Alexander Hendrie

Ways and Means Committee To Consider Bills Improving Healthcare Tax Credits

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Posted by Alexander Hendrie on Wednesday, May 24th, 2017, 9:39 AM PERMALINK

Today, the House Committee on Ways and Means will markup three pieces of legislation that compliment the recently passed American Health Care Act, legislation that repeals Obamacare and replaces it with free market, patient centered healthcare.

The AHCA repealed close to one trillion in Obamacare taxes, reduced spending, enacted entitlement reform through block granting of Medicaid, and expanded health savings accounts. The legislation will ensure states are able to implement a healthcare system that best fits their needs, and is a giant step forward in lowering taxes and reforming our nation's health care system.

The three pieces of legislation to be considered by the Committee further compliment the gains made by ensuring that veterans and Americans who recently lost their jobs have the access to the care they need, and implementing robust verification for the AHCA’s tax credit. All Members of the Committee should vote in favor of each piece of legislation.

H.R. 2372, the ‘‘Veterans Equal Treatment Ensures Relief and Access Now (VETERAN) Act,” Sponsored by Rep. Sam Johnson (R-Texas)

The Veteran Act Puts into law an existing regulation that ensures veterans who are not already enrolled in and receiving health insurance through the VA have help to purchase coverage on the individual insurance market. There is no reason that veterans should not receive all the help they deserve, and this legislation helps ensure that is the case.

H.R. 2579, the “Broader Options for Americans Act,” Sponsored by Congressman Pat Tiberi (R-Ohio)

H.R. 2579 ensures Americans who have lost their jobs have access the AHCA’s tax credits. Additionally, it ensures that Americans in similar circumstances who work at churches or other houses of worship can access these tax credits. There is no reason that these Americans should be barred from affordable healthcare simply because of their unique circumstance. This legislation corrects this oversight.

H.R. 2581, the “Verify First Act,” Sponsored by Congressman Lou Barletta (R-Pa.)

The Verify First Act protects taxpayer dollars from waste, fraud, and abuse by tightening verification requirements to ensure that subsidies under current law and tax credits under the AHCA aren’t dispensed until the legal status of an eligible recipient is verified.

Numerous reports by government watchdogs (see here, here, here, here, here) have found that existing controls are insufficient resulting in billions of taxpayer dollars being sent out without verification. This common sense legislation helps correct this weak system by ensuring that controls are stronger and federal resources are not wasted. 

 

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2017 Must Be The Year of Pro-Growth Tax Reform

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Posted by Alexander Hendrie on Thursday, May 18th, 2017, 10:00 AM PERMALINK

Over the past decade, the economy has struggled at just two percent GDP growth as the country has experienced the worst recovery in the modern era.  While the post-World War II average remains at three percent GDP growth per year, the Congressional Budget Office projects that under current policies, two percent growth will continue into the next decade.

Even as the unemployment rate has stabilized in recent years, labor force participation has continued to drop, indicating that the economy remains weak.  Because of this lackluster recovery, families have lost an average of $8,600 in annual income, according to one estimate. 

One reason for the stagnant economy is the fact that the U.S. tax code is outdated, uncompetitive, and complex. The current code restricts the growth of new jobs, increases the cost of capital, and discourages innovation.

It has been more than 30 years since the tax code was reformed, and in that time, the world has changed drastically. Other countries have updated their tax codes and lowered their rates, while the U.S. system has barely changed.

The uncompetitive code means that businesses are unable to compete in the global economy. For instance, our uncompetitive code enables foreign competitors to acquire assets at a far greater pace than American businesses.

Over the past decade, U.S. companies have suffered a net loss of almost $200 billion in assets. Conversely, if the corporate rate was 25 percent (the average rate in the developed world), one report estimates U.S. businesses would have instead experienced a net gain of $600 billion in assets over the same period. 

Tax reform is the only way to reverse these trends and enact policies that benefit the economy. ATR President Grover Norquist recently submitted a statement for the record before the House Ways and Means Committee hearing entitled ‘How Tax Reform Will Grow Our Economy and Create Jobs Across America.’ The recommendations are below and the full paper can be found here.

