Photographer: Patrick T. Fallon/Bloomberg

GOP Splits on Need to Scrap Obamacare Taxes in Swift Repeal

  • Conservatives say the entire law must be reversed immediately
  • Others want to keep tax provisions until replacement is ready

Congressional Republicans pushing for a swift Obamacare repeal are sharply divided on whether to scrap Obamacare’s tax provisions at the same time or delay that move until a replacement is ready.

Some conservatives say every part of the Affordable Care Act must go immediately -- including its tax-revenue streams -- because that’s what voters were promised. But repealing the tax increases, which pay for the subsidies needed to help millions of Americans afford coverage, could make it politically impossible to pay for a replacement plan down the line.

The debate is a key stumbling block to GOP efforts to mount a lightning-strike bid to deliver on one of President-elect Donald Trump’s main campaign promises. It’s particularly acute in the Senate, where a repeal would be blocked if three Republican senators opposed it.

At least four GOP senators have expressed concerns about a repeal bill that delays a replacement, and others are concerned that the repeal bill may scrap the tax hikes prematurely.

Senator Bill Cassidy of Louisiana, who is working with Senator Susan Collins of Maine and Representative Pete Sessions of Texas on a replacement, said the Obamacare taxes shouldn’t be repealed up front -- and instead should be replaced as part of a tax overhaul later this year in a separate reconciliation package that would pair fewer tax breaks with lower rates.

"If we don’t like ’em, we can replace them. But we can do it in a way where you overall are lowering tax rates and making the tax code more efficient. There will be enough there for people to win," he said. 

‘In a Hole’

Cassidy said if lawmakers start by repealing all of the taxes "then you’re in a hole" when it comes to replacing the law later with an alternative that covers more people, costs less and doesn’t add to the deficit. Most Republicans in Congress have signed pledges not to raise taxes, making raising enough revenue for a stand-alone replacement plan politically challenging.

"Terrible problem! You can’t do it!" he said.

But that kind of delay won’t satisfy some conservatives, particularly in the House.

"Repeal it, get rid of it, every single bit of it, don’t keep any of it," Representative Jim Jordan of Ohio said during an interview this week on Bloomberg TV.

"That’s all the taxes, all the mandates, all the things that are in this thing that the American people don’t like and that I think have driven up the cost of medicine, hurt economic growth," he added. "I think we’ve got to do what we told voters we were going to do."

The tax dilemma has a growing number of Republicans balking at GOP leaders’ current delayed-replacement strategy. They worry that such a repeal measure would functionally leave most of the law in place -- particularly the tax hikes -- to avoid having millions of Americans abruptly lose their coverage.

Repealing Both

"A repeal needs to repeal -- the taxes and the mandates both," said Representative Mark Meadows of North Carolina, chairman of the House Freedom Caucus, a group of fiscal conservatives. 

"Then, a replacement, I believe, needs to be done immediately," on the same day as a repeal vote, he said, adding that it should show "everyone is going to be able to maintain coverage." Meadows said that replacement should "have a separate revenue stream and a separate funding stream" of its own. 

Representative Pat Tiberi of Ohio, who chairs the health subcommittee of the Ways and Means panel, said it is still "to be determined" whether revenue streams or funding aspects of Obamacare would get delayed or shut off during any transition period after the repeal’s enactment, saying there’s just no consensus yet.

An analysis by the Committee for a Responsible Federal Budget puts the loss of revenue from repealing the law’s taxes at $800 billion over 10 years. It says about half of that would come from removing the 0.9 percent Medicare payroll surtax on wages above $200,000 ($150 billion) and the 3.8 percent surtax on investment income above the same threshold ($250 billion). Another quarter of the revenue loss would stem from repealing various fees on insurance companies, medical device companies, and drug manufacturers.

Some independent studies and reports, such as one published last month by the Center on Budget and Policy Priorities, say a repeal bill passed by Congress last year would have produced roughly $1 trillion in net savings over the next 10 years. Even so, with its tax cuts, the report said policy makers would have had to find significant added savings to pay for coverage if a replacement bill is to come anywhere near matching the ACA’s coverage levels.

Lost Revenue

A separate analysis last month from the Brookings Institution warned that revenue lost from the health-care law’s tax increases would leave only about 40 percent of the $1.24 trillion in projected Obamacare coverage expansion over 10 years available to be used for a replacement plan.

About 21 new taxes or increases enacted as part of the law include those on health insurance providers, medical device companies, drug manufacturers and importers, and those on individuals, like Medicare taxes on high earners -- and even on such things as tanning services.

Jettisoning the existing health care-funding mechanisms entirely and trying to forge new ones from scratch would reopen complex and difficult talks and deal-making with all of the affected industries and groups. Tough battles would likely ensue over such things as whether to re-enact Medicare payroll taxes on wealthy people, which industry and hospital taxes to embrace, and the impact of any changes on the middle class and the poor.

The "repeal process is going to repeal all revenues but keep in place the subsidies for three years," Senator Bob Corker of Tennessee told reporters Friday morning. ”You’re taking $116 billion by our calculations and just throwing it into a mud puddle by continuing subsidies without revenues.”

Collins said she likes Cassidy’s idea of delaying a repeal of the taxes. 

"We need a detailed framework, preferably specific legislation, to accompany the repeal effort, so that we can reassure individuals who have been receiving subsidized insurance that they’re not going to fall through the cracks and so that the insurance markets have time to adjust to a dramatic change," said Collins.

Senate Finance Chairman Orrin Hatch of Utah said, "I’m for getting rid of it all and going from there,” but added he would go along with what leadership decides to do.

Senator Ted Cruz of Texas said it’s important to repeal the Obamacare taxes and mandates. 

"That’s a promise we made to the American people. We need to follow through on that promise," he said. He didn’t respond as he got on an elevator about whether it was important to do all of that in the repeal measure.

— With assistance by Nick Wadhams

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