To me the common assertion about health care reform reform and tax reform makes no sense

Various people have argued that Republicans decided to repeal and (very partially) replace Obamacare before moving on to tax reform, because Obamacare repeal (aka the American Health Care Act aka AHCA) would make it easier to permanently cut tax rates. To me this makes less than zero sense. The argument is that, since AHCA includes tax cuts, tax reform would start from a lower base, so it would be easier to write a tax reform bill which doesn’t add to the deficit after 10 years. It is, in fact, necessary that bills not add to the deficit after 10 years for them to be passed using the budget reconciliation process which makes them invulnerable to filibusters.

However, I don’t see how preceding tax cuts make new tax cuts budget neutral. No one has explained how the exact same tax reform bill could be passed using reconciliation if it followed passage of the AHCA but not if it preceded passage of the AHCA. I know of no one who has argued that the CBO score of the effects of tax reform would be markedly different, or even argued that the sign of the change in the score would be favorable.

Rather the argument seems to be that with the AHCA tax cuts and the tax reform tax cuts, rich people will pay lower taxes than with the tax reform tax cuts alone. This is obviously true and has nothing to do with the order in which the bills are signed into law.

Jonathan Chait has been a prominent proponent of the view which makes no sense to me at all.

The next source of money is repealing Obamacare. The connection between the two issues might seem obscure, but it matters technically. The Republican plan to repeal Obamacare would eliminate all the taxes that were raised to help pay for the benefits — about $1.2 trillion over the next decade. This would lower the baseline of tax revenue, meaning that Republicans would need to design a tax code that raises $1.2 trillion less in revenue in order to be “revenue-neutral.” That makes it crucial for them to repeal Obamacare before they cut taxes.

I can cut and paste his argument. I can read it. But I can find no sense in it at all. Yes if taxes have been cut by $1.2 trillion, then a revenue neutral tax reform needs to raise 1.2 trillion less. But nothing whatsoever justifies Chait’s use of the word “before”. I can’t refute his argument, because I can’t detect it.

This matters, because it now turns out that Donald Trump is one of the people who have been convinced (presumably by Paul Ryan not Jon Chait).

“We haven’t failed — we’re negotiating, and we continue to negotiate, and we will save perhaps $900 billion … we have to do health care first to pick up additional money so that we get great tax reform.”

This argument too makes no sense (very much less surprising in the case of Trump than of Chait). For the reconciliation process, money can’t be picked up with one bill and spent on another. Each bill taken alone must not increase the deficit after 10 years. Now reactionaries consider the AHCA to include great tax reform, since it includes reductions in taxes on high incomes. But this doesn’t make further reductions easier. The order in which the bills are passed doesn’t matter.

In fact, the AHCA makes tax reform more difficult. The reason is that the AHCA benefit cuts are even larger than the tax cuts. So the maximum allowed fiscal 2027 deficit would be smaller if the AHCA were law. A bill which combined health care reform reform and tax reform could include even larger tax cuts than simple repeal of the ACA tax increases and be passed using reconciliation.

I honestly don’t get it. I’m sure I’m missing something. I am also sure, 100% sure, that, even if passage of the AHCA were to make it easier for the GOP to pass a tax reform bill, this wouldn’t be because the AHCA includes tax cuts or deficit reduction.

update: minds think alike.

Comments (30) | |