  • Tax Reform Should Reduce Taxes on Businesses
  • Tax Reform Should Reduce Capital Gains Taxes
  • Tax Reform Should Implement Immediate Full Business Expensing
  • Tax Reform Should Simplify the Code
  • Tax Reform Should Make Permanent Changes to the Code
  • Tax Reform Should Move to Territoriality for Businesses and Individuals
  • Tax Reform Should Kill the Death Tax and Gift Tax
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ATR Supports Senator Thune's INVEST Act

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Posted by Alexander Hendrie on Thursday, May 18th, 2017, 8:00 AM PERMALINK

Senator John Thune (R-S.D) yesterday introduced S. 1144, the Investment in New Ventures and Economic Success Today (INVEST) Act of 2017. This legislation simplifies accounting rules and reforms the tax code to help small and medium-sized business owners more quickly recover investments.

By accelerating cost recovery on property, equipment, inventory, and other common business investments, the INVEST Act would encourage new business growth and help existing businesses, including farms and ranches, expand their operations, create new jobs, and grow the economy.

Read the letter here or below. 

 

May 17, 2017

The Honorable John Thune
United States Senate
511 Dirksen Office Building
Washington, DC 20510

Dear Senator Thune:

I write in support of S.1144, the Investment in New Ventures and Economic Success Today (INVEST) Act of 2017. Your legislation offers important tax relief for small and medium businesses and startups in a way that encourages innovation, growth, and expansion. All Senators should support this important legislation.

For small and medium sized businesses, the complexity of the tax code creates unnecessary burdens and costs that impede innovation and the formation of capital. The past eight years has seen the worst economic recovery in the modern era. Today, 50 percent of small businesses fail five years after they first begin in part due to excessive rules and regulations that stifle growth.

These trends should be reversed through pro-growth tax policy that encourages investment and innovation. In turn, this reform will promote strong economic growth and the creation of new jobs and higher wages.

The INVEST Act does this in three ways.

First, the INVEST Act expands the ability of small businesses to immediately deduct the cost of investments by expanding Section 179 of the code, and making 50-percent expensing permanent. Section 179 allows small businesses to expense $500,000 worth of equipment purchases every year, with a phase out of $2.5 million. This legislation expands Sec. 179 so businesses can expenses $2 million in purchases every year, with a phase out of $5 million. For purchases above this threshold, the INVEST Act makes 50-percent “bonus” depreciation permanent, so businesses can immediately deduct half of the cost of new investments.

Moving the tax code closer to a cash-flow system, where business investments can be immediately expensed, is a crucial goal of pro-growth tax reform. While the best policy would be 100 percent, immediate full businesses expensing, the INVEST Act is significant progress in the right direction.

In addition to these changes, S. 1144 also shortens depreciation schedules for farm machinery and equipment, business vehicles, and acquired intangibles such as patents and copyrights, so that business owners can more quickly recover these costs.

Second, the legislation expands the ability of businesses to expense startup costs. Currently, businesses can deduct $5,000 worth of costs related to starting up their businesses. This legislation expands the limit to $50,000 and increases the phase out to $100,000. Businesses would also be able to recover the costs of any expenses outside of this limit over a ten year window.

Third, the INVEST Act increases the flexibility of businesses to use accounting methods that best suit their needs. Specifically, the INVEST Act increases the threshold for using cash accounting from $5 million to $15 million, simplifies inventory accounting so small and medium sized businesses can deduct these costs immediately, and expands the threshold for using the completed-contract method of accounting.

Simplifying the tax code and moving to a cash-flow system that allows business owners to immediately recover the cost of new investments are two key planks of pro-growth reform. If signed into law, the INVEST Act would lead to stronger growth, higher wages, and more jobs. All Senators should support this bill.

Onward,

Grover G. Norquist

President, Americans for Tax Reform

 

 

 

 

 

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ATR Supports Legislation Block Granting Education Funds to the States

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Posted by Alexander Hendrie on Wednesday, May 10th, 2017, 3:30 PM PERMALINK

Representative Jim Banks (R-IN) has introduced a bill that would amend the federally funded Head Start program by providing block grants to the states for this education initiative to help at-risk students.  This legislation, the Head Start Improvement Act encourages increased innovation and efficiency to an old program that has failed to live up to its promises.

