Conservatives revolt over talk of keeping ObamaCare tax

Conservatives revolt over talk of keeping ObamaCare tax
By Naomi Jagoda - 07-07-17 06:00 AM EDT

Conservative groups are warning GOP senators against keeping an ObamaCare tax on investment income in their healthcare bill, an idea that has gained some traction among lawmakers.

GOP lawmakers have floated keeping ObamaCare's 3.8-percent net investment income tax (NIIT) to help pay for more generous healthcare subsidies for low-income people. Democrats criticized an earlier version of the Senate's ObamaCare repeal bill for eliminating the tax because it generally applies to high earners.

But prominent conservatives argue Democrats will criticize the bill regardless of what happens with the tax. They say the tax is harmful to economic growth and should be repealed.

"This tax, just like any tax increase, is an anathema to conservatives as it suppresses economic growth and opportunity throughout our nation," Club for Growth President David McIntosh said in a statement Wednesday. "Under no circumstances should the NIIT be included in any forthcoming Republican 'repeal' bill."

ObamaCare's net investment income tax applies to individuals making more than $200,000 and married couples making more than $250,000. The tax falls on forms of income that include capital gains, dividends, and interest.

It is one of a number of taxes that Democrats enacted to help pay for ObamaCare. Other revenue provisions include a Medicare surtax on high earners and taxes on the medical device, prescription drug and health-insurance industries, among other things.

Republicans have long disliked the investment tax. The ObamaCare repeal bill the House passed in May would retroactively repeal the tax to the start of 2017, and the draft bill Senate Republicans released last month also would retroactively do away with the tax.

But the initial version of the Senate bill did not have enough votes to pass, and several GOP senators have suggested that they would be open to keeping the net investment tax if it would allows lawmakers to bolster healthcare subsidies.

"We [want to] address the issue of ensuring lower-income citizens are in a position to buy plans that are actually provide them appropriate healthcare," Sen. Bob Corker (R-Tenn.) told reporters last week.

Outside conservative groups, however, are pushing back against the idea.

Before the initial version of the Senate bill was unveiled, more than 40 free market groups and activists wrote a letter to Senate Finance Committee Chairman Orrin Hatch (R-Utah) urging lawmakers to repeal all of ObamaCare's taxes.

Representatives from the groups that signed the letter say they are troubled by the recent discussions about dropping the repeal of the NIIT, since they view repeal of the tax as a way to help boost the economy.

"Cutting the capital gains tax gets you growth," said Americans for Tax Reform President Grover Norquist. He called keeping the investment tax an "economically illiterate bad idea."

Taxpayers Protection Alliance President David Williams said that failing to repeal the investment tax would cause investors to delay selling assets and would "discourage more entry into the stock market."

Democrats have been repeatedly attacking Republicans on healthcare by arguing that their legislation would increase healthcare costs for poorer Americans to provide tax cuts to the rich. This message may be resonating, as polls have found that more people oppose the Senate's draft bill than support it.

The optics of repealing the investment tax are problematic for Republicans, and scrapping the idea could help to win over moderate GOP senators. But conservatives stress that keeping the tax is bad policy and won't get any Democrats to back the bill.

"Democrats will pocket the concession and continue demagoguing tax cuts for the wealthy as the tax debate begins - only more emboldened for having tasted blood," the Wall Street Journal's right-leaning editorial board wrote earlier this week.

Conservatives also say failing to repeal the investment tax in a healthcare bill could make tax reform more challenging. If lawmakers wanted to repeal the tax as part of tax reform instead of in healthcare legislation, they would likely need to find a way to offset the $172 billion in revenue losses that the Joint Committee on Taxation estimates would result from the provision's elimination.

And if lawmakers opt against repealing the NIIT in tax reform as well, their cuts to tax rates won't actually be as big as they look.

"In our opinion, it would be a mistake to throw away an opportunity to get a head start on tax reform," National Taxpayers Union President Pete Sepp said. He added that the investment tax doesn't only affect very wealthy people because it wasn't indexed to inflation, so it will affect more and more people over time.

The chairmen of the congressional tax-writing committees are among the biggest proponents of repealing the NIIT in healthcare legislation. Hatch and House Ways and Means Committee Chairman Kevin Brady (R-Texas) have said they want all of the ObamaCare taxes repealed in a healthcare bill.

"I'm convinced a stronger economy with better-paying jobs and higher wages, which results from no longer taxing that important investment, actually helps people afford more insurance," Brady said.

But while conservative groups are pushing for the net investment income tax to be repealed as soon as possible, some conservative lawmakers in Congress have said that maintaining the tax in an ObamaCare repeal bill would not be a deal breaker for them.

"Our official position is we want to repeal all the taxes. That being said, we understand the logistics of having to have enough revenue," House Freedom Caucus Chairman Mark Meadows (R-N.C.) said. "And so I'm not at this point closing that off to negotiations because I think it would be premature to do that."

Sen. Ron Johnson (R-Wis.) told his constituents in a telephone town hall last week that he's "personally not opposed" to keeping ObamaCare taxes to pay for health benefits.

For many lawmakers examining the taxes, "the one most likely not to be repealed would be the net investment tax, then the Medicare tax increase," Johnson said, according to the USA Today Network.