House Ways and Means Chairman Kevin Brady has announced that Obamacare’s tax increases — including, for example, the medical device tax, the fine that millions of Americans paid for not having health insurance, and the tax deductibility and from permitting more uses of money in Health Savings Accounts — will not be part of Congress’ upcoming tax reform effort.
And it kind of has to be that way, unless you’re hoping to see the revenue they raise become a permanent part of the budget.
There’s a very concrete mathematical reason for this. The full repeal of Obamacare requires a tax cut (which the House bill would have accomplished through reconciliation). But Brady is attempting to pass a revenue-neutral tax reform, because that’s the only sort that has any chance of passing with 60 Senate votes and some level of bipartisan support. If the goal is tax reform, a package with a large tax cut or tax increase simply won’t have the needed levels of support.
In theory, the new tax plan will include lower rates for everyone, but fewer loopholes for specific people to pay less, and it will end up raising exactly the same amount of money as the current system. The benefits of this are that businesses that don’t have great tax lobbyists won’t be punished as they are now, and the enormous costs of tax compliance — nearly two percent of the U.S. economy is consumed just by the process of paying taxes right now — could be dramatically reduced.
But what amount of revenue will the tax reform package be aiming for? The repeal of Obamacare’s taxes would have lowered the number for that revenue target. That’s one reason Brady talked about how passing the health care bill was so critical. The overall target for the tax burden under the reformed system would be at the new, lower amount that didn’t include those taxes.
Brady can accomplish the same thing by simply leaving Obamacare out of tax reform. He is, one could say, preserving the Obamacare taxes so that they can be repealed later on, separately, and probably through reconciliation.
