The U.S. recently released a bill to implement the AHCA that also repeals certain tax provisions.
The House of Representatives recently released a bill to implement the American Health Care Act (AHCA) that also repeals certain tax provisions, including the 3.8% tax on net investment income for individuals. Although it's not yet clear whether the new bill will pass into law, the AHCA will repeal 2010's Affordable Care Act (ACA) to fulfill a key promise of President Trump and his Republican Congress. However, even if it the bill isn't approved, it is likely that the United States will enact some bill on health care this year that will include tax provisions.
While some media reports have indicated that the bill may be withdrawn or fail due to political opposition, these kinds of objections to new legislation are common, particularly for bills addressing complex and important issues such as health care. Negotiations for the original ACA took a year, and the last comprehensive tax reform in 1986 died a multitude of deaths before becoming law.
Fiscal measures in the AHCA bill
The AHCA bill repeals fiscal provisions affecting individual taxpayers, including the penalty imposed on individuals who do not purchase insurance and the 3.8% tax on net investment income. In addition, the AHCA returns the threshold of medical spending required before a deduction is allowed back to 7.5% of income (from 10% of income). The ACA imposed these taxes to subsidize health care for lower income taxpayers. The AHCA bill changes the formulas for computing those subsidies so that they are less generous.
The AHCA bill will also generally affect the taxation of businesses in certain specific industries. Specifically, the bill repeals the medical device excise tax and other health-related tax provisions.
While not included in the current AHCA bill, Republicans have long promoted eliminating the deduction for the costs of employer-provided health insurance on business tax returns. This change would make health care a taxable benefit for individuals and would have a broad impact on business taxation. This provision appeared in an earlier draft of the AHCA bill and may yet resurface.
Enacting the AHCA bill
The bill implementing the AHCA is currently making its way through the U.S. legislative process. The bill has now been voted on by two House committees and both the White House and Congressional Budget Office (CBO) have prepared reports of forecasted costs and benefits. Dates for consideration by the full House and Senate have not yet been set. The bill will proceed through the Senate as a budget reconciliation bill so that it only requires a simple majority to pass (reconciliation bills can pass without opposition support).
From a tax reform perspective, it will be interesting to see how the bill moves through the legislative process, which could give us some insight into how tax reform legislation may pass in the future. The AHCA bill is the first significant piece of legislation to be considered since the election of President Trump and Republican majorities in both houses of Congress. It is likely that both political parties will be on a steep learning curve as they work out how to translate their ideas into law and how they work together on making that happen.
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Information is current to March 17, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500