Senate Republicans started their Obamacare repeal bent on undoing the health care law’s taxes on wealthy Americans. But, after an embarrassing setback this week, a consensus is quickly developing as they search for a deal to keep some of the law’s taxes in place after all and use the revenue to help poor and middle-class people get health insurance.
That would be a major shift. Obamacare was one of the most significant redistributions of wealth in American history. It levied significant taxes on investment income and high earners to pay for health insurance for the middle class (who got tax credits to buy insurance through the law’s exchanges) and the poor (who benefited from an expansion of Medicaid). The most recent Senate bill to repeal and replace the law is functionally a $660 billion tax cut for the wealthy paid for by cuts to, primarily, Medicaid.
But faced with the political peril of cutting taxes for the rich in a bill projected to lead to 22 million fewer Americans having health insurance, many GOP senators are softening their stance. They want to keep some of the taxes, at least for a while, to increase the financial assistance for poor and middle-class Americans to buy insurance and possibly to ease the cuts to Medicaid currently in the bill.
Keeping the taxes in place would be a remarkable concession. A feature of Obamacare particularly anathema to conservative orthodoxy would remain in place. But it might be their best shot to save a faltering bill, particularly if it is accompanied by a concession to conservatives on rolling back Obamacare’s insurance reforms.
“Leaving it as it is where you’re repealing that tax and at the same time not providing lower-income citizens with enough money to purchase health plans, that’s not a sustainable proposition,” Sen. Bob Corker (R-TN) told reporters Thursday, “and certainly not one worthy of becoming law.”
Obamacare increased taxes on the wealthy and health care industry
The 2010 health care law levied a number of taxes on the health care industry and on on high earners to pay for its expansion of the social safety net. It instituted a 3.8 percent tax on investment income above $200,000 for an individual, and an additional 0.9 percent tax on any income above the same level.
It also taxed health insurance companies, drug manufacturers, and medical device makers. The revenue was spent on helping the poor and middle class get health insurance, through an expansion of Medicaid and tax credits that helped people buy health insurance on the individual market.
Republicans have campaigned against those taxes as job killers for years. In the House and under the initial GOP plan, they all would have been repealed. At the same time, financial aid would be reduced for private insurance and Medicaid would be cut.
But now, faced with a bill unpopular with the public that couldn’t get to 50 votes, Republicans are having second thoughts. They still want to repeal the health care industry taxes, which they argue increase health care costs and therefore insurance premiums. But they are softening on the investment tax in particular.
Keeping the investment tax would give the federal government an additional $144 billion over the next 10 years to spend elsewhere in the bill, according to the Joint Committee on Taxation. Keeping the other tax on high earners would add another $58 billion to the pot.
That’s a lot of money for Republican leaders to funnel to the priorities for their moderate members, a half dozen or more of which are opposed to the legislation as is.
Consensus is growing to keep some taxes on the wealthy to pay for increased aid
More moderate Republican senators started agitating this week to keep some of the Obamacare taxes to beef up the financial aid for lower-income Americans and possibly reduce the $772 billion in Medicaid cuts that the Senate bill currently contains.
“The challenge is if we do things, we also have to find a way to pay for it,” Sen. Mike Rounds (R-SD) told reporters Wednesday. “I think we ought to to take a look at the investment tax that’s in the system and whether or not it would be appropriate to allow that tax to remain so that we can afford to pay for some of these additional costs.”
They have distinguished between the taxes on the health care industry, which they believe increased health care costs and therefore insurance premiums, and the taxes on wealthier Americans. Even moderates say they’re fine with repealing the former. But they’re less comfortable with undoing the latter while also reducing assistance for less affluent Americans.
The Senate bill currently ends the generous funding for Obamacare’s Medicaid expansion and places a federal spending cap on the program for the first time. The result, a decade from now, is projected to be a $772 billion spending cut and 15 million fewer Americans enrolled in Medicaid. The plan would also scales back the financial aid that middle-class Americans receive to buy private insurance, compared to what they receive under Obamacare. It adds up to 22 million fewer Americans having insurance in 2026, compared to Obamacare.