American taxpayers finance Head Start with $9 Billion dollars a year, yet as a long-term 2012 study by the Department of Health and Human Services notes, Head Start’s enrollees showed varied results in their improvement of language skills, literacy, math and overall school performance as compared to their non-Head Start peers.

This legislation adds increased flexibility to states, ensuring that taxpayer dollars will be spent more efficiently and lead to positive academic outcomes for students whose families fall below the poverty line.  

Americans for Tax Reform supports Rep. Banks’ legislation and urges all members of Congress to support it as well. Read the letter here or below. 

May 10, 2017

The Honorable Jim Banks
United States House of Representatives
509 Cannon House Office Building
Washington, D.C. 20515

Dear Congressman Banks:

I write in support of H.R. 1921, The Head Start Improvement Act. This legislation block grants federal funds to the Head Start program to the states for education. By giving states increased flexibility over how they administer this program, your legislation encourages increased innovation and efficiency to a program that has failed to live up to its promises. All members of Congress should support this important legislation.

The Head Start program was created to provide comprehensive early childhood education services to children in families who fall below the poverty line. While the aim of the program was to ensure that these children do not begin kindergarten at an academic disadvantage, the success of the Head Start program has been mixed.

As noted in a 2012 study published by the Department of Health and Human Services, Head Start’s enrollees showed varied results in their improvement of language skills, literacy, math and overall school performance as compared to their non-Head Start peers.

Currently, taxpayers across the country spend nearly $9 billion a year on Head Start, yet states must often accede to top-down Washington control.

H.R. 1921 will improve the program by providing flexible grants that states can tailor to address the distinctive needs of their students. While the bill maintains the current level of funding, the increased flexibility to states ensures that taxpayer dollars will be spent more efficiently. In turn, this would further mitigate the academic barriers facing the children and families.

Given the finite federal resources available for this program, it is crucial they are spent efficiently. The Head Start Improvement Act does this by ensuring states are able to use funds in the most appropriate way possible. Members of Congress should have no hesitation supporting and co-sponsoring this important legislation.

Onward,

Grover G. Norquist
President, Americans for Tax Reform

 

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Lawmakers Should Oppose Efforts to Increase Taxes on Carried Interest Capital Gains

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Posted by Alexander Hendrie on Wednesday, May 10th, 2017, 1:00 PM PERMALINK

A long-term goal of Democrat politicians is increasing the capital gains tax.

Often, the Left claims that the capital gains tax is a loophole that should be closed. What they really mean is they want to increase the capital gains tax from its current rate of 23.8 percent to 43.4 percent, so it is taxed as ordinary income (The 39.6 percent individual rate plus the Obamacare 3.8 percent net investment income tax).

At other times, they aim to incrementally increase the tax on capital gains. One of their favorite targets is carried interest capital gains. Just last week, Senator Tammy Baldwin (D-WI) introduced legislation that would increase taxes on carried interest.

This is bad policy. Increasing taxes on carried interest capital gains would reduce investment and savings, and hurt the economy. In addition, it would raise a miniscule amount of revenue and take the tax code in the wrong direction. Lawmakers should reject Senator Baldwin’s misguided proposal.

There is a widespread misconception that treating carried interest as a capital gain is a loophole. The truth is, carried interest is identical to all other capital gains and there is little justification for treating it as ordinary income. Carried interest is the share of an investment partnership allocated to the investor. These partnerships occur when individuals with capital and individuals with expertise pool their resources together.

Those who derive income from carried interest capital gains don’t have some special deal – they pay the same capital gains rates as everyone else. All income from a partnership is derived from a long-term investment in a business or real estate and so all income is treated as a capital gain.

Increasing taxes on carried interest capital gains would raise a miniscule amount of revenue. According to the Joint Committee on Taxation, taxing carried interest as ordinary income would raise just $19.6 billion over the next decade, a drop in the bucket compared to the projected $41.7 trillion that the Congressional Budget Office estimates will be raised over that time frame.

Increasing taxes on carried interest capital gains would have negative economic impacts. When accounting for effects on the economy, the Tax Foundation estimates revenue from taxing carried interest as ordinary income would fall to just $13 billion due to negative macroeconomic effects.

This negative impact would be felt by pension funds, charities, and colleges that depend on investment partnerships as part of their savings goals. In addition, small businesses would find themselves increasingly shut out from investment money available to them from these partnerships.

