning) 20 major new or higher taxes in Obamacare. The 2015 bill repealed them all, permanently. That will also happen here. It’s important that this repeal be effective at the beginning of 2017, both to get rid of negative Obamacare taxes as soon as possible and to lower the current law’s revenue baseline for tax reform.
I have detailed each of these taxes here. The big ones are the individual and employer mandate taxes, the savings surtax, the higher Medicare payroll tax, the “Cadillac plan” tax and a host of others.
Second, leadership and committee sources tell me that health savings account (HSA) expansion is very much on the table. The details can be found in the House GOP “Better Way” health blueprint. Some of the HSA expansions include:
roughly doubling the tax-deductible HSA contribution limit for families from just under $7,000 today to just under $14,000 (half that for singles)
allowing spouses to make “catch up” contributions to the same HSA
allowing medical expenses incurred before establishing an HSA-qualified insurance plan to be paid from an HSA, provided an account is opened within 60 days
expanding HSA eligibility to groups currently excluded, like veterans and Indians
It’s not in the blueprint, but one additional change I would suggest would be to allow HSA-qualified insurance premiums to be reimbursed by the pre-tax HSA dollars. That would allow insurance premium deductibility for every American with an HSA.
The third tranche of tax relief we’re going to see in Obamacare repeal and replace is the creation of a new age-adjusted, refundable, advance-able tax credit for the purchase of health insurance. This would allow anyone not offered health insurance through their employer, Medicare or Medicaid to purchase a plan affordably.
Here’s how it would work: A family without coverage would be eligible for a tax credit to pay for insurance. This credit amount will be pegged to a typical pre-Obamacare cost of a plan. For older families the credit will be more, and for younger families it will be less. Each month, the credit would apply toward the insurance bill, with any overage the responsibility of the taxpayer. If a family chooses a plan cheaper than the credit, they can deposit the difference into their HSA.
Because the credit is not tied to income, as Obamacare’s failed tax credit is, there is no need for phaseouts, background checks, or “gotcha” true-ups at tax time. The only variable is age. Many more healthy people will choose to join insurance pools as a result, which helps spread the risk of insurance more evenly.
Some will call this part, especially, “Obamacare lite.” That would be irresponsible. It’s true that Obamacare has a tax credit, and the replacement plan will also have a tax credit. But this tax credit works very differently, is much more likely to succeed, and will prove to be far more usable and popular. Obamacare’s income-based tax credit encourages “job lock” and penalizes work. It has failed miserably, as evidenced by the implosion of Obamacare across the board.
Besides, conservatives have had a near consensus for decades now that this type of tax credit is the way to go for people who are not able to get health insurance in the two big ways we provide it in this country–via your job or via the government. There is no other practical way–outside of straight-up welfare–to get health insurance to people who can’t get it anywhere else. It’s this or nothing.
In order to help pay for this plan, employer-sponsored coverage would remain totally tax free for most Americans. Only the most gratuitously expensive plans–and only to the extent they are gratuitously expensive–would begin to lose tax-exempt status for workers. That’s a small price to pay for a portable health insurance “backpack” (as the blueprint calls it) that follows you from job to job, and into retirement.
Tax relief is on the way–just not from where you expect it. If you want a tax cut this year, Obamacare repeal and replace is your best bet.
Read more here.
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