Congress will be in their favorite status next week, recess, a.k.a. vacation. After 85 days of President Donald Trump’s administration both Trump and the Republican controlled Congress are desperate to accomplish something.
Clearly their preference was to first pass a repeal and replacement of the Affordable Care Act known as Obamacare and then tackle tax reform. But intra-party wrangling over the GOP’s American Health Care Act (AHCA) prevented them from even taking a vote on this legislation. So what does that mean for tax reform?
Republicans want to pass both the AHCA and tax reform under a budget procedure in the Congressional Budget Act of 1974 (CBA) called reconciliation. This procedure limits debate on reconciliation legislation to 20 hours and avoids a filibuster by Democrats. But it has some drawbacks too. Due to a section of the CBA called the Byrd Rule, reconciliation legislation must not increase deficits beyond 10 years and it must not contain “extraneous” provisions that do not affect federal spending or revenues.
The AHCA would not repeal and replace Obamacare; it would simply amend it. The Obamacare requirements that insurers cover people with preexisting conditions and that health care policies include coverage for certain basic health care benefits, among other provisions, do not affect federal spending or revenues. Therefore any attempt by the AHCA to repeal those Obamacare requirements in a reconciliation bill would be invalid extraneous provisions. That is why Sen. Rand Paul (R-Ky.) and others called the AHCA “Obamacare lite.” And that’s why the Freedom Caucus would not support the legislation. These Republicans wanted to eliminate virtually all the most popular benefits of Obamacare.
Speaker Paul Ryan (R-Wis.) wants to enact a revenue neutral tax reform plan that eliminates the estate tax and the Alternative Minimum Tax and lowers rates for the wealthy. Revenue neutral means the plan will collect the same amount of revenue as projected under current law and will not increase the deficits. This is important because in order for Republicans to use the reconciliation procedure to pass permanent tax reform the CBA requires that the legislation not increase the deficit beyond 10 years. If it does, it must expire in 10 years like President George W. Bush’s tax cuts. Ryan wants his tax reform to be permanent.
Repealing and replacing Obamacare with the AHCA before moving on to tax reform accomplishes two things for Republicans. The AHCA would eliminate most of the Obamacare taxes and reduce revenues over the next 10 years by around $1 trillion. And because the AHCA reduces spending by $1.15 trillion over that same period the revenue loses would be more than offset so currently projected deficits would be reduced by $150 billion. Both of these results facilitate Ryan’s budget plans and his tax plan.
First, any time Republicans can claim to reduce budget deficits, they are thrilled. But the AHCA would not only reduce deficits, it would cut $880 billion in Medicaid funding and virtually eliminate that program as an entitlement. Make no mistake, Republicans are eager to wage all-out war on entitlements, including Medicaid, Medicare and Social Security.
Second, reducing currently projected revenues by $1 trillion would mean Ryan’s tax plan does not have to collect as much revenue to be revenue neutral. The Congressional Budget Office (CBO) projects revenues of $42 trillion for fiscal years 2017 through 2026 under current law, which includes Obamacare taxes. Ryan would much prefer to structure his tax plan to collect $41 trillion to be revenue neutral. That enables him to give an even bigger tax cut to the wealthy.
Ryan also wants to include a border adjustment tax in his plan. This tax would increase revenues by around $1 trillion over 10 years, which would also allow Ryan more flexibility to cut taxes. Unfortunately for Ryan there are powerful lobbies like Walmart and other importers that are strongly opposed to this tax and I am not sure the White House supports it either.
Well, Republicans may make another attempt to pass a revised AHCA before the end of the recess or shortly thereafter and Trump seems to be in agreement. But they may attempt to combine a revised AHCA and tax reform in a single reconciliation bill. Or they may attempt reconciliation legislation with just tax reform and abandon health care reform. Frankly, I don’t think they know what to do.
We probably won’t know what Republicans will try to salvage Trump’s first 100 days until they come back from recess and reconvene on April 25. But immediately they must pass legislation to fund the government for the remainder of FY 2017 or cause a partial government shutdown on April 29.
Wouldn’t it be ironic if the government shut down on Trump’s 100th day in office? And wouldn’t that be apropos based on what he has accomplished since he was inaugurated?