Pro-Growth Reform Should Rollback or Remove Distortive Excise Taxes
A major goal of tax reform is eliminating or minimizing the extent to which the code picks winners and losers, with the end goal of a code that treats all economic decisions neutrally. This means removing any distortions in the tax code so that capital can form in the most productive way possible, resulting in more jobs, increased wages, and higher growth than may otherwise occur.
One broad way of achieving this is ensuring that businesses are taxed as equitably as possible by eliminating business credits in exchange for lowering rates within an across the board tax cut.
A different, more targeted way to achieve this goal is through the repeal of certain taxes, such as excise taxes. When it comes to alcohol excise taxes, this problem is especially noteworthy as the code currently taxes beer, wine, and spirits at different, arbitrary rates:
- Beer is subject to an $18 excise tax per barrel, with a reduced rate for the first 60,000 barrels produced by smaller brewers.
- Wine is subject to excise taxes between $1.07 and $3.40 per gallon, with a phased out credit for small wineries.
- Spirits are taxed at $13.50 per proof gallon, but with no reduced rate for smaller distillers.
This makes no sense, and is exactly the type of distortion that tax reform should aim to fix.
One possible path forward to undoing this inconsistent taxation is by passing the Craft Beverage Modernization and Tax Reform Act (S. 1562/H.R 2903), legislation sponsored by Senator Ron Wyden (D-Ore.) and Senator Roy Blunt (R-MO), and Congressman Erik Paulsen (R-MN) and Congressman Ron Kind (D-Wis.). The legislation is supported by a majority of both chambers -- 287 Congressmen and 52 Senators from both parties -- so there is clear consensus on the ideal path forward.
This legislation moves closer toward the goal of tax equity by ensuring the code treats beer, wine, and spirits in similar ways. In addition, it also equalizes the tax treatment of producers large and small.
By lowering rates, the Craft Beverage Modernization and Tax Reform Act achieves another key goal of tax reform – encouraging growth, jobs, and higher wages, through a more efficient system. It’s a basic principle that if you want more of something, you tax it less. Less income being diverted to federal and state governments means more resources left that can be invested by businesses in economically productive activity.
Excise taxes by their nature are counterproductive, because they have two competing goals. Lawmakers often justify these taxes as a way to clamp down on negative behavior, but the more successful they are at this goal, the less revenue they produce. In addition, they pick winners and losers by taxing a selective, narrow base, which distorts production and economic choices.
Tax reform that lowers rates and removes distortions is decades overdue. Removing credits, deductions, and discriminatory taxes – like alcohol excise taxes – must be a key component of pro-growth reform that increases wages, creates more jobs, and boosts economic growth.
The proposed bill would reduce the excise tax on domestic spirits producers by 80% for the first 100,000 proof gallons/year. The US and EU complained to the WTO about Colombia’s tax rates on booze. In defending against the complaint, Columbia could at least say that the different tax rates are based on the alcohol content, and not on national origin. The US does not even have that argument to justify the uneven playing field of taxing imports at five times the rate of domestic spirits producers.
ATR Statement on H.R. 34, the 21st Century Cures/Mental Health Reform Package
Congress will this week consider H.R. 34, “the 21st Century Cures Act.” This fiscally responsible legislation promotes medical innovation by streamlining the discovery, development, and delivery of medicines. It also reforms the nation’s failing mental health system to ensure millions of Americans receive the care they need. Members of Congress should have no hesitation supporting and voting “Yes” on this important legislation.
Fiscally Responsible: The 21st Century Cures package contains no tax increases, and all new spending is fully offset over the ten year window with corresponding spending cuts, as noted in an analysis by the Congressional Budget Office.
In all, H.R. 34 provides $6.3 billion in funding over the next ten years, including $4.8 billion to the NIH, $1 billion to combat opioid abuse, and $500 million to the FDA. Unlike the version of Cures passed last year, spending in the updated version is not mandatory, so Congress will retain necessary oversight over all spending.
