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  • Washington Highlights

    Tax Reform Legislation Progresses in both the House and Senate

    Matthew Shick, Sr. Director, Gov't Relations & Regulatory Affairs

    The House of Representatives Nov. 16 passed H.R. 1, the Tax Cuts and Jobs Act, by a vote of 227 to 205. The vote largely fell along party lines with no Democrats voting for the bill. Thirteen Republicans voted against the bill. Most of the Republican defections were from the states of New York, New Jersey, and California. They would be significantly impacted by the provision in the bill that would limit the deduction for the state and local income tax.

    The House bill also includes the following:

    • Repeals the tax exemption for private activity bonds (PAB) and advance refunding bonds, which are a critical financing source for capital improvements for AAMC members;
    • Imposes a 1.4% excise tax on certain college and university endowments;
    • Imposes an excise tax on compensation for certain employees at tax-exempt organizations;
    • Imposes a tax on tuition waivers for graduate students which would undermine the research career pipeline;
    • Repeals credits and deductions that help to make graduate and professional education more affordable, including the Student Loan Interest Deduction and the Lifetime Learning Credit; and
    • Repeals the ability of individuals to deduct medical expenses.

    AAMC President and CEO Darrell G. Kirch, MD, outlined his concerns about the House legislation in a Nov. 9 statement, “Provisions in the legislation passed by the House Ways and Means Committee would have a damaging impact on the nation’s medical schools and teaching hospitals, and on the patients we care for, the students and residents we teach and train, and the millions of Americans who gain hope from the research we conduct.”

    The Senate Finance Committee Nov. 16 also approved its version of tax reform legislation by a party-line vote of 14-12. The full Senate will consider the legislation after their Thanksgiving recess. The Senate bill’s provisions differ significantly from the House legislation. The Senate bill also includes a repeal of the individual mandate set forth by the Affordable Care Act (ACA) – the House bill does not include this provision. According to the Congressional Budget Office (CBO), repealing the individual mandate would reduce federal deficits by $338 billion over the 2018-2027 period and result in 13 million more individuals without insurance by 2027.

    In a Nov. 15 statement, AAMC CEO Kirch expressed his disappointment at the Senate’s decision to include a repeal of the individual mandate, saying, “America’s teaching hospitals will continue to provide care for all Americans, regardless of their level of coverage. However, increasing the numbers of uninsured patients without corresponding support for the safety net will threaten both urban and rural providers, creating a ripple effect on regional health care networks.”

    The following are examples of other ways in which the Senate bill differs from the House bill:

    • The Senate bill maintains the tax exemption for PABs;
    • The Senate bill does not include the provisions that are detrimental to students, as outlined above;
    • The Senate bill does not repeal the medical expense deduction.

    While the passage of the House bill places increased pressure on the Senate to pass its legislation, several Senators have expressed reservations with the package, including Sen. Ron Johnson (R-Wis.), who has officially opposed the bill, and Sen. Susan Collins (R-Maine). Republicans hope to pass tax reform legislation through the reconciliation process, and thus must receive 50 votes with Vice President Mike Pence breaking a tie.