Republicans can't agree on Obamacare, and it's grinding Congress to a halt

The debate over what to do about Obamacare isn’t just keeping Republicans from achieving one of their major campaign promises. It’s holding up much of their legislative agenda too.

Blessed with a surprise Republican president ready and willing to sign legislation that Barack Obama had blocked, but hampered by their slim 52-vote majority in the Senate, the congressional GOP devised a strategy in November that would enable them to achieve their two biggest legislative priorities: repealing the Affordable Care Act and slashing tax rates.

The plan would proceed in two steps. First, Congress would pass a dummy budget resolution as soon as it convened. What that resolution said about spending wouldn’t matter; all that mattered was that it contained “reconciliation instructions.” Those instruct committees in each house to produce legislation. That legislation would not be filibusterable, so long as it stuck to a given set of budget-related topics. So the legislation could pass the Senate with 52 votes, or even 50 plus the vice president, without needing any Democratic support.

The plan was to use this power to quickly pass an Obamacare repeal bill along party lines, hopefully by spring. Then Congress would pass another, real budget, with detailed spending levels and more reconciliation instructions. This time, reconciliation would be used to pass a big tax reform package, cutting rates for individuals and corporations, among other big changes. This, too, could pass with only Republican support. So Republicans would be able to easily, without any cooperation from Democrats, accomplish two big policy goals.

This is still the plan, nearly a month after Donald Trump took office. "We've had a timeline for doing this, and we haven't changed our timeline at all. We're actually on schedule," House Speaker Paul Ryan insisted on Morning Joe Wednesday morning. "We have to do Obamacare first. … Spring and summer is tax reform, winter and spring is Obamacare."

It’s hard to see how that all comes together in time. Congress did pass a dummy budget resolution with reconciliation instructions enabling it to repeal Obamacare. But there’s no sign that Republicans have the votes to actually pass an Obamacare repeal plan, and it’s unclear what a successful replacement proposal would look like. And until an Obamacare plan is agreed to, Congress can’t move on to tax reform or pass a real budget for fiscal year 2018, which starts on October 1.

“Everybody’s working under the assumption that you can’t do them concurrently,” Gordon Gray, director of fiscal policy for the conservative American Action Forum and a former policy adviser for Sens. Rob Portman and John McCain, says. “They have time. But it’s clear they have a lot of decisions to make before they’re ready to move on.”

Obamacare repeal was all teed up and ready to go

Win McNamee/Getty Images

Senate Republicans’ 52-seat majority means they normally need eight Democrats to come to their side and break a filibuster if they want to pass legislation. It’s no coincidence that the only two regular bills to pass the Senate so far — one providing a waiver allowing James Mattis to serve as defense secretary, and the GAO Access and Oversight Act of 2017 — both passed overwhelmingly, with most Democrats also voting in favor; the latter passed unanimously.

Faced with this obstacle, Republicans have chosen to exploit two Senate rules that let them evade filibusters. One is the Congressional Review Act, which allows Congress to pass joint resolutions, which cannot be filibustered, nullifying executive branch regulations. So far, they’ve used this to reduce disclosure requirements for oil companies, and they’re in the process of using it to stop a rule limiting coal companies’ ability to dump debris into rivers and streams and another cracking down on mentally ill Americans on the Social Security disability insurance program’s access to guns.

But the CRA only applies to regulation, and only to regulations that were recently finalized. For big legislation that affects taxes and spending, to avoid a filibuster you need to work within the budget process.

The details are slightly more complicated, but basically, budget reconciliation allows the Senate to evade the filibuster on one piece of tax and spending legislation for every budget that’s passed. You can’t use budget reconciliation for just anything. The biggest restriction on budget reconciliation is the Byrd Rule. Named after then-Senate Minority Leader Robert Byrd, who introduced the rule in 1985, the rule offers a way for senators to raise a point of order against "extraneous" provisions in bills being considered under reconciliation. Generally speaking, "extraneous" provisions include ones that:

• Change Social Security
• Don’t change the overall level of spending or revenue, or where such a change is merely "incidental"
• Increase deficits outside the 10-year budget window, and/or
• Are outside the jurisdiction of the committee recommending them

There are a couple of other limitations as well, but those are the major ones.