More than half of the legislation’s spending is offset by rescinding funds from Obamacare’s unaccountable Prevention and Public Health Slush fund, a fund that has been used to push the Obama administration’s partisan agenda with non-existent congressional oversight. Other offsets include several changes to Medicare and Medicaid that will help promote the sustainability of these programs in the decades to come.
Promotes Medical Innovation: H.R. 34 devotes significant resources to streamlining the long process of medical innovation by reforming the discovery, development, and delivery of medicines and treatments.
Reforms include reducing regulatory red tape, breaking down barriers that restrict data sharing, speeding up clinical trials while increasing patient input, promoting new technologies, and expediting the review of potentially breakthrough devices.
While the resources needed to develop new cures are costly and time consuming, the potential savings to the broader healthcare system are significant. Updating the regulatory system governing the development of new medicines and treatments will ensure the U.S. remains a world leader in treatment, that the lives of millions will improve, and that costs will be minimized.
Reforms Failing Mental Health System: All too often, the U.S. mental health system fails to provide proper treatment to the millions that need it. The federal government spends roughly $130 billion on mental health each year, often with underwhelming and ineffective results. While there are 112 federal programs dedicated to addressing mental health, there is little, if any coordination. The Substance Abuse and Mental Health Services Administration (SAMSHA) has even been dubbed the “worse government agency”.
While there is need for change, the solution cannot be spending billions in a system is plagued by inefficiency and waste. Instead, H.R. 34 contains many important reforms that update the mental health system without spending any new money.
Specifically, the legislation reforms SAMSHA, creates more oversight and connectivity over the many programs and agencies involved in mental health and priorities evidence-based care that empowers caregivers, supports innovation, and advances early prevention programs.
In addition, the legislation creates more support for the mental health workforce, for on-campus mental health education, and for addressing substance use.
There is clear support for reforming our mental health system in this direction. Similar legislation, “the Helping Families in Mental Health Crisis Act” (H.R. 2646), sponsored by Congressman Tim Murphy (R-Pa.) passed the House of Representatives by an overwhelming vote of 422-2 earlier this year. Lawmakers should have no hesitation again supporting these important reforms.
Congress Must Repeal or Restrain Obamacare's CMMI
When it was passed into law six years ago, Obamacare created the Centers for Medicare and Medicaid Innovation (CMMI) and tasked the agency with conducting demonstrations over new health care delivery and payment models in Medicare, Medicaid, and the Children’s Health Insurance Program with the intent of reducing healthcare costs.
While CMMI tests are supposed to increase the efficiency of healthcare programs, the agency has pushed tests with little evidence they will result in savings, while strong-arming providers into participating. At the same time, the Congressional Budget Office is utilizing unsuitable scorekeeping over CMMI tests, which has limited the ability of Congress to conduct routine oversight.
In a letter to lawmakers, a coalition of conservative groups, including ATR urged Congress to prioritize restraining or repealing this unaccountable agency next year. The letter can be found below or here.
Dear Member of Congress:
As policymakers wrap up business this year as well as prepare for a new Congress and administration, repealing and replacing Obamacare is at the top of the agenda. There are dozens of complex policy issues surrounding health care reform. One standout that urgently needs scrutiny is the Center for Medicare and Medicaid Innovation (CMMI.)
CMMI was created by Obamacare in order to facilitate demonstration projects for payments and services within those programs. Unfortunately, the outgoing Obama Administration chose to engage in executive overreach on several CMMI initiatives by making them involuntary, nationwide policy changes. Perhaps the most alarming example so far is the Medicare Part B demonstration project, which impacts cancer patients and doctors in 49 states.
Another reason to repeal CMMI, or at least to construct guardrails that can curb abusive measures like the Part B Demo, is the way that the Congressional Budget Office has scored the agency's activities. CBO thinks that CMMI’s unelected bureaucrats will save tens of billions of dollars from Medicare and Medicaid, but if the people’s elected representatives want to set policy instead, it will "cost" taxpayer dollars. This is not only bad scoring, it's an inappropriate weakening of Congress' right to make entitlement policy. Any CMMI changes short of repeal should correct this grave scorekeeping error, before it further upsets the balance of power in the policymaking process.