Better policy would be reducing taxes on capital gains. Ideally, none of the income derived from a capital gain should be taxed as it is one of several layers of taxation in the existing tax code. This tax is levied on income that has already been taxed at the individual level and is then reinvested into the economy. This extra layer of taxation creates a bias against savings and suppresses productivity and new investment. In turn, this hinders the creation of new jobs, higher wages, and increased economic growth.

Capital gains taxes are already high. Over the past eight years, the top rate increased from 15 percent to 23.8 percent. A study by Ernst and Young placed the top U.S. integrated rate at 56.3 percent after accounting for the corporate tax, federal and state capital gains taxes, and the Obamacare net investment income tax. In contrast, the average integrated rate amongst nations in the Organisation for Economic Co-operation and Development and the five member BRICS countries sits at just 40.3 percent.

Rather than push for a tax increase on capital gains, lawmakers should look to reduce the tax to promote economic growth and end the distortions in the tax code.

 

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Senate HELP Committee Should Reject Importation of Price Controls

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Posted by Alexander Hendrie on Tuesday, May 9th, 2017, 4:00 PM PERMALINK

Members of the Senate Committee on Health, Education, Labor and Pensions will tomorrow consider S. 934, the FDA Reauthorization Act, legislation related to the FDA’s user fees over drugs and medical devices.

During consideration of this legislation, it is expected that socialist Senator Bernie Sanders (I-Vt.) will introduce multiple amendments calling for the importation of price-controlled prescription medicines. This is bad policy and should be rejected by all Senators on the HELP Committee.

Importation schemes are NOT the solution to lower prices and will NOT result in a more efficient healthcare system. Importation of prescription medicines instead forces the U.S. to adopt market-distorting price controls from other countries, which would disrupt U.S. innovation of life- saving and life-preserving medicines. 

Importation should not be confused with free trade and these proposals also open the door to deadly medicines flooding the market.

All Senators on the HELP Committee should reject importation proposals. 

Allowing the Importation of Prescription Medicines Is Not a Free Market Solution: Free trade means transparent prices with no tariffs, barriers, or price controls. Drug importation is the opposite of free trade.

Almost every country in the world has excessive price controls that hinder medical innovation and limit access. Foreign prices are often determined by politicians offering voters seemingly “cheap medicines.” In reality, price controls lead to shortages and rationing. Government price setting would do the same in the U.S. whether imposed directly or indirectly through importation.

Importation Would Threaten the U.S. Role as a Leader of Medical Innovation: The U.S. is a leader in medical development with more than half of pharmaceutical / biotech research being conducted in this country. This research supports numerous high paying jobs, leading to a stronger economy. Conversely, creating barriers to innovation will threaten these jobs and hurt the economy.

Currently, it costs more than $2.6 billion and takes 10- 12 years to develop a drug, conduct clinical trials, and obtain Food and Drug Administration (FDA) approval for each drug that makes it onto the market. In contrast, almost every country in the world has excessive price controls that hinder medical innovation. In these countries, prices are often determined by politicians offering voters seemingly cheap medicines. In reality, the world rides on U.S. research and taxpayers.

Importation Schemes Are Also Potentially Dangerous to Consumers: The FDA has stated there is no way to assure the safety, authenticity, or effectiveness of imported drugs, or whether the drugs are from the country the packaging claims it to be. Even attempting to construct such a system would be incredibly costly to taxpayers. In addition to drugs being adulterated, they could be deadly. The FDA has long expressed concern with the importation of medicines for these very reasons.

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Ending Barriers to Trade with Cuba Will Benefit America

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Posted by Alexander Hendrie on Thursday, May 4th, 2017, 9:30 AM PERMALINK

While he has expressed opposition to trade policy that does not meet the best interests of the American people, President Donald Trump has also promised he will pursue a trade agenda that benefits the U.S economy and workers. One initial step the administration can pursue to meet this goal is to remove existing trade barriers with Cuba.

There are currently several restrictions on trade with Cuba that impede the ability of Americans to do business or even travel to the island. Removing these restrictions will open up opportunities for American workers and businesses and ultimately help create more jobs and higher wages.

Americans trading with the island will also serve as the best ambassadors of freedom to help liberate the people of Cuba from the failed socialist regime.

