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The Senate Republican leadership released its closely-held alternative to the Affordable Care Act this morning. When it comes to taxes, the proposal looks a lot like the House-passed American Health Care Act: A trillion-dollar tax cut that would mostly benefit high-income households and health care businesses.
Like the House bill, the Senate plan would repeal the tax increases included in the Affordable Care Act. Those include the 3.8 percent net investment income tax (on dividends, interest and capital gains) and the 0.9 percent payroll tax surcharge aimed at individuals with incomes of $200,000 or more (couples making $250,000). The net investment tax would be repealed retroactively to Jan, 2017 but the Medicare surcharge would stay on the books until 2023.
The bill would also pick up the House version’s more generous Health Savings Accounts and Flexible Savings Accounts, and repeal ACA taxes on several health-related businesses including insurance companies, pharmaceutical companies, medical device makers, and even tanning salons. Both bills would also delay to 2026 the effective date of the Cadillac tax on generous employer-sponsored health plans.
One difference between the two proposals: The House bill would allow people to take a tax deduction for medical costs that exceed 5.8 percent of income instead of 10 percent under the ACA. The Senate bill would set the threshold at 7.5 percent, where it was before the ACA.
Like the House bill, the Senate bill would scrap the ACA’s penalty taxes on individuals without health insurance and on businesses that don’t offer coverage to their employees.
At the same time, the Senate bill would retain ACA-like tax credits to help low- and some moderate-income people purchase individual insurance. Its version is somewhat different than the House design, however. And sorting out the effects of the new version will be challenging since it is extremely complex.
In general, where the ACA’s credits are aimed at low-income buyers, and the House credits are mostly targeted to a buyer’s age, the Senate credits would be based on a complex formula of age and income.
The Senate would set those credits against a benchmark that appears much less generous than the ACA. As a result, consumers would either have to pay more for coverage or purchase skimpier policies.
While the Senate bill would provide larger credits to low-income people age 50-64 than the House version, it would permit insurance companies to charge people over age 50 up to five times more than they charge younger buyers for the same coverage (a provision also in the House bill). Thus, even if the Senate subsidies are somewhat more generous than the House, out-of-pocket premiums would still be much higher than current law and likely be unaffordable for many older buyers.
Overall, the House bill would cut taxes by about $1 trillion over 10 years, with most benefits going to high-come households and medical-related businesses. We won’t know about the Senate leadership plan until the Congressional Budget Office scores it early next week, but it will likely be in the same ballpark.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
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