President, Americans for Tax Reform
President, Council for Citizens Against Government Waste
President, National Taxpayers Union
FTC Contact Lens Rule Changes Protect Free Market Competition
After 14 months of review, the Federal Trade Commission (FTC) issued proposed changes to the contact lens rule that will protect a free and open market over the purchase of contact lenses. In addition, they preserve protections that allow consumers the freedom to purchase where they choose, free from government interference.
These proposed changes build on the success of the 2003 Fairness to Contact Lens Consumers Act (FCLCA) and will ensure that the free market is allowed to thrive. Given the proven success of FCLCA, federal lawmakers should be sure not to reverse this working system based on misleading rhetoric.
It is a basic principle of free markets that consumers are free to make decisions without government control over prices and purchasing choices. Existing law works and should only be tweaked as the FTC review calls for, not blown up and replaced with a radically different system as legislation in Congress would do.
Proposed Changes Ensure Consumers and Free Commerce Remain Protected
Prior to passage of FCLCA, optometrists could make it more difficult for their patients to purchase from a third party. These concerns were far from hypothetical – there were many well documented cases of bad actors implicitly or directly blocking the free choice of consumers.
To be clear, there should be no restrictions on professionals selling contact lens, nor should there be any restriction on consumers safely purchasing from a third party.
FCLCA fixed existing flaws in law by allowing consumers the right to “passive verification” over contact lens prescriptions, a change that meant patients would have access to a written prescription, so they could shop where they wanted.
The proposed FTC rule changes build on the success of FCLCA by streamlining prescription verification in a way that balances patient access and public safety in the most compliant friendly manner.
The rule calls for additional record keeping in the form of a “receipt of contact lens prescription” that enshrines the right of consumers to freely purchase from either their optometrist or a third party provider.
Consumers will also have increased flexibility to have their prescriptions verified through phone, fax, or online, a change that makes sense given the ease of communication today.
Congress Should Reject Misleadingly Named “Contact Lens Consumer Health Protection Act”
While the results of the FTC’s review moves federal law in the right direction, legislation in Congress would undo this based on vague and unproven “safety concerns.”
The Contact Lens Consumer Health Protection Act (S. 2777/H.R. 6157) would revert back to the system of “direct verification,” meaning that an optometrist must prescribe over the phone or in person. A coalition of ten conservative, free market groups, including ATR recently called on lawmakers to reject this protectionist legislation.
While the proposed change may sound innocuous, it would again open the door to bad actors denying patients the freedom to purchase wherever they wish.
Supporters of the legislation claim that it targets deceptive sales of contact lenses and ensures safety for contact lens consumers. But as noted by the FTC’s review of federal law, there is no evidence this is the case. Congress has already considered the issues of contact lens health use and they were incorporated in FCLCA upon passage more than a decade ago.
In actuality, the currently proposed legislation squeezes consumers to make it difficult, even impossible to purchase lenses from any non-optometrist third party.
Congress should not move to constrain the free market and limit consumer choice, especially given the findings of the evidence based review conducted by the FTC.
Good Riddance to Obamacare’s Tax Hikes
When it was signed into law six years ago, Obamacare imposed more than $1 trillion in tax hikes on the American people over a ten year period. There are seven Obamacare tax increases that directly hit Americans making less than $250,000, a violation of President Obama’s “firm pledge” not to raise any form of tax on such households.
Obama broke his promise to the American people. Paul Ryan, Mitch McConnell, and Donald Trump can now abolish these taxes.
The list of tax hikes is below -- the first seven directly hit Americans making less than $250,000:
Individual Mandate Non-Compliance Tax: Anyone not buying “qualifying” health insurance – as defined by President Obama’s Department of Health and Human Services -- must pay an income surtax to the IRS. In 2014, close to 7.5 million households paid this tax. Most make less than $250,000. The Obama administration uses the Orwellian phrase “shared responsibility payment” to describe this tax.
