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March 30, 2017

House Fails to Pass the American Health Care Act, What Now for Tax Reform? (article)

The House of Representatives did not put the American Health Care Act (AHCA) to a vote on March 24, 2017. Reports indicate that President Trump asked Speaker of the House Paul Ryan (R-WI) to withdraw the bill just before a vote was scheduled, despite ongoing negotiations between House Leadership and the conservative Freedom Caucus.

The scheduled vote already was delayed once previously, with the bill failing to gain support from conservative and moderate Republicans. It is not yet clear what the fate of the AHCA will be, though Ryan said, "Obamacare is the law of the land; it's going to remain the law of the land until it's replaced. We did not have quite the votes to replace this law, and so we're going to be living with Obamacare for the foreseeable future."

Passage of the AHCA was far from certain since the Congressional Budget Office (CBO) released and updated its report on the bill (including subsequent amendments). The CBO report highlighted that up to 24 million people would lose health insurance coverage under the AHCA, and that insurance premiums would rise in the short-term. The question now turns to what effect the AHCA’s failure will have on tax reform.

Leaders in the House, including Ryan and House Ways and Means Chairman Kevin Brady (R-TX), have argued that the health care bill was essential to the passage of tax reform. Ryan said in a press conference after pulling the AHCA that the failure of the bill will make tax reform harder, "but it does not in any way make it impossible." He continued on to say, "(w)e are going to proceed with tax reform." Kevin Brady also told reporters that the task of passing tax reform is "nothing that is insurmountable."

President Trump indicated the administration would be moving on to tax reform. He contradicted his earlier statements on the subject by saying tax reform was something “we could have done earlier" during a White House press conference.  He had previously said that he wishes that “massive tax reform” could have come first.

However, not all members of the Republican Party believe that the failure of the AHCA will weigh negatively on the prospect for passage of a tax reform bill. Rep. Tom Cole (R-OK) said, before the vote, that the failure of a health care bill wouldn’t be the end of the road, saying tax cuts will “go ahead one way or another.” He said the failure of the health care bill would be a setback. He also said,  “God made Republicans to cut taxes. That's what they do. And they don't worry too much about the budgetary consequences of it sometimes.”

It is even possible that the passage of a health care bill would have made tax reform harder. A Republican lawmaker said, anonymously, that voting for the health care bill may have caused some members of the party to be less likely to vote for tax reform. The argument is that lawmakers might not have been willing to take the political risk of voting for a health care bill that could hurt some of their constituents and then take another risk on a tax reform bill.

Now that the AHCA has been withdrawn, fears from some members of Congress on the fate of tax reform could be put to the test. Previously Representative Bill Flores (R-TX) has said “[i]f we are not able to move forward with healthcare reform, it endangers tax reform. The folks that were able to tear this down would feel like they're empowered to tear the next big project down.

Senator John Coryn (R-TX) agreed with this viewpoint in the past when he said, “This is so basic to what we've promised over the last few elections. I think if we fail to keep this promise then I think it makes the rest of our work much, much more difficult to accomplish.”

Regardless of the prospects for health care reform, it is clear that the House Republican majority is not as closely aligned as once thought. The potential for cooperation between House and Senate Republicans on major legislation also remains uncertain. Members of the Senate previously offered sharp criticisms of the House tax reform plan. Sen. Lindsey Graham (R-SC) said Feb. 19 on CBS's Face the Nation that the House tax reform plan “won't get 10 votes in the Senate.”

And Sen. Tom Cotton (R-AR) has said that he doesn't think the Senate “should sit back passively and let the House send us some half-baked idea as a take it or leave it proposition.”

These and other comments have gained the attention of House Republican leadership. Kevin Brady has said that his office has had “a lot of discussions” with the White House and that "(w)e are exploring a number of options with the import industry."

Treasury Secretary Steve Mnuchin has said that the current version of the border adjustable tax is probably not going to be part of the President’s tax reform plan, but Brady seemed confident that some version of the proposal would be included in the overall tax reform package.

Brady has also indicated that there was still a learning curve for some House Republicans regarding the Senate’s reconciliation rules. "One lesson is that we have a lot of new members who are still learning about the constraints of reconciliation and these odd Senate rules that can put guardrails around what the House wants to do," Brady said. "Those same guardrails just apply differently [but] will be present in tax reform.”

Thus it appears that the stage is now set for the long process of trying to reform the tax code.

Copyright © 2017, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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