Surprise! Obamacare Repeal Includes A Stealth Tax Cut For Top Earners

AP
Views

Republican plans to repeal the Affordable Care Act without a replacement — which health care policy experts predict could cost 30 million people their health insurance — will also bring a major tax break for high-income Americans.

Two taxes that will be presumably axed with the law affect only those making $200,000 or more. The break the ACA repeal will bring to those taxpayers will amount to a $346 billion tax cut in total over 10 years, according to the CBO report on the 2015 repeal legislation GOP lawmakers say they’ll be using as their model next year.

As University of Michigan law professor Nicholas Bagley pointed out on the Incidental Economist blog, this comes as Trump and his surrogates promised that any major tax cut for the rich will be offset by closing their deductions, which would not be the case with the cuts in the ACA repeal.

“That $346 billion represents about $1,000 for every man, woman, and child in the United States. Every cent will go into the pockets of people making more than $200,000 per year,” Bagley wrote.

It’s not exactly what’s on the top of American public’s mind considering all the other dire warnings being issued about the repercussions of repealing Obamacare, even with a delay, without a replacement plan queued up. Call it a stealth tax cut.

“Repealing the Affordable Care Act is a way to give wealthy people a fairly substantial tax cut without that necessarily being the largest headline,” Harry Stein, the director of fiscal policy at the left-leaning think tank Center for American Progress, told TPM.

The taxes in question are known as the Medicare tax on higher income individuals and the net investment income tax. The former is a 0.9 percent tax placed on those who earn $200,000 or more individually (or $250,000 for married couples who file jointly). It comes on top of the Medicare payroll tax employees pay together with their employers, but only applies to the income that exceeds the $200,000 threshold.

The net investment income tax is a 3.8 percent levy meant to complement the Medicare payroll tax, since investment income was not previously taxed in that way. It applies on investment income, such as such as capital gains, dividends and interest income, for those making $200,000 or more.

A Tax Policy Center report found that the repeal of the net investment income tax would equate to $154,000 in annual savings for earners in the top 0.1 percent.

Tax-cut cheerleaders are already celebrating this effect of a Obamacare repeal.

“To me personally, that’s the best part about repealing Obamacare,” Ryan Ellis, former tax policy director for Grover Norquist’s Americans for Tax Reform, told Politico. “Because on the health care side of it, you have this complicated ‘replace’ that you have to turn to after that, but on taxes, it’s all easy — it’s all dessert.”

By dismantling this funding mechanism for the ACA, Republicans will also be shutting off what could have been a revenue stream for the GOP’s potential replacement. Raising these kinds of taxes again two years from now won’t exactly be politically or ideologically easy for Republicans.

Meanwhile, as millions stand to lose their insurance with the repeal of Obamacare, the ends of the ACA tax subsidies means that lower- and middle-income people in effect will get a tax hike.

The dismantling of the subsidies, in the 2015 version of Republicans’ repeal legislation, was delayed for two years, but the tax cuts go into effect right away.

“You have a new Congress form, and all indications are that the first major piece of legislation is a bill with a major tax increase on working class people and a tax cuts on wealthy people,” said Chuck Marr, director of federal tax policy at the left-leaning Center on Budget and Policy Priorities. “You’re raising rates on working class people while you make it harder for them to get to the doctor.”

“That seems at odds with the narrative of what this whole election was about,” he added.

Democrats might try to use the stealth tax cut as a cudgel against President Trump for breaking his and his surrogates’ promise of no absolute tax cuts for the rich. But those vows, including the one made last month by Trump’s pick for Treasury secretary, Steve Mnuchin, can be parsed to apply only to personal income taxes, according to Roberton Williams, the Sol Price fellow at the Tax Policy Center.

Williams predicted that because Republicans will associate the tax cut with what they describe as a “horrible, horrible” law. He said they can just frame it as, “’The fact that it happens to give a lot of money to the rich is just how it goes.’”

ABOUT THE AUTHOR

Tierney Sneed is a reporter for Talking Points Memo. She previously worked for U.S. News and World Report. She grew up in Florida and attended Georgetown University.

LIKE US ON FACEBOOK