Starting this year, the tax was a minimum of $695 for individuals, while families of four had to pay a minimum of $2,085.
Households w/ 1 Adult
Households w/ 2 Adults
Households w/ 2 Adults & 2 children
A recent analysis by the Congressional Budget Office (CBO) found that repealing this tax would decrease spending by $311 billion over ten years.
Medicine Cabinet Tax on HSAs and FSAs: Since 2011 millions of Americans are no longer able to purchase over-the-counter medicines using pre-tax Flexible Spending Accounts or Health Savings Accounts dollars. Examples include cold, cough, and flu medicine, menstrual cramp relief medication, allergy medicines, and dozens of other common medicine cabinet health items. This tax costs FSA and HSA users $6.7 billion over ten years.
Flexible Spending Account Tax: The 30 - 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face an Obamacare-imposed cap of $2,500. This tax will hit Americans $32 billion over the next ten years.
Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap. Now, parents looking to sock away extra money to pay for braces find themselves quickly hitting this new cap, meaning they have to pony up some or all of the cost with after-tax dollars. Needless to say, this tax especially impacts middle class families.
There is one group of FSA owners for whom this new cap is particularly cruel and onerous: parents of special needs children. Families with special needs children often use FSAs to pay for special needs education. Tuition rates at special needs schools can run thousands of dollars per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax increase limits the options available to these families.
Chronic Care Tax: This income tax increase directly targets middle class Americans with high medical bills. The tax hits 10 million households every year. Before Obamacare, Americans facing high medical expenses were allowed an income tax deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. This income tax increase will cost Americans $40 billion over the next ten years.
According to the IRS, approximately 10 million families took advantage of this tax deduction each year before Obamacare. Almost all were middle class: The average taxpayer claiming this deduction earned just over $53,000 annually in 2010. ATR estimates that the average income tax increase for the average family claiming this tax benefit is about $200 - $400 per year.
HSA Withdrawal Tax Hike: This provision increases the tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.
Ten Percent Excise Tax on Indoor Tanning: The Obamacare 10 percent tanning tax has wiped out an estimated 10,000 tanning salons, many owned by women. This $800 million Obamacare tax increase was the first to go into effect (July 2010). This petty, burdensome, nanny-state tax affects both the business owner and the end user. Industry estimates show that 30 million Americans visit an indoor tanning facility in a given year, and over 50 percent of salon owners are women. There is no exception granted for those making less than $250,000 meaning it is yet another tax that violates Obama’s “firm pledge” not to raise “any form” of tax on Americans making less than this amount.
Employer Mandate Tax: This provision forces employers to pay a $2,000 tax per full time employee if they do not offer “qualifying” – as defined by the government -- health coverage, and at least one employee qualifies for a health tax credit. According to the Congressional Budget Office, the Employer Mandate Tax raises taxes on businesses by $166.9 billion over the ten years.
Surtax on Investment Income: Obamacare created a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 for singles). This created a new top capital gains tax rate of 23.8% and increased taxes by $222.8 billion over ten years.
The capital gains tax hits income that has already been subjected to individual income taxes and is then reinvested in assets that spur new jobs, higher wages, and increased economic growth. Much of the “gains” associated with the capital gains tax is due to inflation and studies have shown that even supposedly modest increases in the capital gains tax have strong negative economic effects.
Payroll Tax Hike: Obamacare imposes an additional 0.9 percent payroll tax on individuals making $200,000 or couples making more than $250,000. This tax increase costs Americans $123 billion over ten years.
“Cadillac Tax” -- Excise Tax on Comprehensive Health Insurance Plans: In 2020, a new 40 percent excise tax on employer provided health insurance plans is scheduled to kick in, on plans exceeding $10,200 for individuals and $27,500 for families. According to research by the Kaiser Family Foundation, the Cadillac tax will hit 26 percent of employer provided plans and 42 percent of employer provided plans by 2028. Over time, this will decrease care and increase costs for millions of American families across the country.
