Ryan Ellis

Senate Should Reject Tax Hike to Benefit Trial Lawyers


Posted by Ryan Ellis on Thursday, March 26th, 2015, 8:33 PM PERMALINK


This week, the U.S. Senate will vote on an amendment (#587, introduced by Senator Leahy) to the budget resolution. This amendment is a clear payoff to trial lawyers in the form of a brand new tax hike.

The measure would permanently deny employers the ability to deduct punitive damage assessments from lawsuits as a business expense.​

It is not tax reform.  It is a permanent new tax increase.  Taking away this legitimate deduction results in higher taxes.  If it's not canceled out by equal or greater tax relief elsewhere, this income tax increase violates the Taxpayer Protection Pledge.

Businesses can deduct all “ordinary and necessary business expenses” under tax law.  This has always included punitive damage costs.  To deny this well-grounded deduction to employers is arbitrary and clearly intended to benefit a constituency.

Since settlements out of court are still deductible under this tax law change, trial lawyers will be empowered to file junk lawsuits (hoping that employers will choose to settle rather than risk a punitive damage award with no tax benefits). When a lawsuit is settled rather than challenged, the trial lawyer gets a guaranteed win.​

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U.S. Senate Should Reject Price Controls in "Vote-a-Rama"


Posted by Ryan Ellis on Thursday, March 26th, 2015, 10:09 AM PERMALINK


The Senate this week may be voting on a pair of amendments to the budget resolution pertaining to government price controls on prescription medicines.  The Senate should reject any and all such efforts.  They are bad health care policy, they are even worse trade policy, and they're not a free market solution.

Importing Foreign Government Price Controls

One amendment in question would allow Americans to purchase prescription medicines from Canada.  On its face, this is a pro-free market amendment.  Why should the government prevent people from buying goods or services from anywhere they want to, especially from a developed nation like Canada?

The free market answer is that consumers would often not be importing just the medicine, but also the price control.  In most countries, the prescription drug industry labors under burdensome government-imposed price controls.  These price controls allow politicians to give voters seemingly-cheap medicines, but there's a heavy price.  Since the drug companies are left with little or negative profit, there is virtually no money left over to finance the next generation of drug research and development.

One of the only countries left that allows drug prices to be (mostly) set by the free market is the United States.  The profits made here finance the next generation of life-saving and life-improving prescription medicines.  If the U.S. market suddenly gets flooded with price-distorted drugs from all around the world (they only need to make their way to Canada first), our drug market will be permanently-damaged by price controls in other countries.

Think about it this way: suppose you are taking a blood pressure medication that costs you $50 per dose.  This amendment passes, and you start to purchase a medicine from Canada (really, from anywhere) that only costs $20 per dose, thanks to the price control in the other country.  You would be a fool not to take that deal.  Millions of other Americans do the same, and suddenly no one is buying the $50 version of the drug anymore.  No new drugs have entered the country--it's the exact same medicine whether it's a market-set $50 or a government-set $20.  But price controls dictated by foreign bureaucrats have entered the country, totally distorting our drug market.  By importing price controls today, the miracle drugs of the future are strangled in the crib.  All the capital for future R&D is gone.

This type of amendment would be a good idea in a world free of market-distorting price controls.  Free trade is a good thing.  But free trade requires transparent, signal-setting prices set by markets, not by governments.

Price Controls from Our Own Government

A related amendment may also seek to impose price controls on prescription medicines from our own government.  There are already government price controls on medicines purchased in the Medicaid system.  Congressional Democrats would like to expand this price control regime to also include medicines purchased in the Medicare system.  

Doing so is the opposite of a free market solution.  Prices send signals.  If prices are distorted by governments, they can't do their vital job of regulating supply and demand.  

Furthermore, artificially lowering the price of anything--life saving medicines especially included--steals the capital needed to finance the next generation of that good or service.  Government imposed low prices today mean the miracle cures of tomorrow simply never happen.

