The federal health care reform law contains a variety of different measures to raise funding to offset the costs of expanding access to health care. One of those measures, which is now under attack, is expected to increase tax revenue by $17.1 billion over the next ten years by improving the ability of the IRS to keep track of business income. That health care reform funding measure broadens a requirement for businesses to report expenditures in excess of $600, thereby improving the tax compliance of contractors who sometimes report very little of their income.

The U.S. Senate is expected to vote tomorrow on an amendment by Senator Mike Johanns (R-NE) that would repeal the reporting requirement. To make his amendment (to a small business tax bill) deficit neutral, Johanns is changing two other important parts of the health care reform act.The Johanns amendment would eliminate $11 billion in funding for the Prevention and Public Health Fund for 2010 through 2017 (including $500 million already allocated for 2010). These funds are targeted for public health activities such as community health centers and Community Transformation Grants that foster community-based efforts to address obesity, tobacco use, and to reduce racial and ethnic disparities.

The amendment would also weaken the individual mandate by lowering the standard for affordability of coverage from 8 to 5 percent of household income. In other words, if coverage from employers or the new insurance exchanges would cost more than 5 percent of income, the individual or family would be exempt from the penalty for not having coverage. The problem with that is that it would allow people to defer coverage until they get sick, since they would know they could obtain coverage when they became ill. As a result, the Congressional Budget Office has estimated that the change would reduce insurance coverage by 2 million people, which would increase premiums by 4 percent.

The Johanns amendment is a response to concerns raised by small businesses about the paperwork burden resulting from the reporting requirement. But to quote the Center on Budget and Policy Priorities (CBPP), “repealing the provision entirely would leave in place a clearly inadequate reporting regime that has failed to prevent widespread tax avoidance.”

The Senate is expected to also consider an alternative amendment Tuesday, offered by Senator Bill Nelson (D-FL), which would significantly scale back the tax provision to reduce its scope and its paperwork requirements, and make up for the lost revenue by reducing excessive tax subsidies and loopholes for oil companies.

A recent CBPP paper describes the amendment and its implications in more detail.

Jon Peacock,  Research Director