Senate Delays August Recess as Health Bill's Fate Hangs in Balance

By Richard Rubin Features Dow Jones Newswires

Senate Majority Leader Mitch McConnell announced Tuesday the Senate would begin its August break two weeks later than expected, as the chamber labors to pass a health-care bill.

Continue Reading Below

The chamber will now recess starting during the third week of August, rather than at the month's start, the Kentucky Republican said in a statement. He cited the need to "complete action on important legislative items and process nominees."

The move came as two people familiar with the Senate GOP health-care legislation to be unveiled later this week said it likely will retain both of the Affordable Care Act's taxes that affect high-income households.

The move would leave in place a 3.8% tax on net investment income and a 0.9% payroll tax. The specifications sent to the Congressional Budget Office assumed both taxes would remain in place, one of the people said.

Both taxes apply only to individuals with incomes above $200,000 or married couples above $250,000. Neither threshold is indexed for inflation.

Keeping the taxes serves several goals. First, it frees up about $230 billion over a decade that Republicans could spend on health care and use as they woo holdout lawmakers.

Continue Reading Below

Second, it blunts some Democratic arguments against the bill, which have focused on the fact that it reduces taxes for wealthy households while cutting spending on Medicaid for low-income people. Some Republicans, including Bob Corker of Tennessee, Mike Rounds of South Dakota and Susan Collins of Maine, have questioned that trade-off.

Both taxes were created in the 2010 health law and took effect in 2013. Under the House-passed health-care bill, the investment tax would be repealed retroactively for 2017 and the payroll tax would disappear in 2023. Senators had been publicly considering maintaining the investment tax but their plans for the payroll tax were less clear.

Senate Republicans plan to release a new version of their health-care bill this week, likely Thursday, in preparation for a vote next week, GOP aides said. So far, they are at least eight votes short and are having trouble corralling both conservative and moderate Republican members, who have concerns that go far beyond the tax cuts.

Keeping the two taxes would help Republicans avoid a messy and politically challenging situation on the Senate floor.

Under the procedure the GOP is using, Democrats can offer unlimited amendments. That means, for example, Democrats could propose keeping the taxes and using the money for more generous tax credits that could be used by near-retirees to buy health insurance. Such amendments might pass with bipartisan majorities and voting against those could be politically tough for Republicans.

It is unclear whether keeping the taxes would cost Republicans any votes in the Senate or the House. Some members, including Sen. Pat Toomey of Pennsylvania, have argued for repealing the taxes, saying they slow economic growth.

The 3.8% investment tax applies to capital gains, dividends, interest and other passive income. The payroll tax applies to wages and self-employment income. The levies were designed to go on top of the existing 2.9% payroll tax most wage-earners face that is devoted to Medicare, so that investment income and wages both face the same tax burden.

The main type of income that isn't subject to either tax is business profits from companies in which the taxpayer is actively involved. The Obama administration proposed applying a 3.8% tax to that income, but the proposal didn't advance in Congress.

Republicans have taken a different view toward other taxes passed as part of the 2010 health law. Those levies, on prescription drugs, medical devices and health insurance, are tied directly to health care and are now more likely to get repealed if Republicans can pass a law.

--Kristina Peterson contributed to this article.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

July 11, 2017 14:20 ET (18:20 GMT)