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Senate Obamacare Repeal And Replace Bill Cuts Taxes By $700 Billion

By Ryan Ellis

The Congressional Budget Office (CBO) today released their score of the “Better Care Reconciliation Act of 2017” (BCRA). There’s the usual nonsense about how millions of people will lose coverage (which only makes sense if you think the individual mandate is a good idea or that using an outdated Medicaid coverage baseline is sound actuarial science), all of which can be safely ignored as #fakenews.

The tax side is pretty straightforward, however. It’s a tax cut of $700 billion, achieved by repealing all the tax hikes in Obamacare and expanding health savings accounts (HSAs). Three quick thoughts:

BCRA provides an immediate, pro-growth, pro-jobs shot in the arm to the economy. By far the most under-reported upside to this bill is the immediate (indeed, retroactive) capital gains and dividends tax cut. By repealing the “net investment income tax” (NIIT) of 3.8 percentage points, BCRA results in a right-now cut in the all important investment rate from 23.8 percent to 20 percent. Investors will be surprised at this capital gains tax cut, and markets should respond accordingly. Much credit goes to the 47 conservative groups who urged that this tax cut be unchanged from the House version. BCRA will make health care cheaper in part by cutting taxes on health care goods and services. Who thought it was a good idea to raise the price of health care by raising taxes on health care? Obamacare did. BCRA reverses this stupidity by getting rid of the dozens of higher taxes on health care. Gone will be taxes on medical devices, pharmaceuticals, health insurance companies, “Cadillac” health insurance plans, HSAs, flexible spending accounts, catastrophic medical bills, over the counter medicines, and drugs for seniors.

Instead of raising taxes on health care, the bill repeals old tax hikes and cuts new taxes. Gone are the tax penalties associated with the individual and employer mandates. And if you have an HSA, you can contribute roughly double what you can now, starting next year.

BCRA is an important part of getting tax reform done. Passing BCRA is essential to getting tax reform done for several reasons. First, it lowers the current law revenue baseline by $700 billion, meaning tax reformers will need to raise that much less to achieve revenue neutrality under current law. Next, it lowers tax rates on capital gains and dividends immediately, and on small business and wage income starting in 2023 (more on that last part below). It’s a lot easier to get to a capital gains rate in the teens if your starting point is 20 percent and not nearly 24 percent. Finally, BCRA’s tax relief resets the distributional table of the tax code in a way that makes designing a pro-growth system a little easier. If you care about tax reform, you should care about BCRA.

There’s only one fly in the ointment, tax-wise. As part of their attempt to make sure they achieved deficit reduction, the House of Representatives got nervous and delayed the planned reduction in the Medicare payroll and self-employment tax top rate from 3.8 percent to 2.9 percent until 2023. It’s now clear they didn’t need to do that, as BCRA is a deficit-reducer of $321 billion over a decade according to CBO. The Senate ought to make taxpayers whole here, and give back what was taken away by the House bill–restore the payroll and self employment tax cut to the same schedule as the rest of the tax relief. By my back of the envelope calculations, this should only reduce the deficit reduction by about $100 billion, leaving plenty of room for the rest of the bill’s cost savings. A tax cut on wages and the self employed would be a wonderful addition to an already very good tax title.

Read more here.

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