While the House of Representatives approved legislation to repeal and replace significant portions of the Affordable Care Act (e.g., “Obamacare”) in early May 2017, at the time of writing this article, the Senate Majority Leader Mitch McConnell has been unable to garner sufficient votes to pass a bill to repeal Obamacare in the Senate. At this moment, it appears unlikely that Congress will be able to pass legislation to repeal Obamacare, which will likely have a significant impact on tax reform as well.

Since taking office this past January, President Donald Trump has indicated that he expects to have at least two major legislative achievements during 2017 — health care reform and tax reform. While neither is necessarily linked to the other, the extent and composition of tax reform may be reliant upon the success of health care reform.

In an interview this past April on Fox Business Network, Trump stated: “I have to do health care first; I want to do it first to really do it right. … We’re saving tremendous amounts of money on health care when we get this done, No. 1, and most importantly … we’re going to have great health care, and all of that savings goes into the tax. … If you don’t do that, you can’t put any of the savings into the tax cuts and the tax reform.”

In these comments, Trump was referencing the approximately $1 trillion in federal tax over the 10-year budget window that would be eliminated through the repeal of Obamacare. So why is this important? If the federal government’s revenue baseline is reduced by $1 trillion over the 10-year budget window, then it is easier for tax reform to comply with the revenue neutrality provision of the Byrd rule (i.e., the U.S. Senate rule prohibiting legislation passed using budget reconciliation from increasing the deficit in any year beyond the 10-year budget window).

Given the Republicans’ slim majority in the Senate, it had been expected they will attempt to use the budget reconciliation process to pass both health care reform and tax reform. This is another reason why health care reform and tax reform had been linked. Prior to the budget reconciliation process, a budget resolution must pass both the House and the Senate with a simple majority vote.

The budget resolution gives instructions to the budget reconciliation bill. The expectation set forth by the Republicans in January 2017 was for health care reform to be included in the fiscal year 2017 budget resolution and the tax reform to be included in the fiscal year 2018 budget resolution. In accordance with this plan, the health care reform is included in the fiscal year 2017 budget reconciliation instructions.

It was originally thought that this plan would only be successful if the budget reconciliation bill for health care reform (i.e., the 2017 budget reconciliation bill) were completed prior to the adoption of the 2018 budget resolution. However, due to the inability of the Senate to advance health care reform legislation, the size and scope of potential tax reform is now much more uncertain.

Joel A. Bock, CPA, MST is a partner in Daniells Phillips Vaughan & Bock, a Bakersfield accounting firm.