WASHINGTON – The Senate's health-care bill repeals hundreds of billions of dollars in taxes on businesses and high-income households and includes a retroactive cut in capital-gains taxes.
Continue Reading Below
The tax portions of the proposal, a draft of which was released on Thursday in advance of a possible vote next week, are very similar to the elements in the version the House passed last month. The plan operates like the 2010 Affordable Care Act, but in reverse. Instead of raising taxes to pay for expanded insurance coverage, it reduces coverage and cuts taxes.
"It's very important that we repeal these taxes as quickly as possible," said Sen. Pat Toomey (R., Pa.) "These taxes are doing damage to our economy."
The taxes it would remove were created to pay for Obamacare. The most notable is a 3.8% tax on investment income, including capital gains and dividends. The tax only applies to individuals with incomes exceeding $200,000 and married couples making more than $250,000.
Like in the House bill, that tax would be repealed as of Jan. 1, 2017, dropping the top capital-gains tax rate to 20% from 23.8%. Under that measure, people who sold assets earlier this year, even before they knew if the tax cut would happen, would benefit. Retroactive tax cuts like this don't create an incentive and can yield windfall gains for people who already made decisions.
Someone who recorded a $1 million capital gain on a stock sale in January would get a $38,000 tax cut as a result of the bill.
Continue Reading Below
"This specific tax break highlights how the Republicans' bill is a reward for the fortunate few at the expense of millions of hardworking Americans," said Sen. Ron Wyden of Oregon, the top Democrat on the Finance Committee. "By making this tax cut retroactive, Republicans are being wholly transparent in handing the elite a massive giveaway."
Senators had discussed delaying some of the tax cuts, which would create budgetary room in the bill to pay for health-insurance coverage. This draft doesn't do much of that, but it allows Republicans to find money over the next week by proposing delays, which could pay for changes that could win over wavering senators. On the other hand, delaying tax cuts could erode support in the conservative wing of the party.
Capital gains and other investment income are concentrated at the top of the income distribution. More than 60% of that tax cut would go to the top 0.1% of the population, according to the Tax Policy Center, a project of the Urban Institute and Brookings Institution.
A separate 0.9% payroll tax, which also only applies to high-income households, would remain in place until 2023, just as in the House bill.
Republicans say Obamacare's taxes have harmed the economy, and they have promised to repeal them all, rather than leave some in place to pay for health coverage.
Democrats blasted the plan and have been saying for weeks that the GOP's plans were largely designed to cut taxes and not improve health care.
Congressional scorekeepers haven't released estimates of the Senate plan yet and won't do so until early next week. The House bill included $663 billion in tax cuts over a decade, plus hundreds of billions of dollars more in lower taxes embedded in health-insurance provisions.
The proposal would repeal other taxes created as part of Obamacare, some of which reach beyond high-income households. They include a tax on indoor tanning, limits on contributions to flexible-spending accounts, higher limits on deductible medical expenses, taxes on pharmaceutical companies and health insurance premiums and an excise tax on medical devices.
The plan would also repeal, starting in 2017, a rule that prevents health-insurance companies from deducting more than $500,000 for the compensation of their top executives.
The so-called Cadillac tax on high-cost employer-sponsored health insurance wouldn't take effect until 2026. Keeping that tax in place in the future would help the bill comply with Senate rules that forbid the legislation from increasing budget deficits beyond the 10-year budget-scoring window.
Write to Richard Rubin at email@example.com
(END) Dow Jones Newswires
June 22, 2017 16:10 ET (20:10 GMT)