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Senate tax plan goes from bad to worse

The political logic of Senate Republicans latest idea for a tax cut package is difficult to grasp. GOP senators were unable to coalesce around a plan to repeal and replace the Affordable Care Act because some were unwilling to take a vote that would mean millions fewer Americans would have health insurance coverage and that would make the marketplaces where others bought their coverage go haywire. Turns out, that idea wasn’t so popular with the voters back home. So now, confronted with the reality that voters are also not much interested in the party’s driving ambition to cut corporate tax rates much farther than, say, Mitt Romney ever contemplated, Senate Majority Leader Mitch McConnell has concluded that the path to 51 votes is to tack on a provision that will mean millions fewer Americans with health insurance and chaos in the health insurance markets.

But the politics are perfectly sensible in comparison to the policy involved. The ostensible purpose of including a repeal of the Affordable Care Act’s individual mandate in the Senate tax bill is to provide more room for middle class tax cuts. But if that’s really the goal, Republicans have a funny way of showing it. Yes, their latest proposal reduces slightly the tax rates — though only for couples who make more than $77,400 a year, and with the largest reduction for those making at least $120,000. And it increases the child tax credit slightly more than the original Senate bill, but the way the legislation is written excludes poor families from some of the benefit. It does, however, help out those who earn up to $1 million a year. But those middle class tax benefits, such as they are, expire after 2025. The corporate tax cuts, those are forever. Sen. Ron Johnson, a Wisconsin Republican, made waves Wednesday by pointing out the obvious tilt of the legislation and saying he would not vote for it without significant changes.

Meanwhile, many of the elements that make the House tax plan so regressive remain intact in the Senate plan: a repeal of the estate tax, which only a tiny fraction of extremely wealthy families with bad estate planning have to pay; abolition of the Alternative Minimum Tax, which mostly hits households in the $200,000-$1 million range, but which also was responsible for the bulk of the taxes Donald Trump paid in the one return of his we’ve seen in any detail; and cuts to taxes on pass-through businesses, which are also likely to be a big windfall for the president.

Eliminating the individual mandate would save the federal government $300 billion over 10 years, according to the Congressional Budget Office. Fewer people would buy insurance on the exchanges, meaning the government would be on the hook for less in subsidies. But the real savings would lie in reduced Medicaid rolls. Without the mandate, many low income people wouldn’t even contemplate getting health insurance and, thus, wouldn’t discover that they are eligible to get it for free. In all, the CBO estimates that 13 million fewer people would have insurance at the end of a decade.

And that would drive up costs for those who remain in the exchanges. Those marketplaces already suffer from what’s known as “adverse selection,” that is, the tendency of people who are older and sicker to buy coverage and those who are younger and healthier to opt out. That’s a large part of what has driven rates upward in recent years, and repealing the individual mandate will make matters worse. The CBO estimates that rates will by 10 percent higher without the mandate, but that may well underestimate the risk that the whole system will collapse or that reforms like a ban on denying coverage for those with pre-existing conditions will become unsustainable.

Whether any of this is even politically feasible in the Republican caucus is unclear. Some Republican senators have suggested they might be willing to support this approach if it is paired with the Lamar Alexander-Patty Murray legislation to shore up the Obamacare marketplaces, but that could be a non-starter with other members of the caucus, much less with the House. Meanwhile, the House and Senate remain divided about important questions like the deductibility of state and local property taxes — a key issue in states like Maryland, New York and New Jersey. And tossing the ACA into the mix essentially guarantees that no Democrats will support the legislation, something that was at least a remote possibility before.

What is certain, though, is that helping the middle class is not the animating ambition of this exercise. It is cutting taxes for corporations and the wealthy, and whatever sacrifices must be made to make the math work will be borne by the very people Republicans claim to be helping.

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