Tax on Medical Device Manufacturers: This law imposes a new 2.3% excise tax on all sales of medical devices. The tax applies even if the company has no profits in a given year. The tax was recently paused for tax years 2016 and 2017. It will cost Americans $20 billion by 2025.
Tax on Prescription Medicine: Obamacare imposed a tax on the producers of prescription medicine based on relative share of sales. This is a $29.6 billion tax hike over the next ten years.
Tax on Health Insurers: Annual tax on health insurance providers imposed relative to health insurance premiums collected that year. This is a $130 billion tax hike over the next ten years.
Codification of the “economic substance doctrine”: This provision allows the IRS to disallow completely legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed. This costs taxpayers $5.8 billion over ten years.
Elimination of Deduction for Retiree Prescription Drug Coverage: The elimination of this deduction is a $1.8 billion tax hike over ten years.
$500,000 Annual Executive Compensation Limit for Health Insurance Executives: This deduction limitation is a $600 million tax hike over ten years.
Trump just better sign it.
Lawmakers Should Oppose the CREATES Act
Before the end of the year, Congress is expected to consider S. 3056, the “Creating and Restoring Equal Access to Equivalent Samples Act” (CREATES Act) as a pay-for in H.R.6, the 21st Century Cures Act. While the intent of the CREATES Act is to streamline the system of medical innovation, it would ultimately cause more problems than it would solve. The legislation would cause severe damage to a regulatory system that ensures the safe development of life-saving and life-preserving medicines. It should be opposed by all members of Congress.
The CREATES Act modifies an FDA regulatory process known as Risk Evaluation and Mitigation Strategies (REMS). This process applies to a small set of potentially dangerous drugs and is carefully balanced to promote safety, innovation, and access. This flawed legislation would upend this system in a reckless way that undermines these principles.
If passed into law, the CREATES Act would endanger patient and researcher safety, undermine intellectual property rights protections, open the door to unjustified litigation, and suppress innovation.
Undermines Intellectual Property Rights: Patent exclusivity has been carefully enshrined in law to ensure that creativity, innovation, and medical growth are not undermined. It is also not unlimited or unreasonable in length because doing so would allow the creation of a monopoly and limit access to medicines at reasonable prices.
The CREATES Act creates a new litigation system with the aim of ensuring bad actors do not abuse the regulatory system to extend patent protection. However, it does so in a backwards way that gives generics the power to force innovators to hand over their IP at threat of litigation.
While supporters of the legislation argue that billions could be saved by modifying the regulatory process, this would come at the cost of suppress innovation, resulting in the slowed development of innovative new medicines and higher long-term costs.
Upends a Carefully Balanced, Working Regulatory System: REMS is a special regulatory process that affects a small set of about 40 highly advanced, yet potential dangerous drugs. This process is necessary because of the volatile nature of these medicines, and ensures they are efficiently developed and administered in a way that carefully balances property rights, safety, and access.
The CREATES Act upends this system by allowing generics to bypass FDA procedures that exist to ensure REMS medicines are safely developed. Under the proposal, a generic manufacturer is not required to include adequate safeguards for patients and researchers as a condition of authorization, and FDA is limited in its ability to deny or modify an authorization request.
Opens Door to Unjustified Litigation: If enacted into law, the CREATES Act would open the door to bad actors in the industry launching petty, unjustified litigation. This would be a handout to monied trial lawyers at the expense of innovators, consumers, and the broader healthcare system.
This legislation creates a new litigation system that leaves allows competitors seeking samples from an innovator the ability to launch litigation just 30 days after negotiation has begun -- essentially forcing innovators to hand over their IP or go to court. At its most extreme, the legislation’s lack of protections may even leave innovators responsible for actions taken by a reckless generic competitor.
Not the Solution to Lower Drug Prices: Supporters of the legislation, like Senator Patrick Leahy (D-Vt.) claim that the CREATES Act is a solution to high price of medicines. If anything this proposal would do the opposite – increase the price of medicines by creating a more burdensome, litigious regulatory system.
