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Sources: Repealing health care taxes in play on spending deal

Tax talks appear to have picked up steam over the weekend

Sen. Charles E. Grassley tweeted over the weekend his concern that top Democrats might be cooking up a deal with Treasury Secretary Steven Mnuchin that would be "detrimental to farmers." (Tom Williams/CQ Roll Call)
Sen. Charles E. Grassley tweeted over the weekend his concern that top Democrats might be cooking up a deal with Treasury Secretary Steven Mnuchin that would be "detrimental to farmers." (Tom Williams/CQ Roll Call)

Congressional leaders were discussing a permanent repeal of three major health care taxes — on medical devices, health insurers and high-cost “Cadillac” insurance plans — as part of the final appropriations measures advancing this week, according to sources familiar with the talks.

The tentative development follows some skepticism about whether leaders would even be able to agree to attach an extension of expiring tax cuts and other tax policy changes to the package — and little expectation that the costly taxes would be repealed altogether.

Together with potential renewal of some 30 tax “extenders” through at least 2020, many of which lapsed at the beginning of 2018, the 10-year cost of the tax provisions attached to the spending measures could top $400 billion.

That collection of breaks ranges from a biodiesel credit staunchly backed by Senate Finance Chairman Charles E. Grassley, R-Iowa, and other Midwest lawmakers to a new credit for employer-paid family and medical leave. It cost $33 billion to extend those provisions through 2020 in a bill that House Ways and Means approved in June.

[Appropriators reach spending agreement, fend off possible government shutdown]

The tax talks appear to have picked up steam over the weekend after lawmakers had expressed pessimism late last week. Speaker Nancy Pelosi, D-Calif., had been pushing for a package of refundable tax credits to help lower-income-workers and families, which Republicans said were a deal-breaker. But Democrats didn’t want to swallow the business tax breaks without getting something in return.

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The fate of the earned income and child tax credit expansions Democrats were seeking was unclear as of Sunday evening. Sens. Michael Bennet, D-Colo., a presidential candidate, and Mitt Romney, R-Utah, on Sunday pitched their own plan to pair expansions of those refundable credits with repeal of the medical device tax and other provisions, but it wasn’t clear how much support their proposal would generate at this late stage.

Grassley tweeted over the weekend his concern that Pelosi might be cooking up a deal with Treasury Secretary Steven Mnuchin, without his input, that would be “detrimental to farmers.” Soybean farmers in Iowa and other states have been lobbying hard to restore the biodiesel credit, for example, though Grassley wasn’t more specific. “The President loves farmers and I remind Mnuchin of that,” he wrote on Twitter Saturday.

The measure could also include technical fixes to the 2017 tax law that wouldn’t add much to the total cost, including addressing the “retail glitch” in which drafters inadvertently left retailers and restaurants out of special depreciation provisions for investments like building improvements.

There was no official word from aides to congressional leaders Sunday night on the tax and appropriations measures, other than negotiations were ongoing.

Repealing the three health care taxes, initially imposed by the 2010 health care law, would come as a bit of a surprise if lawmakers and the White House ultimately agree. Democrats in recent weeks have put Cadillac tax repeal in play, but at best stakeholders were hoping for a temporary suspension of the other two taxes.

The Congressional Budget Office estimates the 10-year cost of repealing the three health-related taxes would be $387.5 billion. Most of that is from eliminating the Cadillac tax, which would cost $198.1 billion, as well as the fee on health insurers which would cost $163.8 billion. Repealing the medical device tax would be cheap by comparison, at $25.5 billion.

It wasn’t clear whether any of the tax package would be offset.

Bending the curve

The Cadillac tax has drawn strong opposition from businesses and labor unions, Democrats and Republicans alike, since it was first enacted. It wasn’t scheduled to take effect until 2018, but lawmakers subsequently delayed it another four years, to 2022. In July, the House voted 419-6 to repeal the tax.

The Cadillac tax was one of the chief elements of the 2010 health law experts said could “bend the curve” of rapidly rising health care costs, by encouraging employers to design less expensive benefit packages for workers. In turn, that would make patients more judicious about lab tests, X-rays and other services, since they could be on the hook for more out-of-pocket costs.

The health insurance fee, which critics say drives up premiums, has typically had more support among Democrats than Republicans.

But getting rid of that tax also enjoys support among Democrats from GOP-leaning states or districts, including a number of House freshmen who have signed onto bills to suspend or repeal the health insurers’ fee. Sen. Cory Gardner, R-Colo., one of the most vulnerable Republicans in that chamber, has led efforts to delay or repeal the tax which has support from Democrats like Kyrsten Sinema of Arizona and Doug Jones of Alabama, among others.

The medical device tax repeal effort also has appeal across party lines, mostly from states where industry manufacturers have a substantial presence. In the Senate, the repeal effort is led by Patrick J. Toomey, R-Pa., and Amy Klobuchar, a Minnesota Democrat and presidential candidate.

Meanwhile, congressional staff were expected to work into the evening to prep two spending packages for floor debate as early as Tuesday. Tentative plans called for filing the bills in the House on Monday around noon, followed by a Rules Committee meeting later in the day.

The appropriations package also is expected to include billions of dollars in emergency funding for military bases damaged by hurricanes and flooding.

Military installations that would receive the aid include Camp Lejeune in North Carolina, damaged by flooding from Hurricane Florence in September 2018; Tyndall Air Force Base in Florida, slammed by Hurricane Michael in October 2018; and Offutt Air Force Base in Nebraska damaged by flooding from a combination of snow and rainstorms last March.

The House fiscal 2020 Military Construction-VA bill and Senate Defense appropriations bill contained $2.3 billion and $1.7 billion, respectively, in emergency funds for base repairs. But the emerging compromise could include substantially increased funding levels from what was approved earlier this year, according to sources.

Mary Ellen McIntire and Doug Sword contributed to this report.