Blueprint includes Tax Reform, Changes to Medicaid Programs, AHCA, a Paid Leave Program
On May 23, President Trump released his 2018 federal budget blueprint, a general indication of policy priorities for the administration. While his proposal may differ from that of the legislators who are responsible for introducing the budget legislation, it helps illustrate the trajectory the administration hopes to take the country.
Among the items included in the budget are the President’s calls for tax reform legislation, which would include:
- Lowering the corporate tax rate from 35 percent to 15 percent;
- Reducing the personal income tax brackets from 7 down to 3 (10, 25, and 35 percent);
- Doubling the standard deduction for taxpayers to $24,000;
- Eliminating all personal tax deductions, except the mortgage interest deduction and the charitable tax deduction;
- Repealing the 3.8 percent Net Investment Income on higher income individuals under the Affordable Care Act (ACA);
- Repealing the Alternative Minimum Tax for individuals; and
- Moving to a "territorial" tax system, which typically excludes from taxation most income that businesses earn overseas. There would be a one-time tax, at a to-be-determined rate, to prompt companies to return cash held overseas.
The budget also proposes to reform Medicaid by giving states more control and the ability to design individual, state-based solutions. If implemented, these reforms are projected to save $610 billion over ten years. This is in addition to the proposed changes in the American Health Care Act (AHCA) to Medicaid, which are estimated to cut federal funding to the program by over $800 billion in the same period. This reduction in federal outlays would put increased pressure on the states to find additional ways to support this population, either through formulating additional revenue sources or reductions in the program.
American Health Care Act
President Trump’s budget blueprint assumes that the AHCA will pass, and the estimated savings of $250 billion over ten years garnered from that legislation are factored into the budget. However, this estimate is different from the new Congressional Budget Office score, which estimates that the savings would be $119 billion.
Although the AHCA passed the House in May, it still has to be considered in the Senate. It is unknown whether this legislation will see movement, and if so, what changes the Senate may make in the process.
Paid Parental Leave Programs
As part of his proposed budget, President Trump has allocated $19 billion over 10 years for a national paid parental leave program that would require individual states to develop and provide mothers and fathers, including adoptive parents, with six weeks of paid parental leave. The program would be run through state unemployment insurance programs. Although the proposal gives states broad latitude to design and finance the program, it may mean they will be forced to raise payroll taxes to provide what the budget expects to amount to $13 billion of the total amount attributed to the paid parental leave program. Another $2.2 billion allocated to this program is expected to come from reducing unemployment fraud, while another $4 billion is estimated to come from efforts to re-employ individuals currently receiving unemployment benefits.
It is still unknown what the final federal budget will contain or what legislation may be passed to implement the proposed programs. We will continue to monitor the budget process as it begins in Congress.