The Senate is scheduled to vote Tuesday on an amendment by Sen. Mike Johanns (R-Neb.) to small business legislation that would repeal a provision of the landmark health reform law enacted earlier this year which is designed to raise revenue by reducing noncompliance with the nation’s tax laws.
The Johanns amendment would offset the large revenue loss from repealing the tax compliance provision by eliminating critical funding for health prevention and by seriously weakening a key element of health reform, the requirement that individuals obtain health insurance or pay a penalty, according to a new independent analysis released by the Center for Budget and Policy Priorities (CBPP).
“While critics have raised legitimate concerns about some of the paperwork requirements related to that provision, policymakers can address those concerns by modifying the provision, rather than by repealing it outright and thereby allowing substantial tax avoidance to continue,” say CBPP analysts Edwin Park and Chuck Marr.
Congress returns to session this week for its last scheduled weeks of legislative work before lawmakers adjourn to campaign for the crucial midterm elections.
The CBPP analysts call an alternative amendment from Sen. Bill Nelson (D-Fla.), which the Senate will also consider Tuesday, “a far superior approach.”
Repeal of the tax provision in question would cost the federal government $17.1 billion in revenue over 10 years.
Prior to enactment of the health reform law, known as the Affordable Care Act, businesses typically have had to report to the Internal Revenue Service any payments of more than $600 they made to vendors for services they received, so as to help the IRS determine whether vendors were accurately reporting their income on their tax returns, the CBPP analysts explain.
But both the federal nonpartisan watchdog agency, the Government Accountability Office (GAO) and the IRS itself found that the requirement is not sufficient to prevent a many vendors from significantly under-reporting their income in order to reduce their tax bills, they say.
The GAO, the IRS, and the Treasury Department under both President George W. Bush and President Obama have all recommended strengthening the reporting requirement to remedy this problem. Accordingly, the health reform law eliminated exemptions, requiring businesses to report payments of more than $600 to corporations and payments for goods and property, as well as for services. This new requirement is scheduled to take effect in 2012.
The Johanns amendment would strip $11 billion in Affordable Care Act funding in investments for health prevention and related activities and would “seriously weaken other aspects of the health reform law,” the CBPP analysis says.
The Johanns amendment also would weaken the requirement under the healthcare law that Americans maintain health coverage, the analysis says.
“Beginning in 2014, under the Affordable Care Act, uninsured people with incomes between 133 percent of the poverty line (the new Medicaid eligibility ceiling) and 400 percent of the poverty line who lack access to affordable job-based coverage will generally be eligible for subsidies to help pay for coverage through the health insurance exchanges,” it says. “Under the Johanns amendment, individuals and families who are eligible for the subsidies could choose to forgo coverage and not pay a penalty if their subsidized premiums exceed 5 percent of income, as they would under the Affordable Care Act for many of these people. (People with incomes above 400 percent of the poverty line whose premiums would exceed 5 percent of their income also would become exempt. And people with access to employer-based coverage who are required to pay more than 5 percent of their income for their share of premiums would be exempt, as well, if they remained uninsured.)
“In fact, this is precisely the amendment’s intent,” it adds. “As noted, repealing the information-reporting requirements designed to reduce tax avoidance and improve compliance would reduce revenues by $17.1 billion over ten years. The part of the Johanns amendment that would enable people who would have to pay more than 5 percent of their incomes for health insurance premiums to remain uninsured without facing a penalty would cause a significant number of people with incomes between 133 percent and 400 percent of the poverty line to elect to remain without insurance. Since these people would not receive a tax-credit subsidy to help cover their premium costs, federal costs for such subsidies would be lower. The Johanns amendment uses those savings to help pay for the loss in revenues that would result from the reduced compliance with tax laws that would result from its repeal of the information-reporting requirement.”
Republicans strenuously opposed passage of the healthcare law, and have vowed to repeal it if given a chance.
By contrast, the Nelson amendment would provide “a balanced approach that responds to concerns over paperwork burdens while still strengthening tax compliance,” the CBPP analysis says.
“On the most controversial aspect of the original provision — extending the reporting requirement to payments for goods and property — the amendment would exempt businesses with fewer than 25 employees and, for larger firms, significantly increase (from $600 to $5,000) the threshold for payments that must be reported. The amendment would also give the Treasury the regulatory flexibility to further limit the requirement both before and after its 2012 implementation,” it says. “To avoid adding to budget deficits, the Nelson amendment would pay for this small-business relief by reducing the generous tax subsidies to very large, profitable oil companies.”
The publisher of the news site On The Hill, Scott Nance has covered Congress and the federal government for more than a decade.