ATR Supports Health Insurance Freedom Act
Congressman John Culberson (R-Texas) recently introduced H.R. 1664, the “Health Insurance Freedom Act of 2015.” This legislation authorizes state insurance commissioners to give their residents the option of enrolling in group and individual health insurance plans that existed prior to the implementation of Obamacare. ATR endorses this legislation and urges all members of Congress to vote for and otherwise support this bill.
President Obama famously misled the American people with his comment, “If you like your health care plan, you can keep it." The Health Insurance Freedom Act will hold the President to his word and restore the rights of states to regulate their health insurance marketplace.
Specifically, H.R. 1664 allows health insurers to continue offering plans that were in effect in a group or individual market during 2013. These plans would be treated as grandfathered health plans for purposes of an individual meeting the requirement to maintain minimum essential health coverage, and would be offered outside of Obamacare exchanges.
Five years into Obamacare, Americans have been burdened by rising premiums, cancelled plans, and failed exchange websites. This legislation will help undo the damage caused by Obamacare and provide Americans with greater healthcare choice. ATR urges members of Congress to fully support this legislation.
Congress Should Enact Trade Promotion Authority (TPA)
The House Committee on Ways and Means and the Senate Finance Committee have reached agreement on a very important building block to make progress on the free trade front. It is known as "Trade Promotion Authority," and Americans for Tax Reform urges all Members and Senators to support the initiative.
What is Trade Promotion Authority (TPA)? Put simply, TPA is an act of delegation from the Congress to the Executive. It is the Congress telling the Executive "go and negotiate free trade agreements for our country. We're going to give you limitations and rules that respect the rights and prerogatives of the Congress, but otherwise go negotiate. When you have a deal, Congress will vote it up or down."
Why is TPA needed? TPA is extremely important to have if any further progress is going to be made on free trade. The executive branch must have the ability to tell negotiators from other countries that what is hammered out at the table is not going to be endangered by legislative shenanigans back home. Without TPA, other countries will be hesitant to concede anything since the executive is really only speaking for itself.
Why is free trade a good thing? Tariffs are taxes on imported goods. We pay these taxes when we buy something made abroad (increasing the cost of what we buy here), and we suffer the impact of those taxes when we sell something to another country (decreasing the profitability of our exports). There's a basic principle that if you want more of something, tax it less. If we want more trade among nations (which results in markets opening up abroad and better value for goods and services here at home), we have to lower tariffs. The way we lower tariffs (taxes on trade) is by enacting free trade agreements. The way to enact free trade agreements is to enact TPA.
Why should conservatives trust President Obama to negotiate? TPA is not about President Obama. If enacted, this TPA deal would last for three years, with an option for the Congress to continue it another three years.
That's 72 months of TPA. President Obama will be out of office in 20 months. This TPA bill is about moving on from the disastrous free trade desert that the Obama administration has been.
For these reasons and others, ATR is a supporter of TPA and urges all free market conservatives on and off Capitol Hill to be as well.
All Capital Gains Should Work the Same as Like Kind Exchanges
Congress is always on the hunt for "pay-fors"--tax increases and spending cuts which can be used to offset other tax increases or spending cuts.
Unfortunately, there's a treasure trove of tax increase "pay fors" in H.R. 1, the "Tax Reform Act of 2014," which was introduced last Congress by former Congressman and Ways and Means Chairman Dave Camp (R-Mich.) One of these tax hike pay-fors is an elimination of so-called "like-kind exchanges."
This was the wrong idea, since like-kind exchanges are actually a good model of capital gains tax reform, not a loophole to be closed.
What is a like-kind exchange?
Suppose you are a business owner. You bought a bunch of widgets (business assets, not inventory) a few years back for $1000. You now want to sell these widgets, and have a buyer for $1500. In the normal course of events, when you sell the widgets you would have a capital gain of $500 (the sales price of $1500 minus the purchase price of $1000), and you would pay tax on that capital gain.
