In what is being touted a major political victory by President Trump and his party, Republican lawmakers passed a sweeping tax reform bill, constituting a series of changes to many important areas of policy.
The new tax system will go into effect in just 12 days. Payroll companies and firm accountants are bracing for confusion as the rules that they were used to have now been revamped.
There are numerous areas affected by the newly passed reform, each one worthy of its own analysis. The bill changes laws governing tax regime for businesses that don’t organize as corporations, charitable endowments to non-profits and educational institutions, and international companies that pay US taxes for profits earned outside the country. The bill also requires federal agencies to draft certain regulations from scratch. The most complex of these new rules, such as those mandating new relief for so-called “pass-through” businesses, businesses exempt from corporate taxes, and how to tax offshore business profits, may take several years for the Treasury Department and the IRS to write.
To highlight one major area, the bill will impact the funding source of the individual mandate connected to the Affordable Care Act, “affectionately” known amongst many as Obamacare.
In a speech following the bill’s passage through the Senate, Trump stated in no uncertain terms that “Obamacare had been repealed.” This is somewhat true. The bill zeros out the tax, or fine, levied against people who do not secure health insurance under the Affordable Care Act's individual mandate. This essentially cuts the source of funding that keeps the Affordable Care Act operational.
There is some irony in Trump bragging about this “roundabout” repeal of Obama Care after Republicans spent months unable to repeal the system directly and replace it after repeated efforts. But the fact remains: The Affordable Care Act system has suffered a major blow.
What will the effects be of this repeal mean?
According to the Congressional Budget Office, the cuts to the system would translate into four million more uninsured Americans within the coming year. That number may rise to 13 million by 2027. All of this would be due to the increased cost of premiums now that the taxes funding the system have been essentially written out of the law.
Any negative consequences the bill may have on middle-class Americans’ health care may be offset by individual tax cuts. Some 23 percent of the total tax cuts will go to individuals in the middle-income bracket, making up about $63 billion. As for the rest of these cuts that directly affect businesses, especially large corporations, lawmakers are hopeful that this will have a trickle-down effect for larger populations of employees as well.
As with any sweeping change to a federal system, it would be foolish to predict specific effects at this point.
As noted, many provisions of the bill have yet to be written. The actual shift of money back to private citizens and businesses will take time, as will the visible effects the bill will have on the economy and government healthcare systems.
Only time will tell how the consequences of today’s vote will play out.