Thursday, November 16, 2017

The Senate’s Improved Tax Bill



National Review Online
Wednesday, November 15, 2017

Senate Republicans released a revised tax-reform bill yesterday. Our concerns with the first draft of the bill were with its changes to the individual tax code, and the new bill makes key improvements on that end. The most significant change is to repeal Obamacare’s individual mandate, a good idea that will require careful implementation.

Repealing the mandate will save the government money that it would have otherwise paid out in the form of health-insurance subsidies. That should reduce the amount by which tax reform will widen the deficit, but it almost certainly won’t save the more than $300 billion the Congressional Budget Office estimates it will. The CBO analysis relies on the faulty assumption that 13 million people would drop insurance coverage if the mandate were eliminated, and the agency itself has said it will soon be revising this estimate downward. Republicans should not pretend all the CBO’s projected savings will materialize while denying the coverage losses will happen; they should make sure their proposal sticks to their budget constraints even if savings from the repeal of the mandate are modest.

Even if it won’t save as much money as expected, repeal is the right thing to do. The individual mandate is an unacceptably coercive policy that forces people to buy a product they might not want. Still, getting rid of it while keeping the rest of Obamacare’s regulations in place will raise premiums for consumers. To solve that problem, Republicans should commit to a renewed push for health-care reform.

As it stands now, Senate Republicans have reportedly committed to passing the Alexander-Murray compromise alongside the tax-reform bill. When Alexander-Murray was first floated, it was a one-sided bill that was not worth conservative support, funding Obamacare’s cost-sharing-reduction payments and securing little in exchange. It may be worth including if it somehow helps wrangle the last few GOP votes for tax reform. But Alexander-Murray still does not do enough in the way of deregulation, and it should either relax the Obamacare regulations at the federal level or allow states more power to determine their own health-care systems. House Republicans, who are not bound by Senate deals, should accordingly propose a version of the bill with more aggressive deregulation.

Elsewhere, the tax bill expands the child tax credit to a proposed $2,000. Previous iterations of the House and Senate bills have merely restructured existing pro-parent features of the tax code, but this change actually expands them. That will provide most middle-class families with significant tax relief, and it assuages one of our chief concerns with the initial version of the bill.

The new bill includes a sunset provision under which individual-tax reforms such as the expanded child tax credit, the expanded standard deduction, the abolition of the state and local tax deduction (SALT), and other such measures would expire after 2025. (The corporate-rate cut would remain permanent.) That brings the projected cost of the bill down, but the risks to the enlarged child credit and standard deduction seem small. Even if Democrats are in power then, they will presumably be loath to let these popular provisions die.

Conservatives should not ignore the importance of keeping the federal deficit under control, nor the risks of repealing the mandate without broad-based health-care reform. But Republicans are taking important steps toward achieving a worthwhile goal, and their efforts are worth conservative support.

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