But you, the business owner, don't want to cash out. You want to buy a fresh set of widgets with your $1500. The tax code has a way for you to do that and defer paying the capital gains tax from that first sale. It's called a "like-kind" exchange. You set up an intermediary trust, which receives the $1500 you get when you sell those widgets. You then have 180 days to purchase a fresh $1500 set of widgets with the money. Your basis in the second set of widgets is the same as your basis was in the first set of widgets.
You can do this as many times as you want, provided the set of widgets you are buying are of a like kind to the widgets you are selling, and provided that you're using all the proceeds every time to buy more widgets.
Only when you decide to sell out of the widget business and cash out do you actually have a capital gain. The gain is the difference between the final sale amount and the original tranche of widget purchases. The capital gain is embedded over the years in the business, and it becomes due when the business activity effectively ends.
A model for capital gains
All capital gains should work this way. If you buy a stock for $100 and sell it for $150, you should be able to plow that $150 into new stock purchases without having to pay tax along the way. Ditto for any type of capital gain you might have.
You know who agreed with this concept? None other than current Ways and Means Chairman Congressman Paul Ryan (R-Wisc.) Back in 2007, he introduced H.R. 2796, the "Generate Retirement Ownership Through Long Term Holding (GROWTH) Act." It would have allowed something very much resembling a like kind exchange by default for capital gains generated within mutual funds.
When H.R. 1 decided to take away like kind exchanges (which would be a tax increase of over $40 billion over a decade), it implicitly labeled these sales as "tax loopholes." Nothing could be further from the truth. All capital gains should work this way, in fact. Imagine investors not having to report each and every stock and mutual fund transaction on their taxes every year, and instead having a deferred capital gain until sale, a kind of brokerage account version of an IRA.
That would not only simplify tax filing for millions of Americans, it also would make all capital markets--for everything--more efficient. Every time the government takes money out of the pool of capital investment, capital grows more slowly and we're all poorer than we otherwise would be. The key to wealth creation is to leave capital--unmolested by government--free to grow for as long as possible.
Congress should not be looking to restrict like kind exchange plans--they should be looking to do tax reform with them as a model.
ATR Supports Small Business Taxpayer Bill of Rights
The “Small Business Taxpayer Bill of Rights Act of 2015” was introduced yesterday by Senator John Cornyn (R-Texas) and Congressman Mac Thornberry (R-Texas). This legislation will reduce the burden placed on small business owners and strengthen taxpayer protections. ATR supports this legislation and urges all members of Congress to vote for, and otherwise support this legislation.
The Small Business Taxpayer Bill of Rights Act, S. 949 and H.R. 1828 in the Senate and House respectively, makes a number of important improvements to the complex and inefficient federal tax system. Specifically, this legislation lowers compliance burdens placed on taxpayers, provides compensation for taxpayers that experience IRS abuse, improves taxpayer’s access to the U.S. tax court system, and strengthens taxpayer protections.
Small businesses are the backbone of the American economy, a key driver of economic growth, and a pillar of the American Dream. This legislation will provide important protections to small businesses and help reduce the burden that the federal government places on hard-working Americans. ATR fully supports this legislation and urges all members of the House and Senate to support this bill.
Top Ten Reasons the House Will Kill the Death Tax
Update: The U.S. House of Representatives recently passed The Death Tax Repeal Act of 2015! Now the fight begins in the U.S. Senate. Want to abolish the Death Tax? Take action now!
For the first time in ten years, the U.S. House of Representatives this week will vote on a bill to kill the death tax once and for all. H.R. 1105, the “Death Tax Repeal Act of 2015″ is sponsored by Congressman Kevin Brady (R-Texas.) and notably features the co-sponsorship of Congressman Sanford Bishop (D-Ga.), a member of the Congressional Black Caucus. Earlier iterations of this bill have enjoyed the co-sponsorship of a majority of the chamber, so passage is not in doubt. Maybe that’s why 81 business and citizen grassroots organizations have signed a joint letter under the auspices of the Family Business Coalition urging Congress to kill the death tax.