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ATR Supports Tax Simplification for Seniors


Posted by Ryan Ellis on Thursday, March 19th, 2015, 3:22 PM PERMALINK


Earlier this week, the “Senior Tax Simplification Act” was introduced in both the U.S. House of Representatives and U.S. Senate. Complying with the U.S. tax code costs Americans six billion hours and $168 billion each year.  This legislation will simplify tax compliance for those who need it most – our seniors. ATR supports this legislation and urges all Congressmen and Senators to vote for and otherwise support this bill.

H.R. 1397, introduced by Congressman John Fleming (R-La) and S. 716, introduced by Senator Marco Rubio (R-Fla) would instruct the IRS to create a new 1040 tax form specifically for senior citizens. The form would simplify the process of filing taxes and include information for the most common types of income reported by seniors - interest, dividends, capital gains, Social Security benefits, pension payments, IRA distributions, wages, and unemployment compensation.  

Each year, 21 million returns are filed in households where the primary taxpayer is over 65. The creation of a streamlined tax form will make life easier for these millions of households and lead to a more efficient system.
A similar form already exists for young taxpayers, the 1040-EZ. This form is used by almost 5 million households each year. Given the success of this form in simplifying the tax code for younger workers, there is no reason that seniors should not be given this same assistance.

The Senior Tax Implication Act will provide much needed clarity and grant seniors a more efficient and streamlined process.

 

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ATR Supports Debt and Taxation Transparency for Taxpayers


Posted by Ryan Ellis on Wednesday, March 18th, 2015, 4:43 PM PERMALINK


Senator John Cornyn (R-Texas) introduced S. 745, the “Debt and Taxation Transparency Act of 2015” (DTTA) earlier this week. ATR supports this legislation and urges all Senators to vote for and otherwise support this bill.

Since 2009, the national debt has increased by 70 percent. Taxpayers deserve to know how this unsustainable runaway spending could impact their standard of living and economic well-being.

S. 745 will provide taxpayers with a better understanding of how Washington’s reckless spending affects them.

Specifically, the DTTA ensures that taxpayers will receive a “taxpayer financial statement” which will provide taxpayers with a calculation of their share of the federal government’s financial obligations.

S.745 will provide other important information to taxpayers including a 30-year projection of the increase in federal income tax rates necessary to completely finance the current fiscal path of the federal government, without running a budget deficit, and an estimate of income & payroll tax liability to taxpayers under this 30 year projection.

In addition, DTTA will provide taxpayers with a summary of the most recent Financial Report of the United States, including the long-term fiscal position of the Federal Government.

Taxpayers deserve the truth from Washington about the state of federal finances. This legislation will provide taxpayers with a more complete picture of long-term fiscal conditions. ATR Supports the Debt and Taxation Transparency Act and urges all Senators to support this bill. 

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ATR Supports Legislation to Repeal the Death Tax


Posted by Ryan Ellis on Tuesday, March 17th, 2015, 3:52 PM PERMALINK


This month, the House Ways and Means Committee will consider H.R. 1105, the “Death Tax Repeal Act of 2015,” sponsored by Congressman Kevin Brady (R-Tex.). This legislation will put an end to the immoral practice of the federal government demanding hard-earned taxpayer money after a family loses a loved one. ATR supports this bill and urges all Members of Congress to support it.

H.R. 1105 will permanently kill the Death Tax. The Death Tax has a top federal rate of 40 percent on estates and the tax is a major reason that Americans are unable to pass along farms and small businesses to the next generation.

The Death Tax makes up a miniscule sliver of federal revenue and so repealing the tax will have an almost unnoticeable effect on the federal budget. In addition, a study by the Joint Economic Committee found that the Death Tax hurts economic growth and discourages savings and small business growth. 

The Death Tax places an unfair and unnecessary burden on American families in the event of a tragedy.  H.R. 1105 will repeal this ridiculous tax and help provide families peace of mind in a difficult time.

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Double Taxation on Corporate Profits Hurting U.S. Competitiveness

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Posted by Ryan Ellis on Friday, March 13th, 2015, 4:06 PM PERMALINK


A report compiled by Ernst & Young comparing U.S. corporate tax rates to the rest of the developed world has found that America’s inefficient corporate tax regime is hurting U.S. competitiveness – namely through double taxation on economic decision making.