To be clear, any government guarantees of loans, taxpayer finance, or special deals to the regime should be a non-starter. Even so, free and open trade as well as open travel with Cuba should be promoted. 

There are currently three pieces of legislation in Congress that would reduce unnecessary barriers to commerce – legislation to lift the travel ban, to remove private financing restrictions on agriculture, and to lift the trade embargo. Each of these pieces of legislation should be supported and passed by members of Congress.

Remove Private Financing Restrictions on Agricultural Trade

H.R. 525, the Cuba Agricultural Exports Act, introduced by Congressman Rick Crawford (R-AR) and S.275, the Agricultural Export Expansion Act, introduced by Senator Heidi Heitkamp (D-N.D.), remove needless private financing restrictions that exist under the Trade Sanctions Reform Act (TSRA).

Promoting market access for American agriculture will directly lead to more jobs and higher wages. In recent years, American farmers have lost nearly $1 billion in sales due to the existing Cuba financing restrictions. This legislation expands trade with Cuba to the benefit of American workers while also keeping safeguards in place to ensure that no taxpayer funding is given to the Cuban regime.

Lifting the Trade Embargo

The Cuba Trade Act (H.R. 442/S.1543), introduced by Congressman Tom Emmer (R-MN) and Senator Jerry Moran (R-KS) allows America’s private-sector industries to export goods and services to Cuba.

Again, this change will benefit American workers and the economy. As noted by a 2010 study by Texas A&M University, lifting the trade embargo could increase the sale of U.S. goods by $365 million and create 6,000 new jobs.

To ensure that American interests are protected, this legislation safeguards U.S. taxpayers in the event that a Cuban entity defaults on lines of credit.

Lifting the Travel Ban

The Freedom to Travel to Cuba Act (H.R. 351/S.299) introduced by Congressman Mark Sanford (R-S.C.) and Senator Jeff Flake (R-AZ) lifts the travel ban on Cuba that exists under TSRA.

There is no need for a travel ban to remain in effect. Cuba remains the only country in the world to which the U.S. government prohibits tourist travel. This should end.

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The Gift Tax Should Be Killed With the Death Tax

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Posted by Alexander Hendrie on Monday, May 1st, 2017, 3:30 PM PERMALINK

There is a consensus that pro-growth tax reform must include repeal of the death tax.

President Trump’s recently released tax plan repeals the death tax. So does the House Republican “Better Way” Tax Reform plan proposed by House Speaker Paul Ryan (R-Wis.) and Ways and Means Chairman Kevin Brady (R-Texas).

While this consensus is an excellent step in enacting pro-growth changes to the tax code, repeal of the death tax must also mean repeal of the gift tax. With the death tax gone, the gift tax is no longer necessary.

First enacted into law in 1924, the gift tax was intended as a backstop to prevent taxpayers from avoiding the death tax. Today, the gift tax and death tax remain linked – they share an asset threshold of $5.45 million, and both are applied at a 40 percent rate above that threshold.

Both are taxes on savings that a taxpayer has already paid taxes on at least once – through individual income taxes – and possibly other times.

Together, they collect very little revenue and suppress economic growth. In 2015, both taxes collectively brought in $19.2 billion. The federal government brought in a total of $3.25 trillion, so these taxes contributed less than 0.6 percent of all federal revenue. Even then, repealing the death tax and gift tax would produce strong growth that offsets most of this lost revenue. After macroeconomic effects, repeal of both taxes would reduce revenues by just $19 billion over the entire first decade due to more than $200 billion in higher income tax and payroll tax revenues, according to research by the Tax Foundation.

If the gift tax were left in place after repeal of the death tax, it would raise little, if any revenue because a taxpayer would simply wait to transfer their assets until they died. In contrast, repealing the gift tax along with the death tax would serve as a backstop to ensure the death tax is gone for good. If taxpayers believe the death tax will be reinstated, they can simply transfer assets to heirs before it takes effect.

While some argue that the gift tax also exists as a backstop for the income tax, this is not true. There are already rules in place to stop a taxpayer from transferring wealth to an heir. The “kiddie tax” subjects a child’s unearned income over $2,100 to a parent’s higher tax bracket.

