Politics

About That Tax Cut for the Rich

Republicans are now seriously considering keeping the Obamacare investment tax after all.

US Senator Ted Cruz
Sen. Ted Cruz, center, chats with Sen. Ron Johnson before meeting with President Trump to discuss the health care bill at the White House in Washington on Tuesday.

Nicholas Kamm/AFP/Getty Images

On Tuesday, Senate Majority Leader Mitch McConnell came to terms with reality and announced that he would delay the health care vote he had been planning to hold this week. Since then, Republican members of Congress have been negotiating terms, trying to strike a health care agreement before flying back to their home states on Friday to screw around for 10 days. Though they were making progress by Thursday morning in narrowing the options, senators still had to get through that little part where they make impossible decisions on the issues that have bitterly divided them.

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Some of the more obvious tweaks have been made. Senate holdouts representing states hollowed out by the opioid crisis—West Virginia Sen. Shelley Moore Capito, Ohio Sen. Rob Portman, and others—are likely to get the full $45 billion in grant funding that they’ve been seeking all along, Politico reported Wednesday night. The bill will also likely be adjusted to allow people to use their health savings accounts to pay for premiums, something conservatives fought for in this bill.

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But these changes still fall within the realm of tinkering. Capito, for instance, has said that the opioid money would not be enough—she wants the stingy long-term growth rate for the bill’s Medicaid caps raised, too. That’s something conservatives would be loath to do.

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A lot of senators, including many in the rank-and-file, still want to see the bill’s refundable tax credits for individuals boosted. And the most conservative wing of the party, including Utah Sen. Mike Lee and Texas Sen. Ted Cruz, want more market deregulation. The “grand bargain,” then, still amounts to conservatives giving way on Medicaid cuts and other spending, while moderates give way on market regulation.

Here’s what that might look like, per the current discussions.

The Congressional Budget Office analysis, you’ll recall, left McConnell about $188 billion in additional funds to spread around to buy votes. The opioid crisis funds and HSA changes could exhaust about half of that. If senators wanted to substantially increase the tax credits to those with lower and middle incomes—or even dependents on employer plans—that could exhaust the savings, and a new stream of revenue would be needed.

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That’s why some senators are now talking more seriously about keeping the Affordable Care Act’s 3.8 percent net investment tax, as Bloomberg first wrote Wednesday afternoon. This is not a new conversation: Since December, there’s been a debate over whether to keep any of the ACA’s taxes to help fund elements of replacement legislation. Opinions have varied. But the House-passed American Health Care Act chose to repeal nearly all of the taxes and finance the bill through Medicaid cuts. And the Senate kept that framework. The very correct depiction of Trumpcare as “cutting Medicaid to finance tax cuts for the wealthy” has caused a lot of political headaches for the party, and now some senators are having second thoughts.

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South Dakota Sen. Mike Rounds said Wednesday that he wanted the party to reconsider ditching the investment tax, which only affects individuals making more than $200,000 and families making more than $250,000, and using that money to bump up the individual tax credits.

“If we did that, that would be another $172 billion that could then be utilized to perhaps offset some of the areas in which people have expressed concern,” Rounds said, “or as a way to allow for individuals who have never been helped by Obamacare, in the group market.”

Rounds has always been receptive to keeping the investment tax. He now has more support—and more importantly, it appears that this wouldn’t be a deal-breaker for conservatives. Wisconsin Sen. Ron Johnson, a conservative holdout, said on Thursday that he could live with keeping the Obamacare tax. Cruz said that he doesn’t want to keep it but didn’t answer when asked whether it would be a deal-breaker. Rep. Mark Meadows, the chairman of the conservative House Freedom Caucus, told reporters on Thursday that keeping the tax wouldn’t be a deal-breaker in his chamber either.

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The conservative holdouts would demand a price, though: Give us deregulation, and we’ll stomach the losses.

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Cruz has been selling one particular deregulatory proposal hard over the last week, which leaders are now taking seriously as something they’ll have to engage with to get conservative votes. As my colleague Jordan Weissmann wrote Thursday, the amendment would allow insurers within a state to sell cheaper plans that don’t comply with the ACA’s regulations so long as they also sell one plan that does.

One might call this “the MacArthur amendment by other means.” The MacArthur amendment, which sealed conservatives’ support for the House bill, allowed states to waive the ACA regulation, called community rating, that barred insurers from charging sicker people more. Eliminating that regulation would bring down premiums for healthier people while sequestering those with pre-existing conditions in high-risk pools. The Cruz amendment, essentially, would embed the high-risk pool within the traditional market: All the healthy, younger people would sign up for the cheaper, noncompliant plan, causing an increase in prices for the regulated plans as only sicker people enroll in them. In other words, it could undermine protections for people with pre-existing conditions, much as experts fear would happen under the MacArthur amendment. Cruz believes that the federal subsidies and stabilization money would be enough to ensure that premiums remain within reach for those most in need of care. But his more moderate colleagues, after witnessing the shellacking the House bill got with the MacArthur amendment, are leery of such a move. And yet South Dakota Sen. John Thune, a member of the Senate leadership, said leaders could consider it if there was a way to ensure it didn’t unravel markets. (There’s also, as with all regulatory changes considered under the reconciliation process, concerns about whether the Senate parliamentarian would allow it.)

Again, senators have about 24 hours to reach an agreement under McConnell’s latest artificially imposed deadline. That means that senators who have been fighting for the last two months will have 24 hours to miraculously come together around an agreement where conservatives abandon some of their deeply held priors on tax cuts and spending while moderates assent to market reforms that could undermine protections for those with pre-existing conditions.

Maybe they’ll need the weekend.

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