United States

Healthcare and taxes: What does it mean?

Aug 03, 2017
From the Tax Governance Institute

Is the Blueprint on a collision course with political reality?

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

Read more Tracking Tax Reform blog posts

The inability of the U.S. Senate to advance further action on healthcare reform—specifically, to repeal and/or replace elements of the Affordable Care Act via FY 2017 budget reconciliation—may not be all bad news for the chances of tax reform. Here are several reasons why:

  • Healthcare reform may not really be dead. There have been several occasions in CY 2017 when healthcare reform appeared to be dead. (Speaker the House Paul Ryan (R-WI) even declared the ACA to be the “law of the land for the foreseeable future,” following the withdrawal in March of the healthcare bill from the House floor.) Yet it’s been revived again and again. So, however likely it now appears, it may still be premature to count it out for good.
  • The demise of healthcare reform may accelerate tax reform time line. If debate on healthcare reform drags on into the fall, then action on tax reform might be forced to wait until 2018. But if it’s really dead, Congress can focus on tax reform and try to develop a plan that can get House and Senate buy-in.
  • ACA taxes may be a non-issue. Some have suggested that the GOP would need to “shoehorn” ACA taxes into its tax reform calculations, which would further complicate the process. The fact is that Congress can simply choose to leave all the ACA taxes in place—with none, except perhaps the 3.8 percent net investment tax, having a material effect on tax reform policy choices.
  • There may be increased pressure on the GOP to enact tax reform. If healthcare reform is done for the foreseeable future, then the stakes for enacting tax reform get higher for the GOP. If Congress can get a win on tax reform, the sting of healthcare failure might be forgotten, or at least mitigated.

For example, President Obama had a quartet of major policy priorities for his first year in office: the “economic stimulus bill,” financial services reform, healthcare reform, and climate change legislation. He succeeded with the first three, but failed on the climate change front. Still, the narrative is that those first 12 months in 2009 and early 2010 were transformational because of these three successes. Similarly, if the GOP nails down a tax reform victory, 2017 may nevertheless be viewed as a successful year.

Bottom line: It’s safe to say that not achieving healthcare reform before the August break is not the same as making tax reform more likely this year. But it’s also prudent to observe that it doesn’t necessarily make tax reform success less likely, either.

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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.