With the fate of the bill a sure thing, let’s reflect on the top ten reasons the death tax deserves to die:
1. The death tax is not fair. At a basic level, Americans know that the death tax is not fair. It’s not fair that you earn income all your life and pay heavy taxes on it. It’s not fair that you save your hard-earned money and pay taxes on what you make. It’s not fair that you build a small business and face exorbitantly high tax rates. But all of these unfairness taxes pale in comparison to the death tax. The death tax is a tax you pay on savings you have already paid taxes on at least once, and potentially more than once. It results in the liquidation of first and second generation farms and businesses just to pay the tax. Why should a business have to pay taxes again just because an owner has died?
2. The death tax is not popular with the American people. In a 2009 Tax Foundation poll, the death tax was considered the “least fair” by the American people, even more unfair than the income tax. In poll after poll for decades now, the death tax has consistently been opposed by 60 to 70 percent of adults, registered voters, and likely voters. The results are in, and the intense opposition to the death tax is unquestionable.
3. The death tax collects almost no tax revenue. According to both the Congressional Budget Office and the Office of Management and Budget, the death tax is expected to bring in about $20 billion in tax revenue this year. Now, in the real world that’s a lot of money. It’s not a lot of money by Beltway tax collection standards, though.
The federal government is anticipated to collect $3.2 trillion in tax revenue this year, according to CBO. Do the math, and it will take about 55 hours–out of the whole year–to collect all the revenue from the death tax. That’s 2 days out of 365 days in the year.
To put it another way, suppose all the revenue the federal government was going to collect this year was represented as $100. In that case, the death tax would be about $0.63 out of that $100.
You get the picture.
4. The death tax is a declining source of federal revenue. As recently as 2000, the death tax wasn’t the joke of a revenue source it is today. Back then, it raised a respectable 1.5 percent of all federal revenues. But today it’s less than half that. As time goes by, we should expect the death tax to continue to wither on the vine as a real revenue source, as it has for years. The true reason for collecting it is not to raise tax revenue, but it’s out of a misguided sense of class warfare ideology.
5. The truly rich don’t pay the death tax. As our liberal friends at the Center for Budget and Policy Priorities have recently reminded us, “many wealthy estates employ teams of lawyers and accountants to develop and exploit loopholes in the estate tax that allow them to pass on large portions of their estates tax-free. These strategies don’t benefit the broader economy; they only allow the wealthiest estates to avoid taxes.” I couldn’t have said it better myself. The uber-rich can afford these “teams of lawyers and accountants” to “develop and exploit loopholes” for their clients. First and second generation business owners and family farmers cannot. As a result, Paris Hilton will be death tax free her whole life (and beyond), but startup business owners will either have to pay the death tax or funnel scarce capital into their own little army of tax nerds and lawyers.
6. Chances are, you don’t live in a state with a death tax. While Congress has been sitting on their hands for ten years not repealing the death tax, states have been doing their “laboratories of democracy” thing. Non-death tax states now outnumber death tax states about 30-20, and those dwindling number of states which still have a death tax are either looking to scrap it or are greatly increasing their state death tax’s “standard deduction.” It’s not a good revenue source, and states know it.
7. Most countries have a death tax rate far lower than our own, and many have no death tax at all. The United States, with its gut-punching 40 percent federal death tax rate plus the various state rates, has the fourth-highest death tax rate in the world. We’re only ahead of Japan, South Korea, and France. Many familiar countries–Australia, Canada, Israel, and even Sweden–have no death tax at all. In a world where capital is mobile and global, this matters a lot. People don’t have to die in the United States.
8. The death tax is bad for jobs and killing it would give you a raise. Again according to the Tax Foundation (they’ve done some great work in this field) the death tax is an economy killer. They have a macroeconomic “dynamic” model to see what killing the death tax would do to the job market. It projects that killing the death tax would create 139,000 jobs, increase private business hours by 0.1 percent, and increase wages by 0.7 percent.
9. The death tax is bad for economic growth and repeal literally pays for itself. The same Tax Foundation report says that the death tax would increase the economy by 0.8 percent (or $137 billion in today’s dollars).
Because this additional economic growth would be subject to taxation all its own, it would more than make up for the revenue lost by repealing the death tax–it would make up the $20 billion per year, plus yield an extra $8 billion per year on top of that. You heard that right–we’d actually collect more tax revenue if we stopped collecting the death tax.
