Here’s a look at eight Affordable Care Act taxes that Republicans in both the House and Senate agree on eliminating.
The Senate today finally revealed its version of Obamacare repeal and replace, dubbed the Better Care Reconciliation Act of 2017 or BCRA.
The 142-page document, which Senate leadership is describing as a discussion draft, is a rewrite of the House’s American Health Care Act, or AHCA.
Since it just was released this morning, folks are still poring over the Senate document to see where it differs from the House bill and whether it is, as the president and Democrat opponents have charged, mean or meaner than the House bill.
House and Senate agree on ending Obamacare taxes: As a tax geek/tax blogger, I’m focusing on the tax provisions of the Republican health care effort. In this regard, the Senate and House are pretty much in agreement.
Both chambers really, really hate the taxes created seven years ago to fund Obama’s signature Patient Protection and Affordable Care Act, generally referred to in official circles as the ACA.
So, like the House bill that squeaked through that chamber May 4 by a 217-213 vote with 20 Republicans voting against their party’s legislation (I guess they didn’t go to the White House Rose Garden post-passage party), the Senate’s version would repeal several Obamacare taxes.
Below are eight ACA taxes to be eliminated and how the House and now Senate suggest their demises.
- Net investment income tax, or NIIT — This 3.8 percent surtax applies to individual taxpayers making more than $200,000 and married couples making more than $250,000. Those tax triggers are not adjusted annually for inflation, which means as individuals’ adjusted gross incomes’ increase, they could be caught by the NIIT. The Senate bill follows the House measure and would end this investment tax retroactively to the start of 2017.
- Additional 0.9 percent payroll tax — This fractional payroll tax is in addition to the 1.45 percent already collected from workers’ wages to go toward Medicare and also kicks in at the same $200,000/$250,000 income levels as the NIIT. Under the Senate’s health care measure, it would stay in place until 2023, meaning that higher income earners would see 2.35 percent of their pay above the threshold amount withheld for the next six years. That delayed repeal date is the same as in the House version.
- Medicine Cabinet Tax — This moniker was given to the provision that limits the use of money from flexible spending accounts (FSAs) to pay for over-the-counter (OTC) medicines. Since 2011, the ACA has required FSA etc. owners to get a doctor’s prescription for the OTC meds in order to use their tax-advantaged funds. Both the House and Senate say that option will be reinstated. The House wants FSA money for OTC drugs available in 2017. The Senate pushes the effective date to 2018.
- Flexible Spending Account Cap — FSAs took another hit in 2013. That year the amount of money you could put into these accounts, which are added to via payroll deposits before any taxes are calculated, was capped at $2,500. Previously there was no limit on how much a worker could put into an FSA, but most companies used the $5,000 that statutorily applies to the sister dependent care spending account. Granted, not a lot of folks put five grand into their FSAs. But still, the policy irked folks. At least the limit is adjusted annually for inflation. For 2016 it was $2,550. This year, it’s bumped up to $2,600. Again, both Representatives and Senators want to repeal the FSA contribution limit beginning in 2018.
- Medical Deduction Threshold — 2013 was a big year for Obamacare taxes. That also was the year that the threshold many folks had to exceed in order to claim an itemized deduction for medical and dental expenses went up from 7.5 percent of adjusted gross income (AGI) to 10 percent. This hike means that folks younger than 65 had to have more medical costs in order to get the Schedule A deduction. Taxpayers 65 and older still got the 7.5 percent cutoff, but that changed this year. For 2017, all taxpayers must meet/exceed the 10 percent AGI threshold. Both the House and Senate would lower the AGI threshold for all taxpayers, regardless of age, retroactively to the start of the 2017 tax year. But where the House cuts it to medical costs exceeding 5.8 percent of income, the Senate goes back to the AGI trigger of 7.5 percent.
- Shared Responsibility Tax — This tax was created as a way to get us to comply with the ACA’s individual mandate; that’s the requirement that we all have minimal essential coverage during the full tax year. The tax penalty for noncompliance was low enough in the beginning that many folks found it more cost-efficient to pay the penalty rather than purchase insurance. The penalty, however, has increased each year. On 2016 tax returns filed this year, the maximum is $695 per uninsured month. It stays at that level thanks to low inflation for the 2017 tax year. Both the House and Senate bills repeal the individual mandate and associated tax. The effective date is retroactive to the beginning of 2016.
- Cadillac Plans Tax — Obamacare imposes a 40 percent excise tax on high-cost, generous employer-sponsored health coverage, also known as Cadillac plans. Under current law, the tax will go into effect in 2020. The House bill changes the effective date of the tax to Jan. 1, 2026. The Senate bill also suspends the Cadillac tax through 2025.
- Tanning Tax — House would repeal it effective July 1. The Senate, however, would make folks rely longer on the actual sun’s rays, not giving folks a fake bronzing break until the new fiscal year starts on Oct. 1.
Fluid tax dates: Of course, as some of those who helped craft the Senate health care measure note, it’s a starting point.
That means that although Senate Majority Leader Mitch McConnell (R-Kentucky) would like to hold a vote next week, some of the provisions in today’s document could change before or during the limited debate planned before that vote.
That could include changes are particularly possibly when it comes to the tax provisions’ effective dates. To what extent remains to be seen, since the exact ACA tax repeal dates will likely depend on how much money is needed to cover other associated repeal and replace costs.
And the dates of the tax changes definitely could change if the Senate bill clears that chamber and heads to conference with the House.
Awaiting fiscal analysis: The dollar details of the Senate rewrite of the House bill won’t be known until next week. That’s when the nonpartisan Congressional Budget Office (CBO), with assistance from the Congressional Joint Committee on Taxation, says it will release its analysis and cost estimate of the bill
In analyzing the House’s version of the American Health Care Act, the CBO found that 23 million more Americans would become uninsured by 2026 under the GOP replacement plan for Obamacare. That’s part of the reason that the House’s AHCA is quite unpopular across the United States.
Will the Senate’s version face a similar fate? The Republican bill already is facing blow-back not only from Democratic opponents, but also some in the medical community and many in its own party.
More conservative GOP lawmakers in the Upper Chamber have come out against the bill in general and four Republican Senators have specifically said they won’t vote for or are leaning against voting for the bill. That’s not encouraging since a defection of only three GOP Senators would doom the bill.
Looks like McConnell and crew have some arm twisting and deal making ahead of them.
You also might find these items of interest:
- 4 Obamacare taxes the GOP vows to end
- High-deductible health plan and HSA inflation adjustments for 2018 announced by IRS
- GOP gets tax reform head start by killing Obamacare taxes in its replacement health care plan