In DC, the current focus of Congress’ attention is the GOP’s Tax Cuts and Jobs Act tax reform package introduced Thursday. As proposed, it lowers corporate tax rates, eliminates or limits some popular deductions, adds new taxes including a tax on college endowment income, eliminates some loopholes, caps mortgage interest write-offs at $500,000 and expands the standardized deductions for middle income families.
Its sponsors are Republicans: Democrats oppose it. And special interest groups are already lined up on both sides. Here’s the storyline we’ll hear in the next few weeks:
Proponents will opine to the complexity of the current tax system featuring seven individual tax brackets and a corporate tax rate (35%) that’s highest among industrialized economies. They’ll remind voters that the federal tax code has grown from 400 pages when first introduced in 1913 to 74,608 pages today including 3000 added to accommodate provisions in the Affordable Care Act. And they will assert that tax breaks for businesses, large and small, will stimulate economic growth resulting in wage increases for the majority of working Americans.
Opponents will counter with questions: Will tax breaks for companies result in higher wages for their employees or benefit their owners and shareholders primarily? Will the tax cuts for companies and individuals add to the deficit? Will Congressional budget hawks pursue funding cuts for federal programs like Medicare, Medicaid and others to offset tax cuts? Why penalize well-healed private university endowments by adding a new tax on their earnings if those proceeds benefit deserving students? And is it fair to eliminate deductions for student loan debt and medical expenses that help vulnerable populations? And so on. The stage is set.
It’s sure to be a lively debate akin to the debate about the Patient Protection and Affordable Care Act that passed in 2010. To lower costs and increase access to health insurance, it changed incentives for providers from volume to value, expanded coverage via Medicaid expansion and subsidized enrollment through the marketplaces, and restricted the business practices of health insurers deemed unfair. It passed along party lines, but seven years after passage, remains contentious and highly partisan.
The parallels between the ACA’s passage and the upcoming debate about tax reform are uncanny. Consider:
Both pieces of legislation involve federal roles—healthcare and taxation--that have expanded in recent history. The modern era of healthcare traces its roots to passage of Lyndon Johnson’s Great Society program in 1965 that funded healthcare for 19 million seniors through Medicare and 4 million poor women and children through Medicaid. Today, these programs cover 54 million seniors and 74 million poor and disabled adults and children. And as they expanded, additional legislation and funding followed. Case in point: the U.S. Department of Health and Human Services’ $1.1 trillion budget is the biggest department of our federal government. Likewise, the income tax is of recent origin tracing its start to 1913 when the marginal tax rate ranged from 1% to 7% for those earning more than $500,000. Today, there are seven brackets ranging from 10% to 39.6% for income above $450,000 but 45% (77 million households) pay no federal income tax at all (though they might pay a state income tax). It’s complicated, just like healthcare.
Both involve legislation sponsored by a political party in control of Congress and fiercely opposed by the other. When passed in 2010, Democrats controlled both Houses of Congress and the White House en route to and passing the Affordable Care Act. Republicans now control both Houses of Congress and the White House and hope for they can pass tax reform without Democratic support.
Both provoke strong feelings among voters based on personal experiences. Kaiser Family Foundation tracking polls show little change in public opinion about the Affordable Care Act from 2010 forward: half think it a costly overreach by the government and half a necessary path to increased coverage for those lacking insurance. But these views are not based on a studied understanding of our health system; rather, they’re based on personal interaction with doctors, hospitals and insurers they use. It’s circumstantial deeply personal. Public opinion about tax policy, like healthcare, revolves around personal circumstances. A holistic understanding of U.S. fiscal policy is virtually missing according to polls. But 149 million individuals who file returns every year know it’s complicated. That’s why 55% use an outside preparer and 29% itemize deductions per the IRS.
Both spark hyper-activity among special interests. Per the Center for Responsive Politics, 1259 organizations registered to lobby as the Affordable Care Act moved through Congressional gestation in 2009. Opponents outspent proponents by 7 to 1. The GOP tax bill is likely to spark a similar reaction: its opponents include homebuilders, realtors, small business, elite private universities who have already voiced their concerns. Proponents will likely include business interests who will benefit from tax breaks (though the National Federation of Independent Business has already voiced its opposition). What’s clear is special interests will play an active role in shaping its outcome.
And laws like these move public policy in a direction desirable to some and feared by others. The ACA’s central premise was that the health system should be accessible and affordable to everyone and the federal government should lead the way. It moved public policy in healthcare toward a more regulated industry with controls on spending and constraints on the business practices of physicians, insurers, hospitals, drug manufacturers and other key stakeholders. But, in the case of the ACA, it left unanswered bigger questions for future consideration:
· Is healthcare coverage in the U.S. a fundamental right or privilege?
· How much should the U.S. spend (invest) in its healthcare programs?
· What roles should federal, state and local governments, employers, private insurers, and individuals play?
· How should costs, safety, quality, affordability, value and effectiveness be defined across our system to insure consistency and continuity?
· Should individuals be accountable for their health choices and lifestyles, or does government play a role?
· And how should health and human services programs be integrated to improve the healthiness of our most vulnerable populations?
Will the fate of the Tax Cuts and Jobs Act be similar? Will it pass along party lines and prompt public discussion about the bigger questions downstream? Will it move our fiscal policy toward a simpler tax system or funding less dependent on personal income taxes in favor of others? From all accounts, the GOP bill moves our fiscal policy toward a more business-friendly tax system and bets that overall economic growth will benefit everyone—a proposition opponents doubt.
The great thing about our country is the opportunity to debate substantive issues like healthcare and tax reform. The tragic thing about that process is the relative weakness of individual voices and the relative strength of special interests in defining their outcome.
The journey of the Affordable Care Act to passage in 2010 is instructive about the path big legislation takes before becoming law. That’s likely what we’ll see in coming weeks as tax reform takes center stage.
P.S. November 11 is Veterans Day. There are 21 million living Veterans among us, including 9 million who depend on the Veterans Health Administration to provide their care. The VA traces its roots to President Lincoln who founded the Civil War Veterans of the Union Army “to care for him who shall have borne the battle, and for his widow, and his orphan.” In 1918, Congress authorized appropriations for hospitals to treat veterans of World War I and President Hoover established the Veterans Administration (VA) in 1930. Today, the Veterans Health Administration is the largest integrated health care system in the United States, providing care at 1,243 health care facilities, including 170 VA Medical Centers and 1,063 outpatient sites of care of varying complexity (VHA outpatient clinics). All Americans owe a debt of gratitude to our vets and the civil servants in the VA who care for these heroes.
See Paul’s recent H&HN piece: Can Hospital Boards Be Held Accountable for the Organization’s Culture?