Congress Pushes Forward with Tax Reform Measures

This week, Congressional Republicans pushed forward with tax reform measures that could end up having a significant impact on public health. The U.S. House of Representatives passed a sprawling tax bill, while the Senate continues work on their own proposal. This week’s actions are detailed below:

House Passes Measure, Could Result in Impacts to Public Health

The U.S. House of Representatives on Thursday passed the expansive $5.5 trillion Tax Cuts and Jobs Act that is expected to significantly restructure the nation’s tax code. The House Republican measure passed 227-205, with 13 Republicans and all Democrats voting against the bill. As written, the measure would reduce the corporate tax rate from 35 percent to 20 percent, as well as reduce the number of individual tax brackets and eliminate deductions and credits available to individuals.

Notably, the House measure eliminates the medical expense deduction. The medical expense deduction permits individuals that have qualified medical expenses greater than 10 percent of their adjusted gross income for the year to deduct these costs. Qualified medical expenses have included insurance premiums, preventive care, treatment, surgeries, dental and vision care, as well as long-term care expenses for individuals with serious chronic conditions. The IRS estimated that in 2015, 8.8 million Americans utilized the medical expense deduction and claimed $87 billion in medical expenses not covered by insurance.

Further, the House tax measure is expected to result in reductions or eliminations in funding to existing vital programs over the longer-term, including the Prevention and Public Health Fund (PPHF). As a result of the Statutory Pay-As-You-Go Act of 2010 (SPAYGO), a budgetary enforcement mechanism was created to offset net deficit increases in new measures passed by Congress. Essentially, SPAYGO maintains a running tab of the deficit impact of all laws affecting direct spending or revenues, and, if at the end of a Congressional session, a net debit is present, direct spending programs must receive an across-the-board funding cut to make up for the net debit.

Given that the tax bill passed by the House would increase deficits by $1.5 trillion over the next decade, Congress will need to enact offsetting budgetary savings. If Congress does not put into place offsetting savings, SPAYGO would be triggered, resulting in massive automatic program funding cuts every year for the next ten years. Potential SPAYGO impacts include:

  • Four percent reduction in Medicare payments;
  • Elimination of funding for the Prevention and Public Health Fund (PPHF); and
  • Elimination of other program funding for items such as Social Services Block Grants and the Crime Victims Fund.

Senate Continues Work on Own Proposal, Includes Elimination of Individual Mandate

As the House passed their measure this week, Senate Republicans continue to hash out details in its own tax reform proposal. In a revised version released earlier this week, Senate Republicans propose to eliminate the Affordable Care Act’s (ACA) individual insurance coverage mandate.

Recall, the most recent Congressional Budget Office (CBO) report estimates that eliminating the individual mandate would:

  • Reduce federal budget deficits by $338 billion over the next decade;
  • Increase the number of people without health insurance by 13 million; and
  • Increase average non-group health insurance premiums by 10 percent.

Also included in the Senate’s revised version are provisions that would temporarily reduce tax rates for individuals, but permanently reduce corporate tax rates. The Senate version does not alter provisions related to the medical expense deduction as the House version does.

As Senate Republicans attempt to work through differences to secure enough votes for passage, several Republican Senators have expressed concern with some of the provisions included in the measure. Senator Susan Collins (R-Maine), for instance, has cited the elimination of the individual mandate as a potential reason not to support the measure. Recall, Senator Collins is one of the Senate Republicans who voted against previous attempts to repeal the ACA this year.

While the outlook on the Senate’s tax reform measure is uncertain at this time, President Trump and Congressional Republicans still hope to be able to strike an agreement and pass a final tax measure by the end of the year, giving them a desperately-needed legislative victory.