Costs associated with medical development are already significant. On average it costs $2.6 billion and more than a decade of research time for each new medicine that hits the market. By opening the door to more litigation in a way that shifts the burden onto innovators, the CREATES Act will undoubtedly increase these costs.
The Government Would be A Lousy Negotiator Over Drug Prices
The price of life-saving and life-preserving prescription medicines has been subject to intense scrutiny recently. Some have even used this negative attention as an excuse to call for the government to forcefully lower the price of drugs by giving bureaucrats greater authority to set market prices. However, these proposals demonstrate a lack of understanding of the issue.
The fact is, government “negotiation” over drug prices would not deliver the benefits that supporters claim. While they may reduce the upfront cost of medicines, it would likely increase long-term costs and would replace an existing system that already reduces costs with one that hampers innovation and reduces choice. The simple fact is, the government would be a terrible negotiator over the price of medicines.
Prices Are Already Negotiated Down: When it comes to the price of prescription drugs, it is not a choice between government negotiation and nothing. The free market already works to reduce costs, and by giving negotiators an incentive to provide the lowest prices possible, while balancing access to care.
Under this system, pharmacy Benefit Managers (PBMs) exist as the middleman between pharmacies, consumers, and manufacturers. They negotiate with these stakeholders to provide medicines at a lower price, a practice that will save up to 30 percent, or $654 billion over the next ten years, including $257 billion for Medicare part B.
Granting the government new power, will replace, rather than add to these savings. As noted in a study by PwC, PBMs act as a private sector alternative to price controls by putting downward pressure on low healthcare prices and therefore, they achieve what the government cannot.
While much was made of the recent announcement that the price of the EpiPen would increase from $150 to $600 for a pack of two, this price is negotiated down by close to 50 percent even though the product has no competition in the market.
These savings occurs across the prescription drug market. In total, the average out-of-pocket cost for employer provided prescription drugs decreased from $167 in 2009 to just $144 in 2014.
When the Government Negotiates, It Does So Poorly: The concern that government negotiation would back fire isn’t hypothetical – there are already case studies that prove this point. On one hand, prescription drugs administered through the Veterans Affairs agency are set by the government. On the other, Medicare Part D prescription drug coverage utilizes free market competition to put downward pressure on prices and maximize access. The performances of each program are stark.
Despite (or because of) not relying on government negotiation over prices, Medicare Part D works efficiently as it can instead focus on promoting competition amongst different providers. Different plans can compete based on the goal of maximizing access and minimizing coverage.
As this allows individuals to better select a plan that meets their needs, there is a 90 percent satisfaction rate and the program spends 45 percent less than initial projections, while monthly premiums are half of the projected amount. Even as spending remains low, the program covers a wide range of prescription medicines.
In contrast, VA address prescription drug coverage with a “one-size fits all” government run approach. This has led to VA covering as little as 40 percent of commonly used medicines, forcing close to one in four enrollees to purchase supplemental care.
While the VA “negotiates” prices, it inevitably must say no if the price it deems the price too high. As a result, it is very selective about what it covers and veterans are frequently locked out of accessing newer life-saving medicines, resulting in worse health outcomes, and higher long-term costs to the system.
It’s the Job of the Free Market, not Government to Set Prices: While forcefully reducing the costs of medicine may succeed in reducing the upfront costs of drugs, over the long term it is an incredibly destructive policy. By forcing lower prices, the government creates a disincentive to innovate because there are less profits available to finance the next generation of life-saving and life-improving prescription medicines. In turn, this results in higher long-term healthcare costs because illnesses need to be treated in a reactive, not proactive way.
Already, development is a timely and expensive process. It costs an average of $2.6 billion and more than a decade of research time for each new medicine that hits the market. Only ten percent of drugs that begin preclinical testing ever make it to market, so prices are in part set by these extensive development costs.
While drug costs may seem high in isolation, it is only half the story as they also led to substantial savings over the long term, as noted by a recent study released by Frank R. Lichtenberg of the Montreal Economic Institute. Lichtenberg estimated that current savings to the healthcare system totaled almost a billion dollars more than overall spending on new medicines today, close to three decades since the period of medical innovation analyzed.