This nullifies any tax benefit from transferring wealth to a child that would otherwise be in a lower tax bracket. Although the kiddie tax may cause other problems including complexity for families, its existence means there is no need to retain the gift tax. 

2017 should be the year that the death tax is finally repealed. With it, lawmakers should also be sure to repeal the gift tax. 

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The Trump Administration Should Index the Capital Gains Tax to Inflation

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Posted by Alexander Hendrie on Monday, May 1st, 2017, 10:55 AM PERMALINK

President Donald Trump has repeatedly promised he will enact pro-growth changes to the tax code to increase economic growth, create more jobs, and increase wages.

While the best way to achieve this goal is working with Congress to pass tax reform legislation, there are also other ways to achieve this. One change the Trump administration can make to the code immediately is directing Treasury to account for inflation when calculating capital gains taxes as outlined in a 1992 legal memo commissioned by the National Chamber Foundation and prepared by the law firm Shaw, Pittmann, Potts & Trowbridge.

The capital gains tax is one of several layers of taxation in the existing tax code. This tax is levied on income that has already been taxed at the individual level and is then reinvested into the economy. This extra layer of taxation creates a bias against savings and suppresses productivity and new investment. In turn, this hinders the creation of new jobs, higher wages, and increased economic growth.

A capital gain is defined in the tax code as the value of an asset at the time of sale minus the “cost.” Since the inception of the IRC, Treasury has interpreted “cost” to mean the original purchase price at the time of the purchase.

This interpretation fails to take into account any gain that is based on inflation. No real value has been added to an asset so no additional taxes should be owed. According to research by the Tax Foundation, about 50 percent of capital gains are actually from inflation.

Ending this inflation tax would reduce a barrier to reinvesting in the economy, which would lead to stronger growth, just as President Trump has promised. There is a clear policy rationale for indexing capital gains taxes to inflation. Similarly, there is a clear legal justification for Treasury to do so.

Current Law Distorts Against Long-Term Decision-making

Without an inflation index, the capital gains tax discourages long-term investment by exposing long-term investors to greater inflation risk than short-term investors.

For example, an investor who makes a capital investment of $1,000 in 1980 and sells that capital for $2,000 in 1996 will be taxed for a $1,000 gain. However after adjusting for inflation, the investor realized a gain of just $241 (1,000 in 1980 - $1759 in 1996).

By comparison, an investor that made a capital investment of $1,000 in 1996 and sold for $2,000 just one year later has a much higher real after-tax gain. As a result, the current tax code provides incentive for speculation, as opposed to long-term investment.

A basic principle of any equitable tax system is that taxpayers in equivalent circumstances should pay equivalent taxes. Referring to our earlier example, suppose that our long-term investor sells his $1,000 investment for $1,000, or no gain. In real economic terms, these two taxpayers are in identical circumstances. Both saw no real capital gain.

However, one will pay a tax on $759 of “income,” while the other pays no tax at all. In the absence of inflation-indexing, many investors are forced to pay capital gains taxes on real capital losses. In such circumstances, capital gains taxes amount to a levy on capital. Intuition tells us that a capital levy was never the intent of Congress when it created the IRC in 1913, or its many revisions thereafter. The history of congressional action concerning capital gains and the IRC since 1941 supports this conclusion. 

Clear Legal Justification for Indexing Cap Gains to Inflation

As noted by the 1992 legal memo, there is clear justification for Treasury to interpret “cost” to account for inflation.

This decision is based on three specific questions:

1.       Is the tax code sufficiently ambiguous to allow for administrative interpretation of “cost” in this instance?

2.       Does regulatory or legislative history offer an implied interpretation that could preclude Treasury’s authority?

3.       Does existing case law support Treasury authority in this specific instance?

First, the tax code does not specifically define the term “cost”. The tax code does define a capital gain in terms of its “adjusted basis” and specifically defines “basis” in terms of “cost.” Based on the precedent established by the Supreme Court under Chevron U.S.A. v. Natural Resources Defense Council., the memo concludes that the tax code is sufficiently ambiguous.

Therefore, as the memo notes, “interpreting cost to refer to the true economic consequences of the taxpayers investment is as reasonable as interpreting it to refer only to the nominal dollars expended to purchase the asset.”