According to the report, the U.S. has the second highest top integrated tax rates amongst 38 developed countries, including the 34 members of the Organisation for Economic Development (OECD) along with Brazil, Russia, India, and China (BRIC). The report calculates integrated tax rates by combining corporate-level taxes with investor-level taxes on dividends and capital gains at national and subnational level.

Most developed countries (but not the U.S.) provide some form of relief from double taxation on corporate profits. Double taxation is a drag on the economy because it distorts important economic decisions, including discouraging capital investment which can lead to the misallocation of resources. It also encourages firms to favor debt over equity financing which can leave them vulnerable during periods of economic weakness.

The 2001/2003 Bush Tax cuts were designed to lessen the impact of double taxation in the U.S. through reduced dividend and capital gains rates and put the U.S. on nearly equal footing with competing nations. Since then, other nations have further decreased their tax burden on businesses, while the 2012 fiscal cliff tax hikes resulted in the US integrated tax rate reaching second highest amongst developed nations.

Several reforms have been proposed to reduce the dividend and capital gains tax burden including a 2014 proposal by Former House Ways and Means Committee Chairman Dave Camp and the White House Budget for FY 2016. Unfortunately, none of these proposals would reduce integrated tax rates to levels below the average among OECD and BRIC countries.

The recently released Rubio-Lee tax plan would go some way to placing the U.S. at the forefront of international competiveness. Not only would this plan implement a zero percent tax rate on capital gains, dividends, and interest, it would also reduce the corporate tax rate to 25 percent. In today’s globalized economy, it is vital that a tax code is internationally competitive and this reform would help achieve that.​​

Photo Credit: 
Jason Dirks

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Medicare Reform to Be Voted on by U.S. House of Representatives


Posted by Ryan Ellis on Thursday, March 12th, 2015, 7:15 PM PERMALINK


Reports are out that the U.S. House of Representatives may this month take up a plan to put in place large structural reforms to the Medicare system.  This is a huge win for conservatives. Entitlement reform is the only way that the growth of government can be controlled this century.

Particularly, the House is considering a plan that controls the growth of Medicare in two key ways

Over time, wealthier seniors would pay for more of their own Medicare benefit, and taxpayers would pay for less of it.  This concept, known as "means testing," already exists in Medicare. Seniors with higher incomes already have to pay for a greater share of their Medicare Part B (physicians) and Part D (prescription medicines) subsidy benefit. 

Under the House's plan, this means testing would increase.  That is a spending cut, and a common sense one. There is no reason why a working family should have to pay taxes to support a Medicare benefit for a recipient who can afford to pay more of it himself. Warren Buffet can pay for his own Medicare quite easily, and should do so.

Reform Medigap plans. Seniors on traditional Medicare often buy a wraparound health plan known as a "Medigap" plan to cover what Medicare does not. Under the House concept, these plans would be reformed so that seniors would see more of the true cost of these Medigap policies.

Ideally, seniors would migrate over to the far more efficient Medicare Advantage market, where Medicare is delivered via a private sector insurance plan in a way familiar to anyone with a health plan at work.  Medicare Advantage plans compete with each other for seniors' business, and therefore deliver a superior health product with much greater value.  Medicare Advantage plans are also far easier starting points for even more comprehensive Medicare reforms.

Together, these Medicare structural reforms represent powerful savings to taxpayers.  But they will take some time to be realized.  Any changes to entitlements must be phased in over time so that younger seniors and workers can adjust their planning accordingly.  But we know that these structural changes will yield a very powerful check on uncontrolled Medicare spending.  For example, President Obama's own budget says that increasing means testing in Medicare results in a $16 billion annual savings in 2025 alone.  This number will get bigger and bigger as time goes on.

What is the incentive of Congressional Democrats and President Obama to agree to structural Medicare entitlement reform?  House Republicans will offer in exchange a permanent repeal of the "Sustainable Growth Rate," or SGR.  Under SGR, Medicare reimbursements to doctors is threatened to be cut by about 25% starting this year.  I've written far more about SGR here.

