Health Bill Seen as GOP's Last Chance to Repeal Obamacare Taxes

(Bloomberg) -- Congressional Republicans’ dash to undo Obamacare is about fulfilling a seven-year promise to voters. But it’s also about seizing what may be the party’s last chance to wipe out the 2010 law’s tax hikes on upper income earners.

The Senate version of the health-care bill released last week would reduce federal revenue by $700 billion over a decade, the Congressional Budget Office estimated on Monday, by repealing tax hikes imposed by the Affordable Care Act. One of the biggest revenue declines would come from retroactively repealing a 3.8 percent tax on investment income for individuals earning more than $200,000 or couples above $250,000.

The legislation would also scrap a 0.9 percent Medicare surtax on wages above those thresholds, eliminate fees on health insurance companies, delay the so-called Cadillac tax on high-cost insurance plans to 2026, and lower a hospital insurance payroll tax increase. About 45 percent of the tax benefits in the legislation would go to the top 1 percent of households by income, those making $875,000 a year or more, according to an analysis by the Tax Policy Center, a Washington policy group that’s a joint venture of the Urban Institute and the Brookings Institution.

The legislation’s path grew more complicated Monday after three Republican senators -- Susan Collins of Maine, Rand Paul of Kentucky and Dean Heller of Nevada -- said they would vote to block the current version of the bill. Republican leaders insisted they still hope to hold a final vote this week.

The House’s top tax writer, Republican Kevin Brady of Texas, said Obamacare taxes will remain if the health-care bill doesn’t pass because including their repeal in a tax-overhaul package would make it harder to lower rates, which is a higher priority for lawmakers.

“We have never planned to import that $1 trillion of taxes into the tax reform effort,” Brady told reporters on Monday, arguing that the taxes are a “a big drag on the economy” and so it’s “critical the Senate complete its work.”

Taxes Stay

To get around a lack of Democratic support for a tax-code rewrite, Senate Republicans have said they plan to use a legislative maneuver that allows for passing a bill with a simple majority. Under that procedure, however, tax cuts have to be offset so they don’t add to the long-term deficit. Otherwise, the tax changes can only be temporary.

The Affordable Care Act imposed about $1 trillion in tax hikes on high-income households and various health-related industries to help finance a coverage expansion for more than 20 million people so far, according to government estimates.

Health Bill Seen as GOP's Last Chance to Repeal Obamacare Taxes

House Speaker Paul Ryan warned in March that if Republicans fail to unwind the 2010 health-care law, “the Obamacare taxes stay with Obamacare. We’re going to fix the rest of the tax code in tax reform.”

If Republicans are unable to pass their health-care bill on a partisan vote, the fallback option could be to enlist Democratic support to fix structural deficiencies that both parties agree exist in the Obamacare marketplaces. But one thing Democrats are unlikely to support in such a proposal would be tax cuts for upper earners, a senior Senate Democratic aide said, adding that money to stabilize the exchanges should be a priority.

Other Republicans, such as Tennessee Senators Lamar Alexander and Bob Corker, have proposed an amendment to exempt people from the Obamacare individual mandate if their state exchanges provide no insurance options and permit them to use tax credits to buy a plan outside the law’s marketplaces.

Paul, the Kentucky Republican, excoriated the bill’s funds aimed at stabilizing the market as a bailout of insurers, arguing that it would mean “the rich get richer.”

William Gale, a senior fellow at the nonpartisan Brookings Institution, said Republicans have many reasons for wanting to undo Obamacare -- one of them being that it was enacted by President Barack Obama.

“The fact that it dovetails with tax cuts for high-income households certainly is convenient,” he said.