There is one fact that is both central to the debate over repealing the Affordable Care Act yet strangely absent from explicit discussion about it. One of the main ways the ACA makes health insurance affordable is by providing families earning less than 400 percent of the poverty line (i.e., less than $85,000 for a family of three or less than $47,550 for a single person) with tax credits to defray the cost of purchasing insurance. Giving people money helps make things more affordable. President Obama and the congressional Democrats who wrote the law didn’t find the money for those subsidies hidden in a banana stand — they did what Democrats like to do when paying for things and raised taxes on affluent families.
Republicans do not like this idea. They dislike the idea of raising taxes on wealthy households so much that back in 2011, they pushed the country to the brink of defaulting on the national debt rather than agree to rescind George W. Bush’s high-end tax cuts. In December 2012, they tried to insist that they wouldn’t let Obama extend the portion of the Bush tax cuts that everyone (including rich people) got unless he also extended the tax cuts that only rich people got.
All of which is to say that despite Democrats’ occasional protestations of bafflement as to why the GOP would so uniformly oppose a market-based approach to universal health care that Mitt Romney happily adopted in the mid-aughts in Massachusetts, there’s no real mystery here. Subsidizing the health care costs of working-class people is expensive, and while Democrats want rich people to pay the freight for doing it, Republicans do not.
That’s an important reason why they opposed the Affordable Care Act, it’s an important reason why they want to repeal it, it’s an important reason why they can’t replace it with something better, and it’s also an important reason why they may end up just dropping the whole thing.
REPEALING OBAMACARE IS A HUGE TAX CUT FOR THE RICH
The two big relevant taxes, according to the TPC’s Howard Gleckman, are “a 0.9 percent payroll surtax on earnings and a 3.8 percent tax on net investment income for individuals with incomes exceeding $200,000 ($250,000 for couples).” That payroll tax hike hits a reasonably broad swath of affluent individuals, but in a relatively minor way. The 3.8 percent tax on net investment income (money made from owning or selling stocks and other financial instruments rather than working), by contrast, is a pretty hefty tax, but one that falls overwhelmingly on the small number of people who have hundreds of thousands of dollars a year in investment income.
But people in the top 1 percent of the income distribution — those with incomes of over about $430,000 — would see their taxes fall by an average of $25,000 a year.
And for the true elite in the top 0.1 percent — people like designated White House senior adviser Jared Kushner, Treasury Secretary Steve Mnuchin, Education Secretary Betsy DeVos, Commerce Secretary Wilbur Ross, and many major campaign donors — the tax cut is truly enormous. Households with incomes of more than $1.9 million would get an extra $165,000 a year in take-home pay. That’s obviously more than enough money to make these hyper-elite families come out ahead regardless of what happens to health insurance markets.
By contrast, upper-middle-class families would get an extra $110 a year in after-tax income. That’s nice, but it isn’t going to replace a health insurance plan.
THIS IS WHY REPUBLICANS CAN’T MAKE A BETTER REPLACEMENT
Republicans have made a lot of political hay out of pointing out that the plans available under the Affordable Care Act are, in many ways, disappointing. Unsubsidized premiums are higher than people would like. Deductibles and copayments are higher than people would like. The networks of available doctors are narrower than people would like.
These problems are all very real, and they all could be fixed.
They are not, however, problems that any of the GOP replacement plans fix. Instead, while Republican alternatives vary in many important ways, they all fundamentally offer stingier insurance to a narrower group of people.
This is because the Republican plans all envision rolling back these ACA taxes. But under those circumstances, it’s simply not possible for the GOP to offer people the superior insurance coverage that it is promising.
Phil Klein, a top conservative health policy journalist, has urged Republicans to solve their overpromising problem by “stating a simple truth, which goes something like this: ‘We don’t believe that it is the job of the federal government to guarantee that everybody has health insurance.’”
THIS IS ALSO WHY REPUBLICANS MIGHT DROP REPEAL
While mania for tax cuts is an important driver of the GOP push to repeal the Affordable Care Act, it might also ultimately be what leads them to abandon it. If Republicans end up scrapping their “repeal and delay” plan, in which they immediately start destroying insurance markets while onlyvaguely gesturing at some unknown possible alternative, they will find themselves getting bogged down in a discussion of exactly what a replacement plan should look like. At that point, Republicans will find that the next item on their agenda is tax reform.
Republicans have a bunch of different tax plans floating around, but they all feature enormous tax cuts for wealthy households. Democrats will object, but they won’t be able to stop the GOP from enacting a big tax cut. The only issue will be how large of an increase in the budget deficit do Republicans consider economically viable. Once that’s decided, however, the tight linkage between the ACA and tax policy will be broken, since the entire rate structure will have already been rewritten in a way that makes the ACA’s specific financing mechanism irrelevant.
Taking away people’s health insurance is one way to create more budgetary space for additional tax cuts. But the same would be true of cutting spending on any program. Meanwhile, on the campaign trail Trump promised a $1 trillion infrastructure surge, an increase in military spending, no cuts to Medicare and Medicaid, and a balanced budget. Something will need to give, but it’s by no means clear that zeroing in on the health care law will be theway to go. It will end up beingone of many programs on which the government spends money to provide social services that Democrats generally want to make more generous and Republicans generally want to make stingier.
No matter how the budget crunch gets resolved,however, the tax issue is the $500 billion elephant in the room. It’s a key reason GOP leaders want repeal, a key reason GOP leaders have trouble agreeing on a replacement, and potentially a key reason they’ll ultimately decide to move on to other matters. Talking about health care politics without talking about the revenue side misses an enormous part of the story.