Republicans and Democrats are squaring off in a fight over tax fairness as the GOP develops a timetable for repealing the 3.8 percent surtax on investment income under the health care overhaul.
GOP lawmakers have long argued for elimination of the surtax, or the net investment income tax, that applies to income such as interest, dividends and capital gains for individuals making more than $125,000 or couples earning more than $250,000.
The levy was created by the health care overhaul to help pay for subsidies and has been championed by Democrats as both a pillar of support for health care coverage and a key component of President Barack Obama’s push to reduce income inequality in part by raising taxes on the wealthy.
Senate Finance Chairman Orrin G. Hatch, R-Utah, and Ways and Means Chairman Kevin Brady, R-Texas, said last week that no final decision had been made on the effective date for repeal of the surtax and others in the health care law. The ending of the surtax has been caught up in the broader discussion on how to repeal Obamacare.
“Most people would like to do it right up front,” Hatch said, referring to repeal of the surtax.
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But the Senate’s top tax writer said Democratic opposition and procedural hurdles could slow down the process of repealing the surtax and other parts of the health care law. “With the way that Democrats are acting right now, it’s going to be very difficult to get anything done that’s substantial,” Hatch said Friday.
Brady told reporters last week that House GOP leaders had not decided on a timetable for repealing Obamacare’s tax cuts, including the surtax. “There’s lots of discussions, no decisions. That’s exactly where we are at,” Brady said.
As the Senate began consideration of a fiscal 2017 budget resolution that would begin the process of dismantling the health care law, Democrats such as Tim Kaine of Virginia attacked the GOP for laying the groundwork to lower taxes on wealthy families at the expense of others.
Kaine, the 2016 Democratic nominee for vice president, said repeal of the investment surtax would amount to “a tax cut for the wealthiest financed by reductions of health care on the people that are most in need.”
Ross Baker, a political scientist at Rutgers University, said Democratic complaints about tax fairness were likely to become a recurring theme in coming weeks as they begin to build their campaign platform for the 2018 elections.
“Democrats can certainly message that this is a preview of what you’re going to get with the GOP version of tax reform. They will take any occasion they can to portray various Republicans initiatives as gifts to the greedy and the wealthy,” Baker said.
Some Republicans, such as Senate Finance newcomer Bill Cassidy of Louisiana, say that the debate over the surtax should be part of the coming debate on a tax overhaul that would address corporate and individual taxes. A second budget reconciliation measure, for fiscal 2018, is expected later this year as the vehicle for a tax overhaul.
“I think we should do tax reform comprehensively. So the second reconciliation bill is the time to do all tax reform. Everything is on the table; you do it all. The only exception is you get rid of the penalties in the first round,” Cassidy said, referring to the penalties in the health care law for individuals who do not obtain insurance coverage.
Rep. Luke Messer, R-Ind., chairman of the Republican Policy Committee, said he believed House leaders were developing a draft bill that would be based on a similar proposal vetoed by Obama last year, which called for immediate repeal of the surtax.
“My understanding is the reconciliation package that we’re working on … is modeled on the package that got to the president’s desk but was vetoed,” Messer said.
Business groups have held their fire while the GOP develops a game plan for repealing the surtax. They point to pass-through businesses, whose owners pay the top individual tax rate of 39.6 percent plus the investment surtax for an effective total tax rate of 43.4 percent.
Brad Close, senior vice president for the National Federation of Independent Business, took no stance on whether repeal of the surtax should be expedited while he waits to see the GOP plans to repeal and replace the health care law.
“The dust needs to settle on the election. We are fully confident that Obamacare will be repealed in a way that small businesses will be very happy with,” Close said.