“I do not see a justification for doing away with the 3.8 percent tax on investment income because that is not something that increases the cost of health care,” Sen. Susan Collins (R-ME) said Wednesday. “I distinguish between those tax increases that were part of Obamacare that increase premiums and the cost of health care versus those that do not.”
Sen. John Thune (R-SD), the No. 3 Republican, said the Senate could increase the size of the tax subsidies people receive for private health coverage and they could be willing to increase the eligibility threshold.
Obamacare provides subsidies up to 400 percent of the federal poverty level, about $48,000 for an individual. The Senate’s plan would currently reduce eligibility to 350 percent, though it also expands it to Americans below the poverty line who are not currently eligible for tax credits under Obamacare. They were supposed to be covered by Medicaid expansion, but nearly 20 Republican-led states have refused to expand the program after the US Supreme Court made it optional.
Rank-and-file senators whose votes aren’t thought to be in jeopardy are receptive to the idea.
“I think that’s an option that people are open to,” Sen. Marco Rubio (R-FL) told reporters. “I am, but only if it’s part of a plan that works.”
The pressure to deliver on legislation that they can at least claim is repealing Obamacare is clearly weighing on Republican senators. It has consumed their first six months in full control of Washington and threatened other priorities like tax reform.
“If that’s what it takes to get an agreement, that’s what we’ll have to do,” Sen. Chuck Grassley (R-IA) said.
Conservatives will have to accept it, perhaps in exchange for their own win
This would be a major concession for McConnell, the man who has swept Republicans into power through a political strategy built on opposing Obamacare.
“McConnell is addicted to hating the ACA,” one Republican health care lobbyist told me. “So he reacts negatively to anything that smells of keeping it.”
Keeping any of the Obamacare taxes, particularly to increase government assistance, will also be a tough concession for the most conservative senators.
“I’m for repealing Obamacare, which includes all of the taxes in Obamacare,” Sen. Rand Paul (R-KY), the Republican most bent on full repeal, told reporters.
The most business-minded senators, like former Club for Growth president Sen. Pat Toomey (R-PA), also blanched at the emerging consensus on maintaining some of the health care law’s taxes.
“I’ll be shocked if that tax increase is not repealed,” Toomey said. “We said we would repeal Obamacare. I don’t remember anyone going around saying, ‘Oh, except for these job-killing tax increases.’”
So a critical mass of conservative senators have said, at least for the time being, that they would oppose keeping the taxes. Senate Republican leaders can lose only two of their 52 members and still pass the bill.
“No, of course not,” Sen. Ted Cruz (R-TX) told reporters when if he’s open to leaving some of the taxes. “I think one of the central issues in this election was support for tax cuts and tax reform.”
But he ignored a question about whether it would be a deal-breaking issue for him.
It’s possible that if conservatives like Cruz were given a concession on Obamacare’s insurance regulations, which they are desperate to roll back, they would be willing to accept maintaining some of the law’s taxes. As Vox reported on Thursday, the primary conservative demand right now is this plan from Cruz: Allowing health plans that sell an Obamacare-complaint plan in a state to also sell non-compliant plans.
At the same time a consensus is building around the Obamacare taxes, Senate leadership is signaling an openness to adding the conservative proposal — as long as it would comply with the Senate’s procedural rules and not drive moderates away. It would also risk sending the Obamacare markets into a death spiral, unless the federal government committed to robustly subsidizing the market indefinitely.
“I think it could. It obviously has to be structured in a way that ensures that the pools aren’t adversely affected,” Thune told reporters. “I think that’s important to him and, frankly, in the interest of giving people more options and more freedom to get the policy that they want, I think there’s some value in what he’s trying to put forward, but it’s gotta be workable.”