Collectively, these limitations stopped Democrats from passing the entirety of Obamacare through budget reconciliation in 2009 and 2010. There were too many new insurance regulations that stood the risk of being struck down as only affecting spending or revenue “incidentally.”

But Republicans devised a clever way in 2015 to dismantle much of the law through the reconciliation process. They passed the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015, or HR 3762, a bill designed by House Budget Committee Chair Tom Price (R-GA), who has since been confirmed as Donald Trump’s secretary of health and human services.

President Obama vetoed it once it reached his desk, but not before it passed with near-unanimous Republican support in the House and Senate. Of the five Republicans who opposed the effort, only two (Sen. Susan Collins of Maine and Rep. John Katko of New York) are still in office.

The bill would have repealed Obamacare's insurance subsidies, ended its Medicaid expansion, eliminated most of its taxes, and abolished the individual mandate. All of those are budgetary moves affecting spending and revenue, and thus entirely within the bounds of the reconciliation rules. Because the bill didn't undo the Affordable Care Act's cuts to Medicare, the Congressional Budget Office scored it as reducing the deficit, meaning it didn't run afoul of the "can't increase the deficit after 10 years" rule.

The bill didn't repeal most of the nonbudgetary elements of Obamacare: banning discrimination against people with preexisting conditions, allowing people 26 and under to stay on their parents' insurance, banning annual/lifetime coverage limits, etc. Those might have fallen outside the bounds of what reconciliation can do, and were politically popular besides.

HR 3762, combined with Price’s elevation to HHS secretary, seemed to lay the groundwork for a very fast and simple repeal of Obamacare. Passage should have been easy, since the Republican majorities in each house had backed this exact same legislation before.

In a way, it was similar to President Obama signing into law the Lilly Ledbetter Fair Pay Act and an expansion of the Children’s Health Insurance Program in his first three weeks in office. Both had nearly passed in the previous Democratic Congress, but the former failed narrowly due to a Republican filibuster and the latter was vetoed by President Bush. Once there was a Democratic president and a larger Senate Democratic majority, both were swept rapidly into law. Republicans had hoped the same could happen with Obamacare repeal.

Doing Obamacare first made tax reform easier — and even big tax cuts could be done through reconciliation

Tax Policy Center

The strategy had another benefit, as well. In repealing Obamacare, the law would have slashed a variety of taxes, overwhelmingly taxes that hit the rich and in particular rich people with lots of investment income. Outside of the context of Obamacare repeal, a regressive tax cut would be a politically difficult thing for Republicans to pull off. But they thought they could do it easily in this case. Then when it came time to do “revenue neutral” tax reform, taxes would be judged against a new, post-Obamacare baseline where revenue is substantially lower.

So the tax reform effort could result in a tax code that raised less money and was less progressive than the one in place when President Obama left office, but still count as “revenue neutral” because of the Obamacare repeal.

Even if Republicans wanted to go for bigger tax cuts in the second, tax reform–focused reconciliation bill, they had a clever way to do that. While Democrats passed rules from 2007 to 2011 preventing budget reconciliation from being used to increase the deficit, Republicans repealed those rules upon taking back power. So tax reform could increase the deficit over the course of 10 years. The Byrd Rule, however, prevents it from increasing the deficit after 10 years — this is why the Bush tax cuts had a one-decade life span before expiring.

Republicans’ corporate tax reform was designed to get around that. It does two big things that raise a substantial amount of money 10 or 20 years on. First, instead of having companies “depreciate” investments (that is, deduct their cost from their taxes over the time period when the investments are used), as is currently done, it would let companies deduct the full cost of the investment immediately. That’s known as “full expensing.” That’s super expensive in year one, as all new investments would result in a lot more lost tax revenue. But in future years, it means that companies won’t have depreciation deductions, and will in fact pay more. That’s why the Tax Policy Center finds that full expensing costs $447.5 billion in the first 10 years but raises $636.4 billion over the second 10.

