Farm Progress

Watch for possible policy changes important to ag.

March 24, 2017

5 Min Read
HEALTHCARE REFORM: Congress continues to debate the direction of health care in America. These decisions impact farmers significantly since most are not eligible for employer-provided coverage.

By Kristine Tidgren

One quarter of the way through 2017, all eyes remain on Washington, D.C., as new leadership has promised big change. It is difficult to predict, however, exactly how the year will unfold. In this article, we’ll review several key areas of focus, each of them important to agriculture.

Affordable Care Act
On Jan. 20, President Donald Trump took office and issued an executive order directing responsible agencies to minimize the “economic burden” of the Affordable Care Act “pending its repeal.” This order signaled that repealing and replacing the ACA was a top priority for the new president. A president, however, does not have the power to change legislation. While the order may empower agencies to waive discretionary penalties or broaden the definition of exemptions from the ACA’s required penalties, only Congress can change the law.

On March 7, House Republicans offered the text of their first official proposal for repealing and replacing the ACA. Called the American Health Care Act (AHCA), the proposal was met with much opposition, even among some Republican lawmakers.

The AHCA would eliminate both the individual and employer mandates retroactively, beginning with the 2016 tax year. This means individuals who did not have health insurance in 2016 would not be liable for the shared responsibility penalty imposed by the ACA. This penalty amount was the greater of: $695 per adult and $347.50 per child (under 18), up to a maximum of $2,085, or 2.5% of family income above the filing threshold.

Eliminating the employer mandate would mean employers with 50 or more employees who did not offer affordable insurance to their employees in 2016 would not be required to pay the more than $2,000 penalty per employee imposed by the embattled law.

The AHCA would also eliminate a number of other ACA-created taxes, most notably the net investment income tax (NIIT), the additional 0.9% Medicare tax on high-income earners and the health insurance tax. The NIIT imposes a 3.8% tax on net investment income, including interest, dividends, capital gains, rents, royalties and nonqualified annuities. The NIIT only impacts those taxpayers with income above a certain threshold. For example, if a married couple files a joint return, the NIIT only applies to their income above $250,000. The health insurance tax, which Congress has already suspended for the 2017 calendar year, is an annual fee imposed on health insurance companies. Opponents have long argued that this tax greatly increases the cost of insurance for individuals.

Controversial proposals
One of the AHCA’s more controversial proposals is to replace premium tax credits with refundable tax credits for the purchase of health care on the individual market. The ACA provides advance premium tax credits to those individuals purchasing health insurance on ACA’s online marketplace. This means they receive a government subsidy to cover a portion of their premiums. The amount of the credit depends upon the income of the taxpayer. Premium tax credits disappear altogether for those with incomes above 400% of the federal poverty limit.

The AHCA would replace this income-based credit with a primarily age-driven credit. Individuals who do not receive employer-provided or government-provided health insurance would be eligible for a refundable tax credit if they purchase health insurance. Those under 30 would receive a credit of $2,000, and the credit for those over 60 would be $4,000. Credits for families would be capped at $14,000 per year, and the credits would begin to phase out for those with yearly incomes above $75,000 (single) or $150,000 (married filing jointly). In other words, under the AHCA, a 55-year-old with $20,000 in income would receive the same credit as a 55-year-old with $75,000 in income.

On March 13 the Congressional Budget Office issued a report predicting that 24 million more people would be uninsured under the AHCA by 2026. The report stated that this reduction would initially occur because more individuals would choose not to buy insurance (since the individual mandate would be repealed). Through 2026, however, the reduction in the number of those with health insurance would likely result from stricter Medicaid eligibility requirements imposed by states. The CBO report also estimated that the AHCA would reduce the federal deficit by $337 billion over 10 years and would eventually lead to lower premiums.

We’ll be watching closely as Congress continues to debate the direction of health care in America. These decisions impact farmers significantly since most are not eligible for employer-provided coverage.

Tax reform legislation
If and when health-care reform legislation passes will greatly impact the progress of another promised deliverable from the 2016 election cycle: tax reform. Despite predictions from the administration that tax reform will pass by August, that timeline appears increasingly unlikely. While Republicans seem to agree that overall simplification and a lower corporate tax rate are needed, details are sketchy. The president has not released a formal tax reform proposal.

A House Republican blueprint from last summer would likely form the basis for opening negotiations. But many questions remain, including the feasibility of what’s been called a “border adjustment tax.” Designed to encourage businesses to stay in the United States, such a system generally excludes from income revenue derived from exports and disallows deductions from income for imports. The impact of this system on farmers cannot be assessed without more detail. House Speaker Paul Ryan has stated that work on tax reform will not begin until after health-care reform legislation is passed.    

WOTUS rule
As expected, on Feb. 28, President Trump signed an executive order directing the EPA to begin the process to repeal the Clean Water Rule (also known as “waters of the U.S.,” or WOTUS). In response to this order, the EPA will prepare for public notice and comment a proposed rule to rescind or likely revise the rule defining the jurisdictional reach of the Clean Water Act. It could be many months before a new rule is in place.

We'll keep you posted on these and other federal issues as developments unfold.

Tidgren is staff attorney and assistant director for the Center for Ag Law and Taxation at Iowa State University. Read more at calt.iastate.edu.

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