When Democrats enacted two taxes on wealthy families to help finance the 2010 health care law, Republicans predicted the levies would be politically unpopular and would not survive.
Now, the GOP faces a partisan messaging battle over plans to end a Medicare payroll surtax and a separate tax on investment income that are both levied on taxpayers earning more than $200,000 (for an individual) and $250,000 (for a married couple).
While Republicans say killing the two levies would be a key first step toward a broader tax code rewrite, Senate Minority Leader Charles E. Schumer of New York and other Democrats contend that the Senate GOP health care bill is a gift to the rich.
“Let’s call this bill what it is, a massive giveaway to the wealthiest Americans,” Sen. Jack Reed, D-R.I., said on the floor Monday night.
House Ways and Means Chairman Kevin Brady of Texas and other Republicans respond by saying pairing the repeal of the two health care taxes with offsetting curbs on some benefits would “create the path through the budget and ultimately, to tax reform.”
The House’s top tax writer said Monday the Senate GOP bill offered “the perfect opportunity right now to eliminate” taxes created under the law both sides call Obamacare. Brady pushed back against shifting repeal of these taxes into a larger tax overhaul in order to give political cover to Republicans.
“I recognize that the cost of importing that would frankly impact tax reform,” he said.
Most of the taxes created by Obamacare — including levies on tanning beds, medical devices and branded prescription drugs — are repealed in the Senate bill. The exception is the so-called Cadillac tax on high-cost insurance plans, which both the House and Senate health care bills delay until 2026.
The 2010 health care law raised the Medicare payroll tax paid by high-income earners from 1.45 percent to 2.35 percent, and both bills would eliminate the surtax in 2023.
The Congressional Budget Office estimated Monday that repeal of the Medicare payroll surtax would cost $58.6 billion over 10 years, while ending the 3.8 percent net investment income tax, known as the NIIT, would cost $172.2 billion over the same period.
Brady’s stance left open the question of how he would handle the repeal of the health care taxes if Congress doesn’t get health care legislation to the president’s desk. If they must be shoehorned into a still-developing GOP tax overhaul, offsets must be found since House Republican leaders are insisting the broad tax package will be revenue neutral. Potential offsets might include curbing tax incentives and tweaking tax rates.
Senate Republicans can only lose two GOP votes in order to pass their health care bill, since no Democratic support is expected and Vice President Mike Pence would break a tie.
If the Senate health care bill loses traction, some longtime political observers such as Stephen J. Entin of the Tax Foundation say there will be pressure on Brady and Republican leaders from the GOP base to use the broader tax package to repeal some health care taxes. And the net investment income tax is the most likely choice.
“If you’re aiming at growth, this is one thing that gives you a pretty good return on your initial cost. And it ought to be part of a growth package in whatever form,” Entin, a senior fellow at the Tax Foundation, said in an interview. He estimated that repeal of the NIIT alone would contribute about 0.07 percentage points toward Trump’s ambitious goal of 3 percent annual growth.
Chuck Marr, federal tax policy director for the Center on Budget and Policy Priorities, a liberal think tank, said any plan that would lift up the incomes of wealthy taxpayers and push down benefits for the less fortunate would struggle to gain public support.
“It’s a harsh juxtaposition,” Marr said.
A recent study by Marr’s group found that millionaires would receive 79 percent of the benefits of repealing both Medicare taxes, with an average savings of $57,000, and said that the 400 highest income taxpayers would save $7 million apiece.
Billionaire investor Warren Buffett has said repeal of the health care law would slice his own taxes by $680,000, or 17 percent, and has challenged supporters of the GOP plan to say how much their own personal tax bills would be lowered. Buffett helped inspire an unsuccessful 2011 proposal by President Barack Obama, known as the Buffett Rule, which set a minimum tax rate of 30 percent on individuals with annual incomes above $1 million.
When asked about Buffett’s critique of the GOP health care plan, Health and Human Services Secretary Tom Price stressed instead that the GOP health care bills would repeal $3 billion in penalties and taxes paid by 6.5 million taxpayers under the 2010 law.
“We believe it’s absolutely vital that we decrease taxes for the American people, allow them to keep more of their hard-earned money,” Price said Sunday on CNN.
G. Terry Madonna, a public affairs professor at Franklin & Marshall College in Pennsylvania, said Republicans might find fewer political hurdles to repealing the two health care taxes in the broader tax package.
“It would be easier to make the case for a tax cut for the wealthy that is not connected to health care cuts,” Madonna said. “But then they would have to find a way to pay for the tax cut.”