Dangers for Health Care in the GOP Tax Reform Package
The House and the Senate have passed tax packages with the same basic framework, but some key differences. They will now meet in a Conference Committee to reconcile their differences. There are multiplying dangers for health care for every American in the GOP Tax Reform Package that can be mitigated or worsened in the Conference Committee.
It starts with the budget instructions that allowed for a 50% plus 1 vote in the Senate to bypass Senate Democrats. This is based on cutting $1.5 trillion from Medicaid and Medicare over the next decade -- $1 trillion from Medicaid for the poor and $500 billion from Medicare for seniors and the disabled. The House Republicans are interested in replacing Medicare with vouchers for private insurance and extending the age to qualify from 65 to 67. Both the House and Senate Republicans are interested in block granting the Medicaid program to the states or imposing a per capita cap on the spending growth of the program. Another issue likely to surface is reducing the 90/10 match for the new eligibles to the traditional matching rate of 50/50 in California. The Trump Administration also favors imposing a work requirement to qualify for Medicaid. Despite Candidate Trump’s commitment to protect Medicare, Medicaid and Social Security, all three programs are now at increased financial risk due to the projected $1 trillion increase in the federal budget deficit due to the proposed large tax cuts for the very wealthy and the largest most profitable corporations. Keep careful watch on the budget deliberations, the fiscal cliff, a potential government shut down and their intersections with tax reform in an end of the year deal.
In the House version of tax reform, the medical expense deduction is eliminated for federal taxes. This is important primarily to seniors and the disabled in nursing homes and to middle income individuals and families with very costly conditions. The deduction is available for out of pocket medical expenses in excess of 10% of the taxpayer’s income. This “granny tax” was rejected in the Senate.
In both the House and Senate versions, caps are placed on deductions for state and local taxes (SALT). Both versions now cap the deductions at $10,000. This will impact middle and upper middle income tax payers in states like California, which rely heavily on progressive state income taxes to finance public education and health care programs. It will hurt residents of high housing cost coastal regions in Southern California, the Central Coast and the Bay Area where local property taxes are high, reflecting high local property values. Local property taxes are primarily used for public safety and public K-12 education. Both versions will pose financial challenges for Californians and California’s state and local governments. Until the last moment the Senate version would have eliminated entirely taxpayer’s deduction for state and local taxes; Senator Collins secured the $10,000 compromise in the Senate.
In the Senate version, the tax penalty for not enrolling in basic health coverage is reduced to zero. If, as estimated by the Congressional Budget Office, up to 13 million Americans decide not to enroll in public and private coverage, the CBO projects this will increase premiums in the individual market by 10% destabilizing the Exchanges and the individual market. Senator Collins secured Senator McConnell’s commitment to support 1) a reinsurance fund for high cost patients, and 2) funding for cost sharing reductions for low and moderate income, and 3) relaxing the §1332 ACA waiver requirements to give states added flexibility in administering Exchanges. There is no comparable commitment in the House where many Republicans are committed to do whatever possible to undermine the Affordable Care Act. Too many House Republicans are more than eager to eviscerate the ACA’s individual responsibility as well as wreak havoc on federal funding for low, moderate and middle-income subscribers in the Exchanges.
Due to existing law known as “Pay Go”, entitlement programs like Medicare and discretionary programs like Head Start, and Community Health Center funding must be automatically cut when Congress passes legislation, which would increase the budget deficit and the nation’s debt. So as soon as tax reform passes look for the Trump Administration and Congressional Republicans to invoke Pay Go as justification for corresponding reductions in Medicare and other health and social programs. The Conference Committee needs to exempt tax reform from Pay Go to protect Medicare and discretionary programs from automatic reductions. Senator McConnell mouthed words to the effect that Pay Go would not be invoked.
There are key differences that do not involve health programs: 1) the Senate’s reforms start one year later and sunset in 2025, 2) the Senate doubles the estate and gift tax exemption while the House eliminates it entirely for the wealthy, 3) the House has four tax brackets while the Senate has seven, making the fiscal cliffs less steep, 4) the House eliminates the alternative minimum tax for the wealthy while the Senate retains it in altered format, 5) each rewards the wealthy owning tax through businesses, but in different ways that I do not understand, 6) the Senate has a larger child care tax credit ($2,000 vs. $1,500) and 7) the Senate reduces the tax bracket for the very wealthy by 1% from 39.6% to 38.6% while the House increases the income threshold to which it applies.
As recent fiscal analyses have confirmed that 1) tax reform will not pay for itself and 2) both the Senate and House packages are overwhelmingly tilted to cutting income taxes for the very wealthy and the most profitable corporations. One might hope that the Conference Committee would mitigate the worst impacts and aspects for the middle class working Californians. Based on what occurred in securing the votes of fence sitters in both Houses, it appears that the “Swamp” is completely in charge. Unless members of both Houses hear loud, reasoned and continuous concern from local voters, the final provisions will be ever worse.
It is a shame that Democrats did not propose their own tax reforms so the American people could compare and contrast. Here would have been my starting suggestions: 1) expand the refundable tax credits, 2) increase the top tax brackets, 3) close the hedge fund carried interest loophole, 4) tighten up the alternative minimum tax, 5) expand the ACA tax credits for those purchasing individual insurance by linking them to the 2nd lowest cost gold and 6) eliminate tax breaks for the price gougers in the medical industry.
Prepared by: Lucien Wulsin
Dated: 12/4/17