Congress Is About to Kill 3 Obamacare Taxes

Congress Is About to Kill 3 Obamacare Taxes

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Plus, how Trump's tax law slashed corporate rates
Monday, December 16, 2019

This week is shaping up to be another wild one, as Congress scrambles to wrap up some major legislation before leaving town for the holidays. Lawmakers on Monday reportedly raced to finalize a spending deal for fiscal year 2020, with some notable late additions added to the package ahead of a House vote likely to take place on Tuesday (see more below). On Thursday, lawmakers will vote on the revised U.S.-Mexico-Canada trade agreement. Oh, and in between, the House is set to vote to impeach President Trump on Wednesday.

Congress to Repeal 3 Obamacare Taxes as Part of $1.4 Trillion Spending Deal

Congressional leaders and the White House have agreed to permanently repeal three taxes created under the Affordable Care Act as part of their year-end deal detailing nearly $1.4 trillion in spending for fiscal year 2020.

What’s in the deal: The spending legislation includes $738 billion in military funding, a $22 billion increase compared to fiscal 2019, and $632 billion in non-defense spending, a $27 billion increase.

The final details are still emerging, but the deal would apparently eliminate Obamacare’s 2.3% medical device tax and its so-called Cadillac Tax on high-cost health insurance plans as well as a fee imposed on health insurers under the 2010 law. Those taxes, intended to help pay for the Affordable Care Act and its expansion of health care coverage, have been widely unpopular among both Republicans and Democrats since they were introduced.

The Cadillac Tax, meant to incentivize employers to drive down the cost of their health plans, was opposed by both business and labor groups. With those forces lined up against it, Congress delayed the tax until 2022. It also suspended the medical device tax for 2016 and 2017 and had similarly rolled back the health insurance tax for 2017 and 2019. Now lawmakers looking to permanently eliminate those taxes appear to have won out — and the mechanisms through which Obamacare was supposed to pay for itself will largely be gutted.

House and Senate negotiators have reportedly also agreed to renew a slew of expired “tax extenders” or temporary breaks, but the ultimate fate of those extenders wasn’t clear by Monday evening.

Why it matters: “The repeal of the three taxes represents an expensive windfall victory for the health care industry, which lobbied intensely against all three taxes since they were first mandated by the Affordable Care Act,” Politico’s Susannah Luthi and Caitlin Emma say.

What else is in the deal: A whole lot. “The effects of the 12 spending bills will be felt in every corner of the country,” Politico notes. “The sweeping funding deal would set budgets for loans to U.S. farmers, investment in broadband internet access in rural America and assistance for state transportation projects. It would pump cash into initiatives to improve election security, provide extra food to low-income families through programs like food stamps and WIC, and subsidize energy bills for people who can’t afford to keep the heat on.”

Some other key elements of the package reportedly include:

  • $1.375 billion in funding for Trump’s border barriers, the same as last year — though the funding comes with fewer restrictions and the president will still be able to divert money from other accounts toward barrier construction. Congress did not “backfill” the money Trump shifted earlier this year;
  • An increase in the minimum age nationwide to purchase tobacco from 18 to 21;
  • An extension of funding for several health care programs, including community health centers, through May 22;
  • A 3.1% pay raise for the military and civilian federal employees;
  • $25 million in federal funding for gun violence research — the first such funding in more than 20 years, which Democrats and gun control groups tout as a major win;
  • $425 million in election security grants;
  • $7.6 billion in funding for the 2020 Census;
  • Funding to shore up the major pension fund for retired coal miners;
  • Two years of Medicaid funding for Puerto Rico and other territories;
  • The CREATES Act, which would make it easier for generic drug manufacturers to get samples of brand-name drugs and bring their competitors to market. This provision is reportedly projected to save close to $4 billion over 10 years.
  • A seven-year reauthorization of the Export-Import Bank of the United States.

What’s not in the deal: Legislative fixes addressing surprise medical bills or lowering prescription drug prices will have to wait until at least 2020. Combined with the repeal of the three health care taxes, the health care industry will have made it through 2019 in much better shape than might have been expected based on politicians’ rhetoric. But the extensions of the expiring health care programs until May 22 creates must-pass legislation that could be used as a vehicle next year for plans on surprise bills and/or drug prices. Republicans also successfully prevented the inclusion of additional international family-planning funds.

What the tax changes will cost: The repeal of the Cadillac tax will cost $200 billion over 10 years while the repeal of the other two taxes will cost $190 billion, according to estimates from the Committee for a Responsible Federal Budget. Adding in the potential cost of the expiring tax extenders brings the cost to $420 billion, and interest on the additional debt makes the total cost $470 billion.

“Congress and the President already granted themselves an additional $169 billion in borrowed funds for this year’s budget deal. Now, months into the fiscal year, they want to add hundreds of billions of dollars more – all on the national credit card?” CRFB President Maya MacGuineas said. “This is the worst of political deal-making.”

What happens next: The House is set to pass the spending bills in two packages on Tuesday, with the Senate to follow in the next few days. President Trump would need to sign the legislation by midnight on Friday to avoid a government shutdown or the need for stopgap funding bills.

