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November 29, 2017

Senate committee advances tax reform bill that would unravel ACA's individual mandate

Daily Briefing

    The Senate Budget Committee on Tuesday voted 12-11 to advance Senate Republicans' tax reform measure, which includes a provision that would effectively repeal the Affordable Care Act's (ACA) individual mandate.

    The vote fell along party lines, with Republicans on the panel voting in support of the measure and Democrats voting against it.

    Tax reform details

    The Senate's tax reform measure includes various health care-related provisions that differ from a tax reform bill (HR 1) the House approved earlier this month. For instance, the Senate bill would eliminate the penalty most U.S. residents must pay for not having health coverage under the ACA's individual mandate. In another break with the House bill, the Senate's proposal would maintain U.S. residents' ability to deduct certain health care expenses from their taxes.

    Further, the Senate bill would create a 17.4% tax deduction for pass-through businesses, which includes physicians. Under the Senate bill, a new 9% tax rate would be phased in over five years and apply to active shareholders and owners who take in less than $150,000 in taxable income from their businesses. In comparison, the House bill would implement a 9% tax rate on pass-through business entities' first $75,000 in net taxable business income.

    The Senate bill also would implement a 12.5% tax on income U.S. companies generate from intellectual property, regardless of whether that property is housed in the United States or in another country. Observers say the provision is partially aimed at drugmakers, which sometimes register their patents abroad in order to avoid paying U.S. taxes.

    Bill heads to full Senate, where passage remains uncertain

    The bill now advances to the full Senate, but according to the Washington Post, it remains unclear whether the measure has the votes needed to pass in the chamber. The Senate is seeking to pass the tax reform bill under its budget reconciliation process. That process allows certain bills to pass the Senate by a simple majority of 51 votes, without being subject to a filibuster, meaning Senate Republicans can only afford to lose two votes to pass the bill if all Democrats vote against it—as long as Vice President Pence casts a tie-breaking vote in favor of the bill.

    Some GOP senators, including Sen. Susan Collins (R-Maine) have expressed concerns over the bill's provision to eliminate the ACA's individual mandate penalty. However, Collins on Tuesday said President Trump has agreed to back two bills intended to bolster the ACA's exchange markets—which could convince senators concerned about the individual mandate provision to support the tax reform bill, Axios' "Vitals" reports. According to "Vitals," one of the bills would fund cost-sharing reduction payments to insurers called for under the ACA, and the other would create a new reinsurance program for insurers participating in the exchanges.

    According to the Post, those bills cannot be added to the tax reform measure under the reconciliation process, and Collins said she would like to see the bills enacted before Congress votes on a final tax reform measure. In order to pass in the Senate, those bills would need at least 60 votes, and Politico reports that some Senate Democrats who previously indicated they would support the health care bills could oppose them if the measures are presented as a bargaining chip to help advance the tax reform bill. Senate Minority Leader Chuck Schumer (D-N.Y.) on Tuesday said, "You can't sabotage the entire system and then say you're going to do a small little fix on top of that sabotage."

    Still, Trump on Tuesday said he thinks the Senate ultimately will pass the tax reform measure, though he added that the bill likely will change before it is approved. "It's going to have lots of adjustments before it ends, but the end result will be a very, very massive—the largest in the history of our country—tax cut," Trump said.

    Senate Majority Leader Mitch McConnell (R-Ky.) said he hopes to bring the bill to the floor for a vote this week. If the Senate does pass its own version of the tax bill, House and Senate lawmakers would have to form a conference committee during which they would seek to produce a compromise bill. Then, both chambers would have to approve that bill in order to advance the measure to Trump (Morgan/Cornwell, Reuters, 11/28; DeBonis et al., Washington Post, 11/28; Rappeport/Kaplan, New York Times, 11/28; Mascaro, Los Angeles Times, 11/28; Kim et al., Politico, 11/28; Bennett, Roll Call, 11/28; Baker, "Vitals," Axios, 11/29; Hellmann, The Hill, 11/28).

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