There's just one problem with SGR--it's a fake, phony spending cut.  Congress has delayed its implementation 17 times since 2003.  Congress will no doubt delay the SGR spending cut (via a "doc fix") another 17 times in the years to come.

Critics of this swap claim that the 17 doc fix delays were accompanied by spending cut offsets, so we should continue to use doc fix for leverage.  The first problem with that thinking is that many of the spending cuts were gimmicky.  The second problem is that large structural changes to Medicare are a FAR bigger prize.  Over time, trillions of dollars of Medicare's unfunded debt liabilities will be saved with this plan.  All we will have surrendered in return is a theoretical, never-gonna-happen spending cut of far smaller size.

Even Medicare's own actuaries--whose job it is to accurately forecast the costs of Medicare--think SGR is not going to accomplish what it sets out to do. All SGR actually does is create a gravy train for lobbyists and political fundraisers to enact the next "doc fix."  Removing it would stop Medicare from cooking the books on its true costs, and would take away a huge amount of political corruption in the health care sector.  Conservatives should hate SGR, and view its replacement with large structural Medicare reforms as a win-win of the highest order.

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ATR Supports H.R. 1104, the "Fair Treatment for All Donations Act"

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Posted by Ryan Ellis on Thursday, March 12th, 2015, 5:48 PM PERMALINK


Congressman Peter Roskam (R-Ill.) recently introduced H.R. 1104, the "Fair Treatment for All Donations Act."  ATR strongly endorses this legislation, and urges all Members of Congress to vote for and otherwise support it.

H.R. 1104 would prevent the IRS from assessing gift tax on contributions to certain non-profit organizations.  Americans for Tax Reform and most other free market groups are organized under Section 501(c)(4) of the Internal Revenue Code, and are therefore affected.

The IRS has, in the past, sought to tax donors to politically-selected non-profit groups on the conservative side of the spectrum.  The mechanism to do so has been a perverse enforcement of the federal gift tax.  H.R. 1104 precludes this tactic in the future.

Under federal gift tax rules, a gift giver must file a gift tax return and pay any applicable taxes for any gift of at least $14,000 to any one person over the course of a year.  The intention behind this is to prevent wealthy taxpayers from divesting their estate before they die, and before that estate is potentially subject to the death tax.  The gift tax was never intended to affect voluntary donations to non-profit groups.

The IRS has tried to assert that 501(c)(4) groups are "persons" under the tax code, and therefore any donations to them in excess of $14,000 should trigger tax consequences to the donor. No serious tax expert would say that this interpretation holds water, but it was nonetheless asserted by the IRS as recently as 2011.

It was clear then that the IRS was seeking to pervert the gift tax and use it as an intimidation device against potential donors to conservative non-profits.  This was happening at the same time as Lois Lerner was denying conservative and Tea Party non-profits the ability to organize and get tax status, so it's clear the gift tax gamesmanship was part and parcel of the same conspiracy against the conservative movement by the IRS.

The gift tax arrow needs to be permanently removed from the IRS' political quiver. H.R. 1104 would do just that.  The IRS should not be used as a political tool by any president, from either party.

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ATR Supports Bill to Expand and Improve Health Savings Accounts


Posted by Ryan Ellis on Wednesday, March 4th, 2015, 5:35 PM PERMALINK


This week, H.R. 1196, ‘The Health Savings Act’ was introduced in the U.S. House of Representatives. Health savings accounts (HSAs) are used in conjunction with low premium health insurance plans so that families can spend their own money on their own health needs. This legislation will make important improvements to HSAs to allow individuals and families greater freedom to finance their medical needs. ATR urges all members of Congress to support this legislation.

H.R. 1196, introduced by Congressman Michael C. Burgess, M.D. (R-Texas) makes several commonsense improvements to HSAs. This bill creates child HSAs to help parents meet the costs of caring for young children. Specifically, this will allow families to set aside part of their hard-earned after tax dollars towards the wellbeing of their children.

The legislation also raises the contribution limit that individuals are permitted to contribute to their HSAs to equal the annual out-of-pocket maximum. Lastly, H.R. 1196 protects individuals from losing money in HSAs from bankruptcy. If an individual faces bankruptcy, the money in an HSA is protected in the same manner as retirement accounts.