The corporate tax reform plan would also ban companies from deducting the cost of interest they pay out on money they’ve borrowed. That wouldn’t raise much money early on, as existing debt would be grandfathered in and not taxed. But as time goes on, it would raise a great deal of money.

“The ending of interest deductibility/expensing swap is really costly upfront but raises money in the second decade,” Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, says. So even if Republicans wanted to pass a tax reform that cut revenue in the short term, they could fall back on those provisions to get such a bill to be deficit-neutral in the long term, and thus it would be possible to pass through reconciliation without being subject to a filibuster.

Where the plan hit a snag

Mark Wilson/Getty Images

The problem for this plan is that the votes just aren’t there yet for Price’s repeal bill. Republicans appear split on whether it would be acceptable to just repeal Obamacare entirely, perhaps on a delay, without detailing an adequate replacement. And those insisting on a replacement don’t agree on what form that should take.

First, the idea was to do “repeal and delay”: Pass a bill, like Price's, to quickly repeal the law and then spend the next couple of years formulating a replacement. But that died almost as soon as it was floated. More than six Republican senators, including reliable conservatives like Tom Cotton, demanded that replacement take place at the same time as repeal, and conservative health policy wonks warned that the strategy would wreak havoc on the insurance market.

Since that effort fell apart, the status of the repeal effort has been less clear. Sens. Bill Cassidy (R-LA) and Susan Collins (R-ME) proposed a bill that would let states keep or toss Obamacare, whichever they’d prefer, which was met by conservatives as an offer to surrender on repeal. Sen. Rand Paul (R-KY) offered a bill that’s well to the right of Paul Ryan’s skeletal plan from last year, offering nothing in the way of refundable tax credits for people struggling to afford insurance. Price offered a detailed repeal-and-replace plan in 2015 that included watered-down tax credits, likely alienating conservatives such as Paul. The House Freedom Caucus has called for a return to the original plan of passing the Price repeal bill rapidly and then passing the Paul plan.

The result is chaos, and no agreement whatsoever within the Republican caucus as to how Obamacare repeal should proceed. “To be honest, there’s not any real discussion taking place right now,” Sen. Bob Corker (R-TN) told reporters last week. And that’s before taking into account President Trump’s promises to ensure universal coverage, which would rule out just about every above plan.

As long as that remains the state of play, a repeal and/or replace package will not be ready to pass Congress anywhere near springtime. And that means pushing back tax reform, and pushing back passage of a new budget resolution. “The operating assumption is that to be able to use the reconciliation instruction, you can’t pass a new budget resolution,” Gray, from the American Action Forum, says. “It’s never been tested, but it’s what everyone is thinking.”

Congress is perfectly capable of functioning without a new budget resolution. It could pass appropriations bills or continuing resolutions to keep the government running. But having a budget resolution would make enforcing a given spending plan significantly easier by allowing members to raise points of order against spending that violates the budget. If Republicans want to boost defense spending or appropriate money for a wall or slash funding for the Environmental Protection Agency, they can do all those things without a budget, but a budget makes it simpler.

The main cost of not having a new budget resolution, though, is that Republicans cannot move on to tax reform. They could conceivably give up on Obamacare and use the current budget for tax reform, or they could give up on Obamacare and pass a new budget designed for tax reform, but they can’t do tax reform while they’re still working on Obamacare. They have to either pass something or give up first.

It’s conceivable they would try to package Obamacare repeal and replace together with a tax bill, and pass them all under a new budget. But that would be extremely difficult. It’s hard enough to negotiate a health care bill that the Republican caucus agrees on. Adding in the difficulty of getting everyone on board with a specific set of tax changes, especially controversial ones involving border adjustment, would make the task all but impossible.

So for the time being, Republicans are stuck working on Obamacare. If they don’t deal with it in some way, they can’t move on to doing a big, rate-slashing tax package. And if they take too much time to deal with it, they’ll run out of time to do the tax package. In theory, they have until the end of this Congress (in January 2019) to pass something through reconciliation on Obamacare. The reconciliation instructions don’t expire until then. But as long as Republicans are taking their time on Obamacare, they can’t pass another budget, and they can’t pass a tax reform measure.

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