Three-Week Funding Deal Includes $30 Billion in Tax Cuts
Lawmakers came to a bipartisan agreement to end the federal government shutdown yesterday, but it came with a very high price. The continuing resolution (CR) enacted into law funds the government through February 8, but it also delays three Affordable Care Act taxes at a cost of $31 billion. If lawmakers eventually choose to delay these taxes indefinitely, it would ultimately add $310 billion to deficits through 2027.
All three taxes were previously delayed in an expensive package of tax cuts passed in December 2015. The 40 percent "Cadillac tax" on high-cost health insurance plans was originally set to go into effect in 2018, was later delayed to 2020, and is now delayed for another two years. As we've pointed out before, the Cadillac tax reduces deficits and has been shown to have effects that reduce private health care spending even before the tax goes into effect. If Congress ultimately repeals the Cadillac tax, they should replace it with an alternative cap on the tax exclusion for employer-sponsored health insurance or another provision that produces long-term health savings.
The CR also suspends the tax on health insurance providers for 2019. The tax is levied on health insurance providers based on their net insurance premiums and is roughly proportional to each insurer's market share. The tax was suspended last year but will be in effect for 2018.
Finally, the CR delays the 2.3 percent excise tax on manufacturers' medical device sales until 2020. Although the tax began in 2013, it has been on hold since 2016 and was previously scheduled to return in 2018.
Ten-Year Cost of Tax Cuts in the Continuing Resolution
|Provision||Temporary Cost||Permanent Cost|
|Two-year delay of Cadillac tax (2020 and 2021)||$15 billion||$105 billion|
|One-year delay of health insurer tax (2019)||$13 billion||$185 billion|
|Two-year delay of medical device tax (2018 and 2019)||$4 billion||$20 billion|
|Total||$31 billion||$310 billion|
Source: Temporary costs from Joint Committee on Taxation and Congressional Budget Office; permanent costs are CRFB estimates. Permanent cost is approximate and rounded to the nearest $5 billion. Numbers do not add to total due to rounding.
Policymakers already enacted a host of expensive tax cuts last December, and it is very disappointing to see even more deficit-financed tax cuts enacted so soon. It is even more important now that any longer-term budget deal policymakers negotiate be fully offset and does not worsen our unsustainable fiscal trajectory.