Simple, brilliant and the right thing.
ObamaCare Tax Relief
Killing the individual mandate can serve the cause of tax and health-care reform.
Senator Bob Corker, right, speaks with Senator Patrick Toomey on Wednesday, Nov. 1, 2017. Photo: Zach Gibson/Bloomberg News
Republicans in Congress are plowing ahead on tax reform, and one obstacle is the complexity of Senate budget rules that limit how much taxes can be cut. The good news is that for once Washington’s fiscal fictions could be deployed to improve policy by repealing ObamaCare’s individual mandate as part of tax reform.
The Senate Finance Committee on Thursday released the details of its tax proposal, which includes a permanent 20% corporate rate and more. Senators Pat Toomey and Bob Corker cut a budget deal to allow for $1.5 trillion in net tax cuts over 10 years without accounting for faster economic growth (and more revenues) as a result of reform.
The trick is Senate procedure. The GOP is invoking a budget process that allows the party to pass the bill with 51 votes. But Republicans have to comply with the Senate’s Byrd Rule, which says the legislation can’t add to the deficit beyond the 10-year budget window starting in 2028. The Senate draft doesn’t meet this standard, so some parts of the bill may have to expire after a decade unless Republicans can fill the hole. It’s a shame this process pummels good policy.
Enter the idea of repealing ObamaCare’s individual mandate. The Congressional Budget Office predicts that dumping the mandate would “save” $338 billion over 10 years—and the savings continue in the following decades. The budget gnomes assume that if people are not forced to buy health insurance, fewer people will sign up for subsidies or Medicaid. The idea that millions of people will dump free health care is one oddity of CBO methods, but that’s an editorial for another day.
Some Republicans are traumatized from the GOP’s health-care failure and don’t want to complicate tax reform with fights over insurance coverage. But remember that Chief Justice John Roberts called the mandate penalty a tax. This is a political fight the GOP can win: If you like your ObamaCare plan, you can keep it. If you don’t want it or can’t afford it, you don’t have to pay a penalty. There would be no changes to benefits or coverage for pre-existing conditions, and not a dollar taken out of Medicaid, a word that would appear nowhere in the bill.
Note that the mandate is a tax on the poor. More than one in three households that paid the “individual shared responsibility payment” in 2015 earned less than $25,000 and more than 90% made less than $75,000, according to IRS data. For instance: More than 34,000 families in Maine paid $15 million to the government for the high privilege of not buying ObamaCare. Repeal would be tax relief for low-income families.
Republicans can use the money or lose it. We’re told the Trump Administration has drafted language that would expand the mandate’s “hardship exemption” that frees more people from the penalty. CBO may also revise its methods and thus its cost estimate in the coming months. In other words, why would Congress pass up this one-time-only offer of free money for tax reform?
Another dividend is that health-care reform may be easier in the future when CBO can’t terrify the public with fanciful estimates of how many Americans would lose coverage without the mandate. CBO has a lousy record of predictions—ObamaCare enrollment is 60% below its estimate—but the media treat the place as if it were run by oracles.
Democrats will call repeal a budget gimmick, and they would know: The Affordable Care Act included a long-term care program that was written to collect premiums and then go bankrupt to game the 10-year budget window, and it counted a federal student-loan takeover as a money-maker for Treasury. All of this was fiction. But repealing the individual mandate is not a ploy; it’s a GOP priority.
Senate Finance this week will mark up its bill, and the best move for tax and health-care reform is to include the mandate repeal. This is a case where budget scoring can serve the cause of good policy.