Tag: ACA

The congressional budget deal will breath continued life into the now slimmer, but still robust, list of tax extenders. These are provisions that Congress has been extending for 1 or 2-year periods for years, rather than making them permanent or allowing them to die a dignified death. (In 2018, Congress did make others of the extender list permanent.)

Congress has long been playing this extender game because the budget rules require 10-year scoring of permanent provisions, while 1-year or 2-year (temporary) provisions appear to cost only 10% or 20% as much. Of course, since the provisions inevitably get extended by later congresses and presidents, that’s an illusion at best. A full employment practice for lobbyists. Given that both parties now appear to eschew almost any concerns about deficits, one would think they could get beyond that, but apparently not.

In the case of the ACA’s previously delayed pay-for taxes (medical device tax and Cadillac tax on high cost health plans), Congress took the other tack of permanently repealing those taxes, bowing to the inevitable. That’s a much bigger budget deal (North of $370 B over the 10-year window). Joint Committee Estimates are here.

The deal also includes passing the SECURE provisions, a collection of smallish retirement-related tax changes. These changes will reduce revenues overall and are unrelated to the budget, but the right members of Congress must have felt that they were important enough to include in the budget deal. I’ll write a separate post about SECURE’s changes in the RMD (required minimum distribution) rules for IRAs and other qualified plans, which strike me as unnecessary and I think may have unintended consequences.

Some quick observations (all based on the assumption that this budget deal gets enacted into law as written – i.e., that Trump doesn’t decide to shut down government as he did with the last year’s iteration):

• This will put the Minnesota income tax out of conformity with federal AGI – in most cases for tax year 2020 – putting some pressure on the 2020 legislature to enact a conformity bill. I doubt that pressure will be sufficient to get a tax bill through the 2020 legislature, but I’m now out of touch with legislative dynamics.
• Some provisions will automatically reduce state revenues without legislative action – e.g., delaying the age when RMDs must be taken. This is so because taxpayers will withdraw less money from their IRAs and other qualified plans as a result and there is no state penalty for doing so. The federal penalty for not taking an RMD is an excise tax; Minnesota has no comparable provision so taxpayers can do whatever they want without incurring a Minnesota tax consequence.
• Some provisions will raise state revenues without legislative action – the RMDs for inherited IRAs and other retirement plans will compel taxpayers to pay state tax when they take distributions to comply with the new federal rules. But these revenues will not be enough to offset the automatic reductions (in the short run).
• Repeal of the ACA’s pay-fors, particularly, the Cadillac tax is bad from a policy perspective or if you are concerned about deficits. Of course, given the GOP implacable opposition to raising any taxes and the thinking of organized labor (a key Democratic constituency, at least traditionally) that the Cadillac tax hits their plans hardest, that tax probably never had a snowball’s chance of going into effect. But it (or capping pretax employee health benefits) was a consensus choice of economists as a way to fund the ACA’s costs. It might have put a tiny brake on the inexorable inflation of health care costs.

Bottom line: well intended budget rules (here, requiring 10-year scoring) has unintended and stupid consequences. The beat goes on.