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When it comes to tax reform efforts, there's one thing that Republicans and Democrats can both agree on: it's expensive. As Senate leaders search for ways to make the numbers work, Republicans believe they might have a solution. Although there was no mention of Obamacare repeal in either of the House or Senate original plans, Republicans now plan to include language to repeal the Affordable Care Act's individual mandate .
The individual mandate is the requirement that Americans maintain health coverage. You’re considered covered if you have insurance through the government, including Medicare, Medicaid, CHIP, retiree coverage, TRICARE, or VA health coverage; private insurance that you purchased on your own including COBRA coverage and coverage obtained through the Health Insurance Marketplace; or provided by your employer (even if you didn’t pay anything for the coverage).
If you can't demonstrate that you have coverage and you don’t have coverage must claim a waiver or exemption (typically based on hardship), you are subject to a penalty called the shared individual responsibility payment. For the 2017 tax year, that penalty is equal to 2.5% of your adjusted gross income (AGI), or $695 per adult and $347.50 per child, up to a maximum of $2,085, whichever is higher. Barring repeal, that amount will be figured and reported on your 2017 tax return, payable in 2018.
The Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) estimate that repealing the mandate could free up $338 billion over the next decade. That money could be used to offset the proposed tax cuts - currently, the cost of the cuts would drive up the deficit.
I know what you're thinking: how would nixing the mandate - and the related penalty - save the government money? Without the requirement, fewer people will buy insurance. Since many of those who were previously uninsured rely on government subsidies, eliminating the mandate means fewer subsidies. Money saved.
The problem? Did you catch the bit about fewer people buying insurance? The CBO and the JCT predict that the result could be the loss of insurance for 13 million people by 2027. The CBO also projects that repealing the individual mandate would increase the cost of insurance premiums for those who remain insured - average premiums would increase by about 10%.
Those numbers are likely to cause problems for many in Congress. Concerns over loss of insurance for voters and potential instability in the insurance markets contributed to the failure of the House to repeal Obamacare earlier this year. A prior effort to gut the mandate also failed. And earlier this year, the Internal Revenue Service (IRS) confirmed that it would not accept electronically filed tax returns where the taxpayer is silent on health care coverage.
President Donald Trump has suggested that the savings could be used, among other things, to pay for the cost of reducing the top income tax rate to 35%. He tweeted on Monday:
I am proud of the Rep. House & Senate for working so hard on cutting taxes {& reform.} We’re getting close! Now, how about ending the unfair & highly unpopular Indiv Mandate in OCare & reducing taxes even further? Cut top rate to 35% w/all of the rest going to middle income cuts?
The Republicans need at least 50 votes to pass the bill. Currently, they control 52 votes in the Senate.