Tax Policy Center Data: Trump Tax Plan Beats Clinton with Higher Take-Home Pay for All Income Levels
Left of center group’s own numbers show after-tax income under Trump plan is higher than Clinton’s plan for all income levels
Donald Trump’s tax cut plan would increase after-tax income more than the Hillary Clinton’s tax plan regardless of income quintile, according to data published by the left-of-center Tax Policy Center.
As noted in the center-left Tax Policy Center’s data, the middle quintile of income earners would see a 1.8 percent increase in after tax-income under the Trump plan but would receive just 0.2 percent increase in after-tax income under the Clinton plan. The Trump tax cut in this income range is nine times the size of Clinton’s.
Clinton’s tax plan offers no income tax rate reduction for any American of any income level. No rate reduction for any business or any individual, regardless of size.
Data Source: Tax Policy Center
Clinton’s overall tax plan raises taxes by $1.4 trillion. Americans for Tax Reform is tracking all of Clinton’s tax hikes at www.HighTaxHillary.com
Congress Should Not Use the Tax Code to Pick Winners and Losers in the Reinsurance Industry
Congressman Richard Neal (D-MA) and Senator Mark Warner (D-VA) recently introduced legislation (H.R. 6270 and S. 3424 respectively) that needlessly picks winners and losers in the reinsurance industry by distorting the tax code in an economically destructive way. While supporters of the legislation claim it would close a “loophole” in the tax code, it would do no such thing and would instead make the code more complex, while decreasing choice and increasing prices in the reinsurance industry.
Property and casualty insurers commonly purchase reinsurance as a way to spread risk so that no single insurer is overly exposed in the face of disaster. Under federal law, insurers are permitted to deduct from taxable income any premiums paid to a reinsurance provider. This makes perfect sense because it is a necessary business expense indistinguishable from any other.
The proposed legislation removes this business deduction only for foreign reinsurers based on the argument that foreign firms are using the deduction to shift profit outside the U.S.
But this is argument misses the mark -- profit shifting concerns are not justified here. Reinsurance transactions are already heavily regulated to ensure the rules aren’t abused. Even if this were the case, the solution should not be to treat identical business purchases differently under the tax code based on the location of the reinsurer.
Not only is this proposal protectionist, but it would make the code more complex, would arbitrarily picks winners and losers, and hurts the economy and consumers. Given it raises a miniscule amount of revenue, it is not a serious pay-for especially after accounting for the economic damage it causes.
Doesn’t Fix the Problem that Supporters Claim: Supporters of this proposal argue that reinsurance profits ending up outside the U.S. means that insurers are shifting profit to minimize taxes. This is not the case. By its nature, reinsurance is an industry that spreads risk across the globe, therefore profit (and loss) will naturally spread outside U.S. borders. In addition, reinsurance transactions are already subject to heavy scrutiny by IRS auditors to ensure they do not abuse discrepancies in international tax law to shift profit outside the country.
Makes the Tax Code More Complex: Tax policy should treat all economic decisions neutrally by minimizing the number of distorting credits and deductions in the code so that decisions are made based on economic growth. Current law over reinsurance premiums already treats business decisions equally, so H.R. 6270/S. 3424 would create more complexity in the code and encourage insurers to arbitrarily treat purchases differently based on the country of purchase.
Reduces Consumer Choice and Increases Reinsurance Prices: Changing the tax code in this way will distort the reinsurance market by giving domestic reinsurers an artificial advantage. This will narrow the choices available to insurance companies and consumers leading to decreased competition and higher prices. According to research by the Brattle Group, this proposal could reduce the supply of reinsurance by as much as 20 percent, and increase costs to American consumers by $11 to $13 billion due to higher prices.
