We’re on day 16 of the shutdown. There have been serious negotiations in the past few hours that seem to indicate that we might have a workaround. For now, however, the lights remain turned off.
It would be great if we could boil down the disagreements over spending into one.big.thing but there are a number of really complex issues at stake. While it’s true that the government shutdown began with a specific event (the House Republicans tried to eliminate funding for the Affordable Care Act, commonly called Obamacare, which the Senate Democrats rejected), the discussions around the budget aren’t quite that simple. Both Houses of Congress keep tossing around terms heavy on “fees” and “tax” without explaining what they are – or how they affect taxpayers. Here are five things you need to know about the role of taxes in the government shutdown:
- Nobody likes the reinsurance tax. The tax, also called the “transitional reinsurance fee” is assessed on insurers (which, of course, gets passed along to the insured). The cost per person: $63. The idea was to protect insurers (that’s the insurance companies) from potentially high-risk insureds (those who had been unable to obtain insurance before because of their health or age) who might disproportionately take advantage of the federal health care exchanges early on in the process. The tax was expected to begin in 2014 and last three years – long enough to shake out some of the cost concerns and hopefully balance out premiums from the not-so-healthy with the healthy. A Senate proposal put forth by Democrats would have delayed the collection of the tax until 2015 but appears to be left out of the most recent negotiations. Unions and big businesses have openly opposed the tax. From a budget perspective, the measure is revenue-neutral.
- Tough income verification rules for subsidies make sense but are challenging to implement. A key provision of Obamacare would allow those who are not exempt from purchasing health insurance but may not be able to pay the entire costs to apply for government subsidies to help pay those costs. The number of subsidies will vary based on income (singles with an annual income of up to about $46,000, for couples making up to about $62,000, depending on age and geography). In order to roll out the subsidies, incomes of the applicants will have to be verified – and a big part of that verification puzzle relies on previously filed income tax returns. Republicans in the House worry that the current verification process is too lax and want to see those standards tightened. Doing so will, opponents argue, drive up costs, and create delays. President Obama has promised to veto any measure that would create additional restrictions but it appears that House Republicans will include language doing just that in the final bill.
- The medical device tax is a loser in this fight. Repealing the medical device tax has been a rallying cry since 2010. Medical device companies have been pushing hard for repeal of the 2.3% excise tax on medical devices, which run the gamut from pacemakers to artificial hips to cardiac stents, couching the tax as an “innovation killer.” So why won’t they ditch it? The tax is expected to raise nearly $29 billion in revenue. That’s not an insignificant number, causing statements like this one from Sen. Richard Durbin (D-IL): “We can work out something, I believe, on the medical device tax — that was one of the proposals from the Republicans — as long as we replace the revenue.” Exactly.
- Politicians still benefit from Obamacare even though they clearly don’t understand it. The healthcare exchanges were intended for those individuals who don’t have the benefit of employer-provided health care. One exception to the rule applies: the President and members of Congress were supposed to use the exchanges – you know, on account of they created them. The idea was that if it was good enough for the public, it was good enough for Congress. However, the law wasn’t clear as to whether this meant that the government would actually pay for those premiums – the snafu here is that the exchanges were meant to be available for those who were not entitled to employer-provided health care. It created a quandary. To “fix” it, the Office of Personnel Management (OPM) said that benefits would continue, causing a firestorm of controversy. If OPM had said no, the result would have been more or less a pay cut for members of Congress (which the public might have been okay with) and more than 10,000 staffers (not so much) – remember, employer-provided health care coverage is a tax-free benefit to employees. Taking that benefit away is the same as, more or less, taking thousands of dollars away from Congress (again, maybe okay) and their employees (maybe not okay). This latest round of wrangling over Obamacare raised the issue again, also questioning whether members of staff should be included in the exemption. As a result, the House introduced a bill that would have made it clear that staffers were included in the group of federal employees who would no longer receive any help from their employer to buy health insurance (in other words: a loss of tax-free benefits). That vote was eventually canceled.
- We’re still talking about tax dollars. At the end of the day, this is really about tax dollars. If the government defaults, Treasury Secretary Jacob Lew says that the government will lose its ability to borrow and would be required to meet its obligations relying only on cash on hand and new tax receipts. Even though we just passed an income tax filing deadline (October 15), an influx of income tax dollars is typically most likely in spring, not autumn. Taxpayers who file on extension received an extension of the time to file, not the time to pay. The Treasury isn’t expecting a bunch of new tax dollars. Analysts predict that would mean that the money runs out – this time, for real – around November 1.
Clearly, these are quick and dirty summaries… It’s not meant to be a blow-by-blow account of what’s gone on to date (that would take pages) nor is it an exhaustive list of all of the related tax provisions keyed to the shutdown.
It’s meant to give you a flavor of some of the major talking points surrounding the appropriations bill and the efforts to repeal/reform (depending on your take) the Affordable Care Act as part of the negotiations. As the details of what has been characterized as a “bipartisan Senate deal” get worked out, I’ll have more.
