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Sunday, July 1, 2012

Tax Analysts Conversation With David Gamage

Tax Analysts Tax Analysts Exclusive: Conversations: David Gamage, 2012 TNT 120-10 (June 21, 2012):

Professor David Gamage of the University of California Berkeley School of Law recently completed a two-year stint in Treasury's Office of Tax Legislative Counsel, working primarily on implementation of the healthcare reform law. The current draft of his coming paper, to be published in the Tax Law Review, [is] How the Affordable Care Act Will Create Perverse Incentives Harming Low and Moderate Income Workers....

TA:  Your coming paper states that the ACA imposes unintended "effective taxes" on low- and moderate-income individuals. What led you to write about that?

Gamage:  I wrote that paper for two reasons. First, I thought I could offer a better explanation of how the tax provisions of the ACA fit together than what is in the existing literature. Second, I felt it important to critique ways in which I consider the ACA legislation to be poorly designed. Beginning in 2014, when major provisions of the ACA are expected to come into effect, I argue that the ACA will impose significant costs on low- and moderate-income workers and that these costs could be avoided by legislative reforms. My bottom line is that the ACA was drafted so as to minimize explicit budgetary costs, but [it creates] far worse hidden costs that result primarily from the employer mandates and from restrictions on the premium tax credits.

As I try to make clear in the paper, I do not intend to attack the ACA, nor do I argue that the ACA will do more harm than good for low- and moderate-income workers or for any other population. In my view, the benefits of the ACA more than counterbalance the harms. Nevertheless, I argue that we could have done even better, and that hopefully we still might do better either by reforming the ACA or by making different choices in future healthcare reforms. One of my roles as an academic is to point out costs that the political system might not sufficiently take account of and to explain how legislation can be reformed so as to avoid those costs, and this is what I am trying to do in the paper. ...

TA:  Is the tax code the right way to implement healthcare policy?

Gamage:  I think it's very easy for those of us in the tax community to have a knee-jerk reaction that the tax code should be kept clean of social welfare provisions. In a perfect world, I would agree with that sentiment. Undoubtedly, adding social welfare provisions to the tax code complicates the tax code and increases the burden on the IRS.

Nevertheless, at this point, unless we significantly reform our tax legislative process, it's not realistic to think that we're going to keep the tax code clean of social welfare provisions. Both political parties frequently use the tax code for nontax purposes, and it's often hard to draw a line between what counts as a tax purpose or a nontax purpose.

Although I do think that we'd be better off having fewer social welfare provisions in the tax code, I don't think that the goal of keeping the tax code clean is all that important as compared to making sure that whatever legislation we do pass is written in the best fashion possible and that the IRS has the resources to carry out the duties it is charged with. No one thinks that the ACA, or any other form of social welfare legislation, is designed perfectly. We hope for the best we can get through the legislative process, and we hope for legislation that, on balance, does more good than harm.

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