The House of Representatives plans to vote today on the Save American Workers Act, which includes a number of changes to lighten the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. burden by changing a handful of Affordable Care Act (ACA) provisions.
The bill would delay until 2019 what is commonly referred to as the “employer mandate.” The employer mandate requires companies with 50 or more full-time workers to provide health insurance to their employees or pay a penalty. The Joint Committee on Taxation (JCT)The Joint Committee on Taxation (JCT) is a nonpartisan congressional committee in the United States that assists both the House and Senate with tax legislation. The JCT is chaired, on a rotation, by the Chair of the Senate Finance Committee and the Chairman of the House Ways and Means Committee. predicts that this delay will reduce revenues by $26 billion over the next decade.
Additionally, the bill would change the ACA definition of a “full-time worker” to mean someone who works 40 hours a week rather than the current definition of only 30 hours a week. The 30 hours a week rule has been criticized since its conception for being far too few hours. This threshold matters, because it is the basis for applying the employer mandate. JCT predicts that moving back to the 40-hour standard would lower revenue by $18.6 billion from 2019 to 2018.
Another provision that would be further delayed is the “Cadillac” tax. The Cadillac taxThe Cadillac Tax is a 40 percent tax on employer-sponsored health care coverage that exceeds a certain value. The aim: to curb health-care cost growth, reduce favorable tax treatment of employer-provided insurance, and help fund the Affordable Care Act (ACA). It was repealed in late 2019 before taking effect. is a 40 percent excise taxAn excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. levied on health insurance plans that exceed a statutory limit. If the tax had been implemented this year as originally planned, those limits would have been $10,200 for individuals and $27,500 for families.
Because employer-sponsored insurance is not considered part of taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. , employers have an incentive to provide employee compensation in the form of insurance. The Cadillac tax was designed to counteract this incentive.
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However, the tax wasn’t necessarily decided in the best way. My colleague Kyle Pomerleau discussed this subject in 2013, writing:
…the excise tax is an odd way of accomplishing this. A better way would have been to just cap the tax exclusion for employer-sponsored health insurance. However, that was not politically feasible, especially with strong union opposition. So instead, lawmakers imposed the tax on insurance companies to drive up the price of insurance instead.
The Cadillac tax has never been implemented. The ACA had set it to begin in 2018, but it continues to be delayed. Earlier this year, the tax was delayed until 2022, and this new delay would push it back one more year to 2023. If this bill succeeds in delaying the tax further, JCT predicts a loss of $13.6 billion in government revenue.
A final small, but not insignificant, change is that the bill would also repeal the 10 percent excise tax on indoor tanning salons. The indoor tanning services tax is not ideal and has been shown to be unsuccessful because it targets one very specific industry with a miniscule and unpredictable base. The tax was created under the guise of public health and to fund the ACA. Indoor tanning customers had been declining since before its conception, and there is little to no proof that the cause of this decline is the tax, rather than simply a change in style preferences.
Some aspects of the ACA are unpopular on both sides of the aisle. Another previous version of the Save American Workers Act passed the House in 2014, but did not clear the Senate. The House appears to be continuing on its broad trend of delaying or repealing various provisions of the ACA.Share