Second, the legislative history of the tax code, and capital gains supports Treasury’s discretion. In 1918, when capital gains were explicitly written into the tax code, the economics of prices was well established, but not yet a part of mainstream public policy discussions. Virtually no questions of inflationary effects were raised in debate.

It could be argued that Congress’ repeated failure to write specific inflation-indexing language into the tax code amounts to an implicit rejection of such an interpretation of “cost.” However, two factors undercut this assertion. First until 1986, capital gains enjoyed a significant preference, most often a 50% exemption. In congressional debates, this exemption was frequently cited as sufficient to offset inflation’s effect on capital gains. In 1986, Treasury recommended an inflation index and elimination of the preference in its original proposal for fundamental tax reform.

Unfortunately, Congress took the advice to eliminate the preference, but ignored inflation indexing. Since 1986, inflation indexing legislation has been passed in both houses of Congress, but has never been enacted.

Third, existing case law is a strong argument for Treasury discretion. As noted by the study, numerous cases directly and specifically support Treasury discretion. Even before Chevron, courts showed great deference. The most poignant and pertinent is U.S. v Ludey (1927). Ludey dealt with the issue of adjustment to “cost” in capital gains. The court agreed with Treasury, which had defined “cost” with an adjustment for depreciation as Congress did not intend to tie the agency to a particular definition of “cost,” to the exclusion of other economic principals.

 

 

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House GOP Tax Blueprint Gives Families Tax Cuts, Higher Wages, and Simplicity

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Posted by Alexander Hendrie on Monday, April 17th, 2017, 8:00 AM PERMALINK

Opponents of the House Republican “Better Way” Tax Reform blueprint have falsely claimed the plan will increase costs for American families.

The critics say the border adjustability component of the cash-flow business tax will cost the average family $1,700 per year. But that is without acknowledging all the good the blueprint does.  It’s a scare tactic. They are only looking at the border adjustment part of the plan in isolation without accounting for positive effects in the plan. Even then, it is not clear that they are accurately analyzing the impact of the border adjustable cash-flow tax. 

Taken as a whole, the blueprint is a drastic net tax cut and implements numerous pro-growth policies. The plan cuts taxes for individuals across the board and implements reforms that will result in higher wages and more jobs due to stronger economic growth. The plan also drastically simplifies the enormously complex code.

Tax Cuts for Individuals
The blueprint reduces tax rates for American families across the board. It folds the existing seven tax brackets (10%, 15%, 25%, 28%, 33%, 35%, and 39.6%) into three brackets (12%, 25%, 33%). 

It also doubles the standard deduction from $6,000 to $12,000 ($12,000 to $24,000 for families). This larger standard deduction means that individuals who go from the existing 10 percent bracket to the new 12 percent bracket will see a net tax increase. These changes mean lower taxes for ALL Americans.

Higher Wages for Families 
The blueprint contains numerous pro-growth policies that increase wages for families. The plan drastically reduces taxes on businesses (42 percent for both small businesses and corporations) and replaces the confusing and arbitrary depreciation schedules with immediate, full business expensing for investments.

According to research by the Tax Foundation, the blueprint will increase after-tax income by nearly 9 percent, or close to $5,000 for the average family. The plan will also increase economic growth by 9.1 percent over the long-term and create an additional 1.7 million new jobs.

Drastic Simplification of the Code 
Currently, the tax code is too complex for families to understand. The code is around 75,000 pages long, forcing taxpayers to waste more than 8.9 billion hours and $400 billion in annual compliance costs. Half of all individual taxpayers rely on a paid professional to file their taxes.

The blueprint will make it so easy to file taxes that it can be done on a postcard. Numerous changes are made to the code, including repeal of the Alternative Minimum Tax and the Death Tax, and the consolidation of existing family tax credits will reduce the need to itemize deductions for the majority of Americans and the need to devote time and resources to tax filing.

Border Adjustability Does not Increase Costs
It is not even clear that border adjustability will increase costs to the extent that critics claimEconomists on both the Left and the Right agree that the reforms in the plan will offset any increase in costs. The cash-flow business tax that replaces the existing corporate income tax incentivizes foreign and domestic investment in the U.S. because of its low rate and consumption base. In turn, this drives up demand for the dollar, which causes the currency to appreciate. A stronger U.S. dollar means more purchasing power for consumers buying foreign goods.

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