Senate adds repeal of the ObamaCare individual mandate to tax reform

Headshot image of Dan Calabrese
Published by: Dan Calabrese on Tuesday November 14th, 2017

Two birds with one stone.

Excellent news: Senate Republicans have added the repeal of the ObamaCare individual mandate to their tax reform bill. Senators Tom Cotton and Rand Paul had pushed for the measure, and President Trump has also indicated he wants this in the bill.

There are a lot of reasons this is a good thing.

First, Senate Republicans have struggling to find a way to make tax reform comply with the moronic budget rules of the Senate. They should (and could) simply change those rules, but they won't and we've gone over that before. As it stands, they can't pass tax reform with a simple majority if the Keynesian bureaucrats at the Congressional Budget Office decide - in all their static wisdom - that the bill increases the deficit outside a 10-year window.

The Senate GOP is trying all kinds of tricks to comply with this stupid rule it should just get rid of, one of which is to delay for a year the cut in the corporate tax rate. But there's something even better they could do, and in recent days the Wall Street Journal editorial page has been campaigning for them to do it.

This column is going to join the campaign, because it's a great idea that - in the words of ?????? - would kill two birds with one stone.

The solution? Repeal the ObamaCare individual mandate. Not only is that a good policy outcome all its own, but believe it or not, it would satisfy the CBO on the tax reform issue. Here's why:

The trick is Senate procedure. The GOP is invoking a budget process that allows the party to pass the bill with 51 votes. But Republicans have to comply with the Senate’s Byrd Rule, which says the legislation can’t add to the deficit beyond the 10-year budget window starting in 2028. The Senate draft doesn’t meet this standard, so some parts of the bill may have to expire after a decade unless Republicans can fill the hole. It’s a shame this process pummels good policy.

Enter the idea of repealing ObamaCare’s individual mandate. The Congressional Budget Office predicts that dumping the mandate would “save” $338 billion over 10 years—and the savings continue in the following decades. The budget gnomes assume that if people are not forced to buy health insurance, fewer people will sign up for subsidies or Medicaid. The idea that millions of people will dump free health care is one oddity of CBO methods, but that’s an editorial for another day.

Some Republicans are traumatized from the GOP’s health-care failure and don’t want to complicate tax reform with fights over insurance coverage. But remember that Chief Justice John Roberts called the mandate penalty a tax. This is a political fight the GOP can win: If you like your ObamaCare plan, you can keep it. If you don’t want it or can’t afford it, you don’t have to pay a penalty. There would be no changes to benefits or coverage for pre-existing conditions, and not a dollar taken out of Medicaid, a word that would appear nowhere in the bill.

Note that the mandate is a tax on the poor. More than one in three households that paid the “individual shared responsibility payment” in 2015 earned less than $25,000 and more than 90% made less than $75,000, according to IRS data. For instance: More than 34,000 families in Maine paid $15 million to the government for the high privilege of not buying ObamaCare. Repeal would be tax relief for low-income families.

Basically, the mandate costs the federal government money because it pushes people onto the subsidized ObamaCare exchanges. And everytime someone who qualifies for a subsidy signs up, federal spending increases. The only saving grace of the individual mandate is that so many people are ignoring it, but even with its paltry impact on signups, it's still a budget buster.

It's also, according to Manhattan Institute senior fellow Chris Pope, the worst tax ever:

If you were deliberately trying to design the most arbitrary, painful and pointless tax possible, how would you go about it?

First, you would structure it to inflate the cost of an essential product. Then, you’d create exemptions so vast that only 5% of taxpayers were subject to it. You might even ensure that it hit people only when they were particularly vulnerable—like when they’d lost a job. Finally, you would use it to drive enrollment in entitlements, so that it increased the federal deficit by $338 billion.

In short, you would design something that looks very much like the Affordable Care Act’s individual mandate.

Sen. Tom Cotton (R., Ark.) has made headlines by suggesting that tax reform should include a repeal of the mandate—an annual tax of between $695 and $13,380 imposed on 6.5 million American households. In defense of the mandate, ObamaCare’s defenders have resorted to hyperbole and scare-mongering, probably because the penalty is so difficult to justify on the merits.

In most insurance markets, people seek coverage in proportion to the risk they expect to face, and insurers receive payment in proportion to the cost they expect to cover. This approach prevailed for nongroup health insurance in most states prior to ObamaCare. It produced stable markets with premiums of less than half what currently prevails on the exchanges, but often failed to ensure affordable coverage for individuals with major chronic conditions.

The ACA has reversed this situation, providing affordable coverage to individuals with pre-existing conditions, but yielding plans that are priced well above the needs of most Americans. The average annual premium was $5,712 in 2016, while median health-care spending was only $709 in 2014.

So the individual mandate inflates the cost of a not-that-valuable product, increases the deficit and punishes those least able to pay. Great policy, huh?

It remains to be seen if this will cost them the votes of pseudo-Republicans like John McCain, Susan Collins and Lisa Murkowski, who would see it as a backdoor way to undermine the very ObamaCare they saved from the gallows only months earlier. As a policy matter, the idea is unassailable.

GDP growth for Obama's final year? A measly 1.6 percent

That's really the problem with tax reform, or with any other major legislative initiative. The majority of Republicans on Capitol Hill are probably willing to support not only these ideas, but go much bigger as Rob (and I, and Herman, and probably you) would like. But the GOP can never seem to put together a congressional majority that doesn't depend on milquetoast squishes like McCain, Collins and Murkowski. So they can never pass anything that such people consider "too extreme" or whatever.

I think the difficulty in doing this, however, is about more than telling politicians to "stand for their principles" or whatever. Limited government and private-sector-driven economic growth are not their principles. And in the states that elect these people, the electorate hasn't decided that those things are their priorities. At least not enough of them to retire them in favor of those who would support such legislation.

During the Reagan years, a clear majority of American voters wanted limited government, low taxes and growth policies. That is not true today. Whether that's because the Republican Party stopped leading on this issue or because the left-wing media became more effective in its propaganda, we could debate all day long. But politicians generally respond to what the electorate wants, and there aren't enough elected officials in Washington who believe their voters want these things. That's why we never get them.

If Republicans really want to cut taxes and get rid of ObamaCare, the killing of the individual mandate is a beautiful way to kill those two birds with one stone. This is the best news we've heard on this front in some time.

Dan's new novel, BACKSTOP, is a story of spiritual warfare and baseball. Download it from Amazon here!