United States

Cancelled healthcare vote may accelerate tax reform efforts

Mar 24, 2017

Tracking Tax Reform

By John Gimigliano, Principal in Charge, Federal Legislative & Regulatory Services, Washington National Tax, KPMG LLP

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Late Friday afternoon, House Republicans canceled a scheduled FY 17 Budget Reconciliation vote to repeal parts of the Affordable Care Act (ACA) and replace it with GOP-backed alternates. This development in the repeal-and-replace effort now raises a number of interesting questions about the future of tax reform.

Acceleration of tax reform? Just two weeks ago (see March 10 item below), we attempted to connect the dots between the healthcare reform and tax reform processes. Looking back, much of what we wrote then now looks prescient:

  • The Republican-sponsored healthcare proposal has received no support from Democrats. And it’s far from clear there’s enough Republican support to get it through the House and Senate.
  • It’s hard to get enough support for major policy changes that create “winners” and “losers.”
  • While Republicans may agree in principle on broad policy goals (e.g., repealing and replacing Obamacare, reforming the U.S. tax code), they have different views on how to do it.
  • Compromise among Republicans may be necessary, but may not necessarily be easy to achieve.

Yet, we appear to have been off the mark in one important way. We indicated that the Republicans would likely wait until after FY Budget Reconciliation policies were enacted before taking serious action on tax reform. But following the canceled vote, Capitol Hill and the White House have made it clear that tax reform is now the priority. So instead of tax reform efforts slowing down, they may now be accelerated since Senate action on the House’s healthcare bill is no longer the next step in the ACA repeal-and-replace process.

Budget impact? Failure to repeal ACA-related taxes in advance of tax reform (which includes the net investment tax) could add additional budgetary pressure to tax reform—perhaps adding several hundred billion costs to the effort. In theory, however, if the GOP believes they can repeal the ACA at a later date, they could leave the ACA taxes in place for now and pursue tax reform separately. For many, this is not an ideal scenario, but it’s not impossible.

Finally, it is likely that the GOP will revisit healthcare reform—perhaps sooner than later. We’ll be watching this closely and keeping you updated.

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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.