Tax Reform Bill – Two Steps Forward And One Step Back

It appears that eliminating the individual mandate from Obamacare will no longer be a major part of the tax reform bill that Congressional Republicans are hoping to pass before the end of the year. This makes the bill more attractive to Republican senators and representatives in two ways, but less attractive in another way.

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Now, some thirteen million Americans will no longer lose their medical insurance – something a sizeable minority of Republicans in the House and the Senate actually seem to care about. A second advantage is that uncoupling the partial Obamacare repeal from the tax reform proposal makes the latter much less complex – and therefore easier to sell to voters.

But what one hand giveth, the other taketh away. If the tax reform bill does pass, when Congressional elections are held one year from now, Republicans will not be able to claim that they have even partially repealed Obamacare.

And then too, there is still another complicating factor. Repealing the individual mandate would have reduced the federal budget deficit by about $30 billion a year, because the government would no longer be subsidizing the private insurance payments paid by millions of Americans with moderate incomes.

In order to keep future deficits from rising more than the legally mandated cap of $150 billion a year, Republicans will need to either raise taxes or lower government spending by $30 billion. And doing so will inevitably make the ultimate tax reform bill less attractive to some Congressional Republicans.

Still another possible advantage of decoupling partial Obamacare repeal from the tax reform measure will be raising the possibility of picking up a handful of Democratic votes – especially the votes of senators and representatives from so-called red states that strongly supported Donald Trump in last year’s election. That consideration had been part of the Republican plan. Now it may be a distinct possibility.

Still, the odds against passage of tax reform this year may not be that great. Perhaps the biggest  threat will be that of Republican deficit hawks, who have long opposed the high deficits during the Obama Administration. Two of the most prominent are Senator Bob Corker of Tennessee and Jeff Flake of Arizona.

Both are leaving the Senate after the 2018 election, and even more important, both are at the top of President Trump’s enemy list. So if and when the tax reform bill comes to a vote in the Senate, it appears likely that these two senators will be in a position to defeat the bill.

The tax reform bill will probably remain a work-in-progress in the coming weeks. But dropping the individual mandate very likely increased its chances of passage.

About the Author

Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books) which was published in August.