10. The death tax is even bad for the environment. A recent study by Brian Seasholes at Reason shows that the death tax leads to the subdivision of many large, privately owned land tracts. That’s because heirs–land rich but cash poor and in need of money to pay the death tax–sell off parcels of land in order to satisfy Uncle Sam. This leads to development of land which would never have been developed except for the death tax.
Do you agree with Ryan that the Death Tax should be repealed? Urge your senators to kill the death tax right now!
ATR Supports Legislation to Repeal the Death Tax
Next Thursday, the US House of Representatives will vote on , the “Death Tax Repeal Act of 2015,” sponsored by . 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 vote for it.
H.R. 1105 will kill the Death Tax once and for all. 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 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.
Senate Should Pass H.R. 2, Medicare Reform Bill
Why does an entry about a Medicare reform bill feature two preschoolers in the photo? Because H.R. 2, the bill the Senate will vote on next week, is about these kids' Medicare benefit, and their share of the national debt.
Before the Easter recess, the U.S. House passed H.R. 2, a bill that combines the end of the annual "doc fix" charade with real, structural reforms to the Medicare system. With nearly 400 "aye" votes out of a possible 435, H.R. 2 was a rare example of a legislative juggernaut.
The Senate will take up the bill early next week, and ATR urges the upper chamber to pass this bill quickly and proudly, with lots of conservative support.
If you want to learn more about this bill, I would urge you to read my op-ed in National Review Online, or one by Grace-Marie Turner in Forbes, or a post by former CBO Director Doug Holtz-Eakin. They all explain in detail why H.R. 2 is good, conservative policy. They aren't alone among conservatives (even the godfather of "Cut, Cap, and Balance" has endorsed it), though there are others who have their doubts.
Some in the Senate are concerned that the bill doesn't save enough money with the structural reforms in order to justify ending the impending spending cut called "SGR."
They lament that the wrong baseline was used (in fact, it's the baseline everyone uses for Medicare reform, or did before a month ago).
They say that the structural reforms don't create savings fast enough, too. It's this latter point I want to address.
The most important structural reform in the bill is to increase means testing in Medicare. Already, Medicare has means testing in Parts B (doctor visits) and D (prescription drugs). H.R. 2 makes those means tests stronger. That means that, over time, more and more seniors of the future will be paying more and more of their own money for their own Medicare benefit.
We won't know for sure until next spring when the Medicare Actuaries report is released, but this deeper means test should reduce the unfunded liabilities of the program by a lot. You see, the means test is indexed for inflation, but seniors' income grows faster than that. If inflation grows at 2 percent per year, and your income grows by 5 percent per year, your income even after inflation will double every 25 years. It's simple math.
The same will apply to this means test.
Social Security initial benefits are wage-indexed, meaning they grow faster than prices (about 3 percent per year after inflation). Social Security initial benefits will outpace the growth of inflation greatly over this century.
Pensions and other retirement savings grow far faster than inflation (most pension actuaries use 5 percent annual after-inflation growth as a solid predictor). Dividends tend to grow at the same rate as other retirement savings. That means all the money piling up in 401(k)s and IRAs will eventually push up the real income of seniors of the future.
These key components of income for the "seniors" you see in the picture will grow far faster than inflation over the course of this century. It's a very reasonable expectation that the little girl getting her tonsils examined by her sister will pay for most of her own Medicare benefit, when she's ready to retire in 60 or so years. So will her friends, and they will think of that as perfectly normal and fair.
By then, H.R. 2 will be an historical footnote of ancient memory. But the structural reforms H.R. 2 brought about will pay dividends for taxpayers long after we're gone.
Is there more to be done? Absolutely. Does H.R. 2 solve the Medicare crisis? Of course not. But it's a very solid down payment on doing so, it points the way forward for even further reforms, and it continues the process of shifting the Medicare program to the fully-funded, debt-free, and free market system we all want to move toward.
The Senate should pass H.R. 2 without delay.
Senate Should Reject Tax Hike to Benefit Trial Lawyers
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.
U.S. Senate Should Reject Price Controls in "Vote-a-Rama"
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.
ATR Supports Tax Simplification for Seniors
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.