By Ryan Ellis
Senate Republicans today released version 2.0 of their Obamacare “repeal and replace” bill, the Better Care Reconciliation Act (BCRA).
This version of BCRA is a major lurch to the Left from the original BCRA and conservatives supporting this process have some things to think about.
A Tax Hike on Small Businesses and Savers
The major departure from the original BCRA is that v2.0 fails to repeal the 3.8 percentage point Obamacare surtax on capital gains, dividends, and other savings (the “net investment income tax,” or NIIT). It also fails to repeal the 3.8 percentage point tax bracket for the self-employment tax and the payroll tax ostensibly earmarked for Medicare.
In failing to do so, v2.0 of BCRA raises taxes by over $230 billion over a decade relative to v1.0 of BCRA.
It’s worth noting that this is the first Obamacare repeal bill (that tries to advertise itself as such) ever to fail to repeal these taxes. That’s because these tax increases were put in place by Obamacare, and any bill that seeks to repeal Obamacare has no good reason not to repeal these taxes on small businesses, savers, and investors. There are no process or parliamentary reasons. It’s simply a matter of will and conservative instinct.
These tax increases affect families and businesses making as little as $200,000 per year. This figure is not indexed to inflation. Over time, these tax increases will draw in more and more Americans, essentially creating a brand new AMT. It was bad enough when Obama and the Democrats put this tax in place–it’s especially bitter when a Republican Senate has just endorsed this tax increase on a permanent basis.
Many senators, even conservative senators like Mike Lee of Utah, are supportive of this permanent tax increase remaining in place. They feared the appearance of cutting taxes on “the affluent” while making needed changes to Medicaid by stabilizing its rate of growth. Well, the bill retains plenty of tax cuts on “the affluent”–affluent multi-national corporations, that is. The draft, while absolutely slamming small businesses and savers, cuts Obamacare taxes on the medical device industry, health care providers, Big Labor “Cadillac” health insurance plans, etc. It’s a little difficult to understand why removing Obamacare taxes for Main Street businesses was too heavy a lift, but that it wasn’t difficult at all to cut taxes for unions and giant health care conglomerates.
The Senate voted as recently as 2015 to remove these tax increases. Back then, they passed a reconciliation bill which repealed as much of Obamacare as could be struck under those parliamentary rules. This of course included ALL the tax increases in Obamacare, as well it should. This same bill also ended all Obamacare tax credit subsidies for individuals and the Obamacare expansion of Medicaid, after a two year “off ramp.” Senators back then had no problem with all of that being in one bill. BCRA retains generous tax subsidies for individual market purchase and has a far more gentle rollback of Medicaid, but strangely conservative Republican senators are less comfortable now than they were back then.
Main Street businesses and conservative grassroots groups demand tax relief
The S-corporation Association organized a joint letter with 40 employer groups to urge the Senate to do what it has promised over and over again and repeal these tax increases. The letter explains that the tax hikes in question are not just on portfolio income, but also self-employment profits, and certain income of S-corporations, partnerships, and LLCs.
Citing research from the Tax Foundation that I have also used, the letter points out that: “repeal would raise employment by 133,000. The economy would be 0.7 percent larger, and wages about 0.6 percent larger. The income gains would be spread over all income levels. After-tax incomes in the bottom 80% of the income distribution would be about 0.65% higher than with the tax in place. They would share in the gains.”
Prior to this letter from 40 employer groups, some 47 conservative groups (including Americans for Tax Reform, the National Taxpayers Union, the Club for Growth, and Freedom Works) sent a letter to the Senate urging that ALL the tax increases imposed by Obamacare be repealed, including most especially the two that Senate Republicans endorsed today. That letter said, in part: “Obamacare taxes directly suppress economic growth. The best example of this is the 3.8 percent so-called Net Investment Income Investment Tax on capital gains and dividends… A related tax hike is the 0.9 percent Medicare surtax on wages and self-employment income…”
Senate GOP tax capitulation endangers tax reform
The decision to endorse a higher tax rate on small businesses and savers has repercussions beyond the health care debate. This unwise move–which clearly has only been done in a vain and futile attempt to virtue signal appease moderates and the mainstream #fakenews media–will complicate tax reform greatly.
Already facing challenges in how tax reform is paid for, the Senate GOP endorsement of these taxes means that tax reformers will have a revenue baseline target $230 billion bigger than they did before. That means they will either have to leave these tax increases in place (as they have warned they might have to do), or pay for their removal by sacrificing other areas of tax reform. Will the death tax not be fully repealed? Will full business expensing have to give way to 50 percent bonus depreciation? Will rates not be able to come down as much on businesses or families? Who knows? But the cowardice of the Senate GOP today will have a real impact on tax reform tomorrow.
There is still time for the Senate to do the right thing here. They should restore this tax relief to the bill. If restoring it in full is too heavy a lift, it should at least be restored partially. The House delayed the self employment/payroll tax relief until halfway into the budget scoring window. Perhaps the Senate could do the same with both that tax and the NIIT. What is not acceptable to conservatives is to endorse keeping these Obamacare taxes in place permanently, as has been done today.
The Democrats should not be able to raise taxes on Main Street businesses and savers, only to have Republicans who promised to repeal these taxes instead affix them with a seal of approval.
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