This legislation will increase patient choice, update and improve HSAs and allow American families the freedom to plan and finance their medical needs. ATR fully supports the Health Savings Act and urges all members of the House and Senate to support this bill.

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Rubio-Lee Tax Reform Plan: What Pro-Growth Looks Like in the 21st Century

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Posted by Ryan Ellis on Wednesday, March 4th, 2015, 9:53 AM PERMALINK


Senators Marco Rubio (R-Fla.) and Mike Lee (R-Utah) have introduced a tax reform plan which aims to be simultaneously pro-growth, pro-family, and much more simple than the current tax mess.  Here are the major components:

Business tax rate of 25 percent.  The corporate income tax rate is reduced from 35 to 25 percent.  The top income tax rate for “pass through” or “flow through” firms like Subchapter-S corporations, partnerships, LLCs and sole proprietorships would fall from 39.6 percent to 25 percent.  All businesses face the same income tax rate.

Zero percent tax rate on capital gains, dividends, and interest.  The plan reduces the regular tax rate on capital gains and dividends from 20 percent today to 0 percent.  Interest would also face a 0 percent tax rate (though interest is no longer deductible for businesses), meaning that all savings—even in taxable brokerage accounts and deposit accounts—would benefit from tax free growth.  All savings would work much like Roth IRAs do today.

Top personal rate cut to pre-Obama levels.  The top personal income tax rate would be reduced from 39.6 percent to 35 percent.  Exceptions obviously apply for business income (25 percent) and savings income (0 percent).

Simple two-bracket tax system.  The first $150,000 of taxable income for married couples (half this for singles) would face tax at a 15 percent rate.  All income earned above these levels face tax at a 35 percent rate.  But see the business/investment exception rates above.

Full business expensing.  All business capital investments—including equipment, building, inventories, and land—would be immediately and fully deductible from taxable income.  This would replace our current slow, multi-year deduction regime known as “depreciation.”  All investments are deducted the year the cash is actually spent.

Moving from worldwide to territorial taxation.  Any money repatriated from overseas (where it has already faced local taxation) would see no additional tax from the IRS.  To help finance this, a special 6 percent one-time tax (paid over a decade) is assessed on current overseas profits.

Kills the death tax. The plan fully eliminates the death tax.

Pro-family tax reforms.  Creates a new $2500 child tax credit (on top of the current $1000 one) creditable to both income tax and payroll tax liability.  No more marriage penalty.

Simplicity.  Two brackets for individuals. The AMT is repealed.  The standard deduction is repealed and replaced by a $4000 tax credit for couples (half that for singles).  Only mortgage interest and charitable contribution deductions remain (these can be taken in addition to the personal credit).  Most returns would be postcard-sized.

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Dan Fendel

This is how things should be done. This is brilliant, fair, and will definitely grow the economy enormously. It also will make a LOT of the staff and offices and intrusive practices of the IRS unnecessary and cut-able, saving not only tax dollars but liberty. This is what should be done...NOW.

Alan Reynolds

The comment "(though interest is no longer deductible for businesses)" is worth far more than a parenthetical aside. That feature is arguably the most fundamental change in the famous Hall-Rabushka flat tax plan.

Interest deductions encourage risky leverage yet lose far more revenue than is regained by taxing related interest income (which mainly goes to tax exempt pensions, insurance, foundations, IRAs, foreign investors, etc.). Roger Gordon & Joel Slemrod once estimated that all capital taxes combined yield very little revenue largely because of business interest deductions and related arbitrage. http://www.nber.org/chapters/c...

Len Burman's Brookings-Urban TPC "revenue estimates" for Lee-Rubio are useless because they ignore the enormous revenue currently lost from deducting interest costs, but regained by Lee-Rubio.

The little-discussed business side of this plan seems more promising that the personal side, which might benefit from a little more fine-tuning. Perhaps Congress could separate the tasks and tackle them separately, as Scandanavian countires did with their "dual tax" -- high progressive rates on labor but low flat rates on capital.

Rebuy

Not enough. Kill the income tax entirely.


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