Repealing ObamaCare is always about tax cuts for the rich

Does moving a tax cut for the rich out of one bill and into another bill make lawmakers seem more in touch with the middle class? Senators trying to repeal the Affordable Care Act hope so. Americans should answer them with a loud “no.”

The legislation that Senate Republicans have written to repeal the ACA is one of the least popular bills in history because it cuts healthcare coverage for working people in order to finance tax cuts for the rich.

One of the biggest tax cuts in the bill is a provision that would repeal a 3.8 percent tax on investment income for those who make more than $200,000 (more than $250,000 in the case of married couples). My organization, the Institute on Taxation and Economic Policy (ITEP), recently estimated that if Congress had repealed this tax in 2016, 90 percent of the benefits would have gone to the richest 1 percent of households — those with at least $578,000 in income in 2016.

 

We found that in most states the share of households benefitting at all is less than 3 percent. Even in wealthy states, the share of households benefitting is less than 5 percent.

Several Republican senators have realized that supporting a bill that would increase the number of uninsured Americans by 22 million, increase premiums and cut taxes for the rich, is the most unpopular thing they could do. Some of them have suggested that the solution is to drop the provision repealing the tax on investment income from this legislation.

Does this mean we should applaud the Senate Republicans for backing away from tax cuts for the wealthiest few households and focusing more on the concerns of the middle class? Sadly, no. The Senate Republicans are trying to eliminate a talking point used against them without substantively changing their overall plan.

We know this because the Trump administration has already announced, as part of the broad outlines of tax reform it made public in April, that this tax should be repealed. In other words, the tax on investment income, which was enacted as part of the ACA to help finance the expansion of health insurance, will be repealed one way or another under the Republicans’ plans.

If it’s not repealed as part of the health bill, then it will be repealed as part of the next major piece of legislation, which will be tax reform if everything goes according to their plan. Given all this, no one should give the Senate Republicans credit for dropping this huge tax cut for the rich unless they affirmatively declare that they will never repeal the investment income tax in any legislation.

Besides, even if their health bill does not have the provision repealing the tax on investment income, it will still include tax cuts for the rich. For example, another provision would repeal a change enacted as part of the ACA that increased the Medicare tax on wages to 3.8 percent.

Like the tax on investment income, this only applies to singles making more than $200,000 and married couples making more than $250,000. (In this case, these limits apply specifically to earned income). ITEP estimated that 71 percent of the benefits would go to richest 1 percent of Americans.

The idea behind these parts of the ACA (the 3.8 percent tax on investment income for the rich and raising the Medicare tax on wages to 3.8 percent for high-earners) is straightforward. During the congressional debate that produced the ACA, ITEP and Citizens for Tax Justice   to lawmakers that we already had a major tax on the books to finance healthcare — the Medicare tax — but at that time it was not very progressive.

It had a flat rate paid by people of all income levels, and it completely exempted investment income like interest, stock dividends and capital gains. The idea was for Congress to raise the rate of the Medicare tax for high earners and create a comparable tax that applies to investment income. Repealing either of these taxes would be a step backward for tax fairness.

Anyway, these are not the only taxes that were enacted as part of the ACA and that would be repealed under the Republican health bill. The ACA included several taxes for well-off special interests, including health insurers, pharmaceutical companies and other businesses. These taxes were included as part of the ACA to ensure that the companies benefiting from the expansion of health insurance (which meant more profits for every part of the healthcare industry) would contribute to finance the costs. The Republican bill would repeal these as well.

Opposition to the ACA has always been about opposition to the taxes that were included to finance the expansion of health insurance. No one should be gullible enough to believe that this has changed.

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