Republicans Are Having Second Thoughts About Scrapping Obamacare Taxes
Policy + Politics

Republicans Are Having Second Thoughts About Scrapping Obamacare Taxes

Flickr / Alex Proimos

With only weeks to go before the GOP-controlled Congress begins work on legislation to repeal the Affordable Care Act, Republican lawmakers and staff are struggling to address potentially catastrophic effects of killing off the program without a suitable replacement in hand.

Until now, GOP lawmakers’ biggest challenge has been to convince consumers, insurers, the hospital industry and others that the process will be gradual – perhaps taking as long as two to three years to implement – and that the 20 million or more people who obtained coverage under Obamacare and the expanded Medicaid provision will not abruptly lose their plans.

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However, it is now dawning on the Republicans that repealing the dozen or so major Obamacare tax increases along with the premium subsidies for low and middle-income Americans would seriously crimp their effort to devise and finance a substitute health insurance program down the road.

Obamacare is financed by a combination of tax increases, Medicare tax increases and cost-saving measures, and other federal and state tax revenues. When Congress passed the Affordable Care Act in 2010, it required hospitals, the health insurance industry, medical device manufacturers and pharmaceutical companies to share in the cost because of the huge profits they would likely accrue from millions of new paying customers.

Republican critics of Obamacare have long derided these additional taxes – especially the 2.3 percent medical devices tax, a 10 percent tax on indoor tanning services, and taxes on brand-name drugs and health insurance companies selling policies on and off the government exchanges as millstones around the necks of businesses large and small.

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They have also targeted two other Obamacare tax hikes on the earnings and investments of those making more than $250,000 a year.

But there is compelling evidence that if the Republicans go ahead next month and scrap all the taxes hikes as part of an overall repeal of the Affordable Care Act, they will not have enough revenue to finance a replacement plan.

Obamacare operating costs are likely to total $1.24 trillion between 2019 and 2026, according to the Congressional Budget Office. A new Brookings Institution analysis released earlier this week estimates that only 40 percent of that total – or $496 billion – would be available to finance a Republican replacement over that same period if all the existing tax provisions were scrapped.

The Republicans could generate as much as $850 billion of the total needed through a number of budgetary and tax maneuvers, including the use of “dynamic” budget scoring to claim $200 billion of new revenues through economic expansion. There is also talk of capping the tax exclusion for employer-provided health insurance to pick up another $100 billion or so.

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Still, they would fall far short of the resources they would need if they repealed all the tax hikes mandated by the ACA.

 “These tax cuts would make it much more difficult to achieve a sustainable replacement plan that provides meaningful coverage without increasing deficits,” wrote Loren Adler, a Brookings health policy expert, and Paul Ginsburg, a senior fellow in economic studies.

Meanwhile, the liberal-leaning Center on Budget and Policy Priorities warned in another report that Senate and House GOP leaders might attempt to raid the Medicare and Medicaid healthcare programs to underwrite their replacement plan should Congress repeal all of the existing Obamacare taxes.

“Given Republicans’ opposition to revenue increases, such as those used to fund the ACA, they most likely would turn to Medicaid and Medicare as their primary source of savings to finance a replacement measure,” the report stated.

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According to The Hill, Republican House Ways and Means Committee members discussed the possibility of preserving some of the Obamacare taxes during a legislative retreat last week at the Library of Congress.

While no firm decisions have been made by House Speaker Paul Ryan (R-WI) and Senate Majority Leader Mitch McConnell (R-KY), it now appears unlikely that the Republicans will seek an across the board elimination of all the taxes. Some of the Obamacare taxes could be preserved as part of a larger tax reform bill later in the year, according to the report.