Trump’s Tax Law Slashed the Effective Corporate Tax Rate to 11.3% in 2018: Analysis

The 2017 Tax Cuts and Jobs Act cut the corporate tax rate to 21%, but a new analysis finds that many large businesses paid much less than that in 2018, the first year the law was in effect.

The Institute on Taxation and Economic Policy, a left-leaning, non-partisan think tank, analyzed the 2018 financial filings of 379 profitable businesses in the Fortune 500 and found that their average effective tax rate — the actual rate paid to the government — was just 11.3%. By comparison, the average effective tax rate for major firms between 2008 to 2015 was about 21%, ITEP said.

Effective rates are typically lower than statutory ones, since most companies take advantage of deductions, tax breaks and other loopholes, but it’s notable the 2017 law left so many doors open to tax rate reduction. “When drafting the tax law, lawmakers could have eliminated special breaks and loopholes in the corporate tax to offset the cost of reducing the statutory rate,” ITEP said. “Instead, the new law introduced many new breaks and loopholes, though it eliminated some old ones.”

About $74 billion in subsidies: The 379 firms examined in the report claimed $73.9 billion in tax reductions, and half of that came from just 25 companies. The top three firms receiving tax subsidies were banks, with Bank of America claiming the most at $5.5 billion. Other major companies claiming big tax subsidies included Amazon ($2.4 billion), AT&T ($1.1 billion), General Motors ($1 billion) and Apple ($989 million).

Billions in missing revenue: “In 2018, the 379 companies earned $765 billion in pretax profits in the United States,” ITEP said. “Had all of those profits been reported to the IRS and taxed at the statutory 21 percent corporate tax rate, the 379 companies would have paid almost $161 billion in income taxes in 2018. Instead, the companies as a group paid just more than 54 percent of that amount.”

91 companies paid no taxes: Some of those businesses received refunds, effectively paying negative rates. The list includes many well-known companies, such as Amazon, Starbucks, Halliburton, General Motors, Delta Air Lines, Aramark and Whirlpool.

Industry variations: The report calculated tax rates for 22 distinct industry sectors and found that two industries — industrial machinery and utilities, gas and electric — paid negative tax rates in 2018. Seven sectors — including motors vehicles and parts; oil, gas and pipelines; and engineering and construction — were in the single digits, while four were at 20% or higher, including health care and internet services and retailing. Only one industry sector, pharmaceuticals and medical products, paid more than the statutory rate of 21%, paying 22% instead. A total of 57 companies across sectors paid more than the 21% rate overall, typically due to payments related to prior liabilities.

Revenues near record lows: Corporate tax revenues as a share of the economy are near record lows. “Overall federal corporate tax collections as a share of GDP have only fallen to 1.0 percent three times in the last 40 years,” the report said. “The first time was in 1983, at the nadir of President Reagan’s supply-side experiment. The second time was in 2009, when the Great Recession’s impact on tax collections was at its worst. And the last time was in fiscal 2018, the first year in which President Trump’s tax cuts were in effect.”

Both previous drops in revenues were reversed, ITEP said, the first by policymakers and the second by the economic recovery. This time around, higher revenues will likely have to come from tax reform. “Getting the nation’s fiscal house back in order will require increasing corporate income tax revenues,” the report concludes.

Candidate Quote of the Day

CNBC’s John Harwood: “Why do you think that those people believe that they’re being vilified, believe that you hate business, believe that you’re not a capitalist?”

Elizabeth Warren: “You’d have to ask them. But I will say this: A lot of them just don’t want to pay the taxes. And that’s part of the problem we’ve got here. Government listens disproportionately to rich guys who don’t want to pay taxes.

“For everybody who says that this government is caught in gridlock, remember that when the question was cutting taxes for the richest and for the biggest corporations, it took the Republicans about five weeks in order to call everybody in and do a trillion and a half dollars in tax breaks, tax breaks that went mostly to those at the top. The folks at the top, they get heard all the time in Washington.”

Chart of the Day

“The cost of private health insurance is out of control, compared to Medicare and Medicaid,” says Drew Altman of the Kaiser Family Foundation. Writing at Axios Monday, Altman says the growing differential between private and public spending is one major reason Democrats want to use government purchasing power to reduce costs throughout the system – and why private industry is fighting them every step of the way.

All of America’s War Powers Deployments

As required by law, President Trump updated Congress last week on all the locations the U.S. has deployed troops under the authority of the War Powers Resolution of 1973. While some of the deployments are relatively small — there are 60 troops in Lebanon, for example, serving in a counterterrorism role — the list itself is a reminder of how extensive U.S. military operations have been around the world since the 9/11 attacks. And the list provides only a partial account of the country’s global military footprint, since it leaves out training missions and the many troops serving on long-term military bases in places like Japan, Germany, Kuwait and South Korea.

Here are the 19 countries where the U.S. has deployed troops “equipped for combat” in the last six months, according to Trump’s letter to Congress: Afghanistan, Iraq, Syria, Yemen, Saudi Arabia, Jordan, Lebanon, Turkey, Somalia, Kenya, Djibouti, Niger, Cameroon, Chad, Nigeria, Cuba, Philippines, Egypt and Kosovo.


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