Hurts Economic Growth: According to research by the Tax Foundation, this change would reduce GDP by $1.35 billion over the long term, due to increases in the cost of capital. As noted by the study, every additional dollar in revenue would come at the cost of more than four dollars to the economy. Equal treatment of foreign and domestic reinsurance allows consumers to spread the risk in an economically efficient way, but the proposed change creates unneeded market distortions.
Raises a Miniscule Amount of Revenue: Congress is continually on the hunt for “pay-fors” as a way to offset tax reform proposals. Because this proposal is so damaging to economic growth, it would raise a miniscule amount of revenue and is essentially useless as a tax reform pay-for. After accounting for negative economic feedback, the proposal would raise just $4.4 billion over a ten-year period. Over that same period, federal revenues will total $41.7 trillion according to the Congressional Budget Office. The damage this proposal will cause to the economy and to property and casualty insurers far outweighs any benefit it may have as a tax reform pay-for.
CMMI Tests Undermine Congressional Authority and Threaten Access to Healthcare
Obamacare created the Centers for Medicare and Medicaid Innovation (CMMI), an agency tasked with conducting demonstrations over new health care delivery and payment models in Medicare, Medicaid, and the Children’s Health Insurance Program with the intent of reducing healthcare costs. While the goals of this agency are laudable, CMMI is using its broad authority to marginalize the constitutional role of Congress in order to push bad healthcare policy.
CMMI tests are supposed to increase the efficiency of healthcare programs by either improving quality without increasing spending or reducing spending without decreasing quality. However, the agency has pushed tests with little evidence they will result in savings, while strong-arming providers into participating.
The last eight years have seen the executive branch repeatedly push unilaterally actions that ignore the will of Congress and the American people. The actions of CMMI to unilaterally propose changes in law represents a new avenue for unelected bureaucrats to push their liberal agenda even in the face of opposition from doctors, patients, and Congress.
Lawmakers must assert their constitutional authority over this wayward agency. The fact is, it is the job of Congress to make these changes to law.
CMMI Not Subject to Congressional Oversight: Federal agencies are typically funded through the annual appropriations process, which gives Congress control over funds each year and the opportunity to conduct oversight over the actions of an agency.
CMMI is not subject to this process – the agency has been obligated $10 billion this decade and $10 billion every decade in perpetuity. As a result, the agency has free rein to do what it wants with these funds and Congress is limited as to the oversight it can conduct over the agency.
To date, CMMI has spent more than $6 billion with no savings to show for it. In the real world, the agency’s poor performance would see its funds reduced. Instead, CMMI continues to receive funds automatically.
CBO Methodology Hampers CMMI Oversight: The Congressional Budget Office is the scorekeeper for Congress on all fiscal issues. It provides cost estimates on all legislation and is therefore an integral part of the budget making process. In measuring the fiscal cost/benefit of CMMI demonstrations, CBO is adjusting the trillion dollar federal baseline even though it is unclear whether there will be any savings at all.
The agency assumes that tests are recouping billions in savings as if they are successful even though these tests are in their early stages, and little, if any evidence has been compiled. Conversely, CBO is scoring any attempt to block or correct demos as costing the government money. This binds the hands of lawmakers by them to consider offsetting spending cuts whenever they wish to exert proper oversight over .
Not only does this decision distort the federal baseline with misleading estimates, it makes it much harder for Congress to do its job by giving CMMI tests supremacy over the work done by lawmakers.
CMMI is Promoting Bad Healthcare Policy: Because of its broad authority over mandatory spending, CMMI has been able to propose sweeping policy changes with little evidence of future savings. The latest CMMI test proposes a new, lower payment model for physician-administered prescription drugs under Part B of Medicare.
Because CMMI has decided it can mandate participation in its tests, the rule rewrites existing payment models for as much as 75 percent of the country forcing thousands of doctors and patients across the country to participate. Because the rule drastically reduces reimbursement rates to doctors, it is likely that these tests will hurt access to care for seniors across the country.
This massive test should be subject to careful scrutiny, especially as there are concerns that the demonstration will not save the money that CMMI claims. However, Congress is hamstrung in its ability to conduct meaningful oversight because of CBO methodology.