Right now isn't soon enough for Republicans who are eager to get rid of Obamacare's taxes. Instead, Republicans' latest proposal would repeal the taxes retroactively, giving taxpayers back anything they paid on earnings dating after Jan. 1 of this year.
The money would primarily go to wealthy households, and Republicans say that the windfall would stimulate the economy.
"President Trump supposedly didn’t run on tax breaks for wealthy investors," the Wall Street Journal wrote in a piece that Rep. Kevin Brady (R-Tex.) touted on his website. "But he did run on raising incomes and increasing growth."
Experts on taxation point out that while Brady could be right about repealing the taxes going forward, the retroactive repeal would not have the same effect -- unless, that is, Republicans plan to give wealthy Americans not only refunds on their taxes but time machines as well.
Republicans have long argued that reducing rates for wealthy taxpayers will encourage them to work and invest, accelerating economic activity overall with benefits that carry over to ordinary Americans as well. As part of this argument, proponents say that the reduced rates make hiring and investing more profitable for wealthy individuals and businesses -- often labeled "job creators." That means, the theory goes, more jobs for workers, more capital available for start-ups and more funds for established businesses to expand.
But those lower tax rates can only influence investors' decisions if they know the rates at the time they're making those choices.
And once those decisions about business have been made, they cannot be undone. For instance, it is conceivable that one of the Obamacare taxes, a surcharge on wages and salaries above $250,000 annually for married couples, has discouraged rich Americans from taking on more hours in the first few months of the year. Those workers, however, will not be able to go back and make up those hours now that they know the tax will be repealed for the past few months as well.
This kind of tax might motivate Hermione Granger to work more, but not Muggles. The retroactive provision could encourage an affluent, hard-working wizard or witch with a Time Turner to go back and work more to take advantage of the reduced rates. It will not, however, encourage American workers in the real world to do more for the economy or help employers to hire them.
"Making it retroactive to the beginning of the calendar year just doesn’t seem to make a lot of sense," said Howard Gleckman, a commentator at the nonpartisan Tax Policy Center. "There's no economic benefit of any kind."
Republicans often argue that the money belongs to taxpayers anyway, and that keeping money in the hands of people who earned it is a virtue in and of itself. In this case, however, doing so would benefit only those earners, not the broader economy.
Republicans are planning to repeal the taxes as part of their broader effort to undo the Affordable Care Act, also known as Obamacare. The taxes fall primarily on affluent households and the health-care industry, including fees on insurance companies, medical devices and prescription and over-the-counter medication.
GOP lawmakers had initially planned to get rid of the taxes beginning in 2018, but in a series of changes to their bill announced Monday night, they decided to make the repeal of many of the taxes retroactive.
That change was important for conservative Republicans, who were not ready to support the bill without greater tax relief. GOP leaders will need those conservative voters to move the bill through the House, where the legislation is expected to come up for a vote on the floor later this week.
Even though the retroactive provisions cannot change the business calculus for wealthy taxpayers -- who have already made their decisions about the first few months of the year -- it is possible that they could stimulate the economy simply because the refunds would put more money overall into the economy in the short term.
The Obama administration used this logic in including retroactive tax relief in the major stimulus enacted in 2009, recalled Jared Bernstein, former chief economist to Vice President Biden. Bernstein opposed the retroactive relief at the time.
Yet repealing the taxes retroactively would also force the federal government to borrow more, and Republicans have typically argued that increased deficits cancel out any short-term benefits from government largesse to taxpayers. Only three Republicans voted for Obama's stimulus.
Instead, Republicans have argued for cutting taxes to reduce the cost of hiring and investing, relying on the money taxpayers have already rather than on borrowed windfalls. That is, Republicans have sought to change the economic decisions people make, not just give them more money using public debt.
Ed Kleinbard, a legal scholar at the University of Southern California, said Congress frequently sets retroactive dates for tax provisions when a plan is widely expected to be enacted. Under those circumstances, taxpayers may be working more or investing more based on those expectations, so it is only fair for Congress to do what they expect.
In this case, however, making the repeal of the Obamacare taxes effective the beginning of this year would come as a welcome surprise to affluent households, Kleinbard said. In the first draft of the Republican bill, those taxes would have been repealed beginning next year. Republicans announced a series of changes to the bill Monday night in a bid to convince more members of their party to support the bill, including the retroactive provisions.
"To now, in March, retroactively cut taxes in January, is simply a windfall to the most affluent taxpayers in America," Kleinbard said.
Correction: An earlier version of this post inaccurately attributed a WSJ editorial board quote to Rep. Brady.