The deal struck by Democrats and Republicans on Monday to end a brief government shutdown contains $31 billion in tax cuts, including a temporary delay in implementing three health-care-related taxes
WASHINGTON — Congress is apparently not done cutting taxes, even after passing a $1.5 trillion tax overhaul last year.
The deal struck by Democrats and Republicans on Monday to end a brief government shutdown contains $31 billion in tax cuts, including a temporary delay in implementing three health-care-related taxes.
Those delays, which enjoy varying degrees of bipartisan support, are not offset by any spending cuts or tax increases, and thus will add to a federal budget deficit that is already projected to increase rapidly as last year’s mammoth new tax law takes effect.
The Congressional Budget Office said earlier this month that the federal budget deficit reached $228 billion in the first three months of the current fiscal year, $18 billion more than the deficit in the first quarter of fiscal 2017, despite strong economic growth. And that was before the tax cuts kicked in.
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“All the finger pointing has overshadowed the discussion about the actual substance of the budget deal,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, “and many lawmakers don’t even seem to care that the deal they are considering — which will almost certainly include even more tax cuts following the unaffordable tax bill Congress just passed, as well as new spending increases — will add tens of billions to the deficit. There is almost zero discussion of the ongoing damage on the nation’s finances.”
The health- care taxes were all created as part of the Affordable Care Act, where they were designed to offset the cost of expanding insurance coverage to low- and middle-income Americans. But many of them, such as a tax on medical devices, have remained unpopular, and their implementation has been postponed before.
Those delays have been preferable to lawmakers rather than eliminating the taxes entirely, given a total repeal would have added an estimated $310 billion to federal budget deficits over the next decade, MacGuineas’ organization calculates. That price tag was too high to be included in the 2017 tax bill, which was limited in scope by Republicans’ decision to pass the bill on party lines using a budget reconciliation bill that only allowed for $1.5 trillion in revenue losses over a decade.
The health-care-tax delays
The bill to end the shutdown, which funds government operations through Feb. 8 and also includes a six-year reauthorization of the Children’s Health Insurance Program, did not move through budget reconciliation, the parliamentary procedure that circumvents filibusters in the Senate. That allowed Republican leaders to include the delays in the health-insurance taxes without worrying about their fiscal cost, a move that drew few objections from Democrats.
All three health-care taxes have been extensively discussed and debated by Congress since the passage of the Affordable Care Act.
• A tax on medical devices has proved unpopular across the political spectrum, and stand-alone efforts to repeal it have attracted a large majority of senators. That bipartisan opposition, in part, reflects the broad footprint of the industry. Major device-makers are headquartered in deep blue states like Massachusetts.
• The “Cadillac tax,” which taxes employers who offer very expensive health insurance plans, also enjoys some bipartisan opposition. The measure, much beloved by economists, is designed to encourage employers to lower health-care costs by creating a stronger incentive to reduce spending on insurance. Economists tend to believe that the current system, which does not impose any income taxes on health benefits, encourages employers to overspend on health care, increases health-care prices and results in lower wages.
“I don’t know if, as economists, we’ve just fallen down and not done a particularly good job explaining this to policymakers and the general public or whether this is just very hard,” said Martin Gaynor, a health economist at Carnegie Mellon University, and one of 101 economists and health-policy experts who signed a letter opposing postponement of the Cadillac tax. “The costs are obvious and immediate and benefits to this are indirect and diffuse and happen in the future, and that’s just a very heavy lift for policy.”
But imposing the tax on expensive benefits would affect many large companies, including many that employ unionized workers, and it is unpopular with voters. Some Republicans in Congress do endorse changes to the tax treatment of employer-sponsored health plans, but they have been reluctant to include such a plan in legislation.
• A third tax, known as the health-insurance tax, is applied to all health plans and has been the source of an ongoing lobbying effort by the insurance industry, which argues that it increases the cost of health insurance for individuals and businesses. Actuaries and independent analysts agree that the tax does tend to increase insurance prices.
Even under the new legislation, this year’s plans were priced with the tax factored in, one of several factors that have led to steep price hikes in the Obamacare health-insurance marketplaces. A temporary repeal of the tax for next year may help reduce price increases for 2019, which will be announced just before the midterm elections.