Senate to Try Again After ACA Repeal Fails; Other Tax Reform Efforts Continue

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Efforts to bring a bill to repeal and replace the Patient Protection and Affordable Care Act (ACA) to the floor of the Senate failed early this week due to divisions among Republican senators. A short-lived subsequent effort to move forward with a repeal-only measure, with a deferred effective date while a replacement is designed, also failed to garner enough support to proceed. Pending further action, all provisions of the ACA (including the Net Investment Income Tax and the Additional Medicare Tax) remain in effect.

 

On Wednesday President Trump met with Republican senators at the White House to discuss a new partial repeal effort. As a result, a vote on the Obamacare Repeal Reconciliation Act of 2017 is now scheduled for next week. A Congressional Budget Office score of the bill says that by 2026 it will reduce the federal deficit by $473 billon and increase the number of uninsured Americans by 32 million.

 

Congressional committees have been active in other tax reform developments this week. On Tuesday, the House Budget Committee released its fiscal year 2018 budget resolution, listing five areas to be addressed in any tax reform policy: 

 

  • Simplifying the tax code
  • Lowering individual tax rates
  • Repealing the Alternative Minimum Tax
  • Lowering corporate tax rates
  • Revising international taxation to make the US more competitive

 

Also on Tuesday, the Senate Finance Committee held a hearing on tax reform. Four witnesses, all Assistant Secretary of Treasury for Tax Policy in previous administrations, encouraged lawmakers to use the current "window of opportunity" to act while members of both parties are amenable to tax reform.  One urged against lawmakers trying to solve all problems at once, stating that "incremental progress will be a significant accomplishment."

 

A witness from the accounting profession said that while revenue-neutral tax reform efforts always produce "vocal losers and largely silent winners," lower rates will benefit the economy by causing taxes to be less of an influence on American's decisions about working, saving, and investing.  She also urged moving to a consumption-based tax system. A speaker from a tax policy think tank warned that lowering corporate taxes may cause a significant shortfall in revenue to the US Treasury.

 

The House Ways and Means Tax Policy Subcommittee, after holding a hearing on corporate tax reform last week, held one on individual tax reform on Wednesday. Witnesses and lawmakers stressed the complexities of the current system, such as six different definitions for "dependent" found in various places in the tax code. The need to provide incentives to save for retirement was discussed, as was the divide between the wealthiest Americans and middle-class and working families.

 

A recent news item from Reuters pointed out that the prospect of lower tax rates, possibly in 2018, is causing wealthy Americans and corporations to defer income they might otherwise recognize this year. This is creating a shortfall in the US Treasury and causing officials such as Treasury Secretary Steven Mnuchin and House Minority Leader Nancy Pelosi (D-CA) to call for the debt ceiling to be raised before Congress breaks for its summer recess.

 

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