Sunday, March 21, 2010

Senate Rules May Prevent Changes to Cadillac Tax in Reconciliation

Wanted to pass along the below from my colleague Jon Lieber highlighting first the fact that provisions in the reconciliation bill could doom the entire reconciliation package, and second that Senate Democrat staff are refusing to meet with Republicans and the Parliamentarian about same.  So the question then follows: Are Senate Democrats setting up House Democrats to vote to approve a package of “fixes” to the Senate bill, knowing full well that the “fixes” bill will fall apart and die in the Senate?

 

Senate Rules Prevent Changes to Cadillac Tax in Reconciliation

Section 313 of the Congressional Budget Act, more commonly known as the “Byrd rule” bars “extraneous matter” from being included in reconciliation legislation.  One of the six tests of what qualifies as “extraneous matters” under the Byrd rule is anything that changes the Social Security program.  Since changes to the “Cadillac” tax on health plans directly affect Social Security revenues, the Democrats cannot push back the start date of the Cadillac tax to 2018. Here’s why:

  • Byrd rule prevents changes to Social Security: Section 313(b)(1)(F) of the Congressional Budget Act of 1974  states that “a provision shall be considered extraneous if it violates Section 310(g).”  Section 310(g) of the Budget Act states that “it shall not be in order in the Senate…to consider any reconciliation bill…that contains recommendations with respect to the old-age, survivors, and disability insurance program established under title II of the Social Security Act.”[i]
  • Senate bill includes changes to Social Security: According to the independent Congressional Budget Office (CBO), about $53 billion of the savings in the Senate-passed bill are “off-budget” effects, which include “changes in Social Security spending and revenues.”[ii]
  • These changes are driven by the Cadillac tax: The Joint Committee on Taxation (JCT) reports that $31.3 billion of these off-budget savings comes from the 40 percent excise tax on high-cost health plans, a large new tax in the Senate-passed bill.       JCT has explained that as a result of this tax, “employees will have less compensation in the form of non-taxable health care benefits and more in the form of cash compensation.” As Senator Reid has pointed out, this would “increase revenues in the [Social Security] trust fund as workers’ wages rise.”[iii] Senator Baucus has pointed out that 83 percent of the revenues generated by this tax come from increased wages.[iv]
  • Reconciliation bill attempts to scale back the Cadillac tax: The reconciliation bill being considered by the House generates delays the Cadillac tax from 2013 until 2018 and raises the thresholds of what qualifies as a “high-cost” plan.[v] This is effectively a tax cut compared to the Senate bill, and would result in up to $23.4 billion in decreased Social Security revenues as a result of employees receiving less in cash compensation and more in tax-free health benefits.
  • But changes to the Cadillac tax that affect Social Security could trigger points of order: Such a change could trigger two points of order in the Senate, which require 60 votes in order to waive.       If not waived, one of these, 313(b)(1)(F), would strip the offending provision from the reconciliation bill; the other, 310(g), would cause the entire bill to fall.       Either way, because 41 Republican Senators have pledged to enforce the Senate rules and not waive points of order,[vi] the Cadillac tax cannot be changed in reconciliation.

According to the Congressional Research Service, there is no precedent for how the parliamentarian will rule regarding the Social Security point of order in the Senate.[vii] However, the high-cost plans tax clearly constitutes “recommendation with respect to the OASDI programs established under title II of the Social Security Act,” and therefore cannot be changed in reconciliation.  Democratic House members concerned about the impact of the high-cost plans tax on their union constituents should therefore be concerned that once the Senate-passed bill is signed into law, this tax will not be changed.

 

[i] See the Congressional Budget Act, Section 313.

[ii] CBO updated score of the Senate-passed health care bill, http://cbo.gov/ftpdocs/113xx/doc11307/Reid_Letter_HR3590.pdf

[iii] Senator Harry Reid, Congressional Record, November 30, 2009, S11985

[iv] Senator Baucus, Congressional Record, December 9, 2009, S17745-S12746

[v] CBO letter to Honorable Nancy Pelosi, March 20, 2010

[vi] Letter from 41 Republicans Senators to Majority Leader Reid, March 4, 2010, http://mcconnell.senate.gov/public/index.cfm?p=PressReleases&ContentRecord_id=e2a426ca-7aef-4bb6-af99-eec70fe464b2&ContentType_id=c19bc7a5-2bb9-4a73-b2ab-3c1b5191a72b&Group_id=0fd6ddca-6a05-4b26-8710-a0b7b59a8f1f&MonthDisplay=3&YearDisplay=2010

[vii] CRS report RL30862, http://www.crs.gov/Pages/Reports.aspx?ProdCode=RL30862