ATR Supports Debt and Taxation Transparency for Taxpayers
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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Double Taxation on Corporate Profits Hurting U.S. Competitiveness
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.
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Medicare Reform to Be Voted on by U.S. House of Representatives
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.
ATR Supports H.R. 1104, the "Fair Treatment for All Donations Act"
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
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.
Rubio-Lee Tax Reform Plan: What Pro-Growth Looks Like in the 21st Century
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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Surprise: Poorest Obamacare Enrollees Face $530 IRS Tax Bill
The majority (52 percent) of Obamacare enrollees receiving an advance premium tax credit to purchase Obamacare insurance is facing the prospect of paying back $530 of that tax credit to the IRS, according to a new study from H&R Block. This clawback is reducing the refunds for these taxpayers by 17 percent this filing season.
Under Obamacare, taxpayers earning between 133 and 400 percent of the federal poverty level are eligible to receive a tax credit to help purchase insurance on Obamacare exchanges. This tax credit is calculated using old tax data of the recipients. The credit is advanced ahead of time to the taxpayer's insurance company. The taxpayer must reconcile at tax time the advance credit received with the actual credit she is eligible for.
Families of four earning less than $97,000 are eligible for a credit. So is a single mother with two children earning less than $80,000 and an unmarried/childless taxpayer earning less than about $12,000. By definition, these are the lowest income recipients of Obamacare health insurance outside the Medicaid-eligible population. Higher income taxpayers received no tax subsidy and aren't facing this tax season surprise.
According to the study, a majority of credit recipients--52 percent--have had to pay back the IRS an average of $530, reducing their refunds by an average of 17 percent.
It remains unclear how this information relates to the revelation last week that 800,000 healthcare.gov Obamacare customers (and a further 100,000 in California) received inaccurate 1095-A tax reporting forms. Doing the reconciliation described here would not be possible for these nearly 1 million families.
Also in the H&R Block report is the news that the individual mandate penalty is averaging $172. This is likely to rise in future years as the penalty for most taxpayers will equal 2.5 percent of their adjusted gross income. A family earning $100,000 would see a penalty of $2500 for failing to obtain qualified Obamacare health insurance.
How Obamacare Screwed Up 800,000 Tax Returns
The Associated Press is reporting today that an "erroneous" glitch in Obamacare tax forms is causing filing season to come to a halt for 800,000 taxpayers. Tens of thousands of these families have actually already filed and will need to file amended returns redundantly.
Americans for Tax Reform can shed some light on what the "erroneous" problem is. The affected form for Healthcare.gov enrollees is known as an IRS Form 1095-A. It documents health insurance coverage obtained through the federal healthcare.gov exchange. It reports premiums charged by month. It is supposed to also report the amount of a tax credit advanced from the IRS to the covered family's insurance company. Finally, a middle column is supposed to say what the average premium amount was for the second lowest-cost silver plan (the poetically-named "SLCSP").
All three inputs--monthly premium cost of the health insurance plan, the SLCSP, and the advanced premium tax credit amount--are vital to calculating the accurate tax credit a taxpayer is entitled to under the Obamacare law. Without even one of these inputs, the calculation is thrown off. It would therefore also be impossible to determine whether the advanced tax credit was too generous (in which case the taxpayer may owe the IRS money), or too stingy (in which case the taxpayer claims the remaining credit amount on his 1040 filing).
ATR has obtained two 1095-A tax forms issued to healthcare.gov customers. In each case, the silver plan column each month had an entry of "$0.00." No data was provided. It was impossible for these taxpayers to even make a guess of what their tax credit for the year was supposed to be, or if they were due a tax credit at all.
It is ATR's belief that these 800,000 taxpayers were similarly issued 1095-As without the absolutely vital SLCSP numbers. Until those numbers are provided by the dysfunctional healthcare.gov bureaucracy, it will not be possible for these taxpayers to complete their income tax filing accurately. They will not be able to determine if any advanced tax credits they received were too generous or too stingy.
800,000 families are literally caught in limbo until healthcare.gov gets its act together.
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ATR Supports “Health Freedom for Seniors” Act
Last week, H.R. 975 the “Health Freedom for Seniors Act” was introduced in the U.S. House of Representatives. This legislation will reform health savings accounts (HSA) to empower seniors to save money for their own health care. ATR endorses this legislation and urges members of Congress to support this bill.
H.R. 975, introduced by Representative Bill Huizenga (R- Mich.) will help ensure seniors are able to use their hard earned savings for retirement. Under current law, Americans who reach age 70 and one-half are required to begin making “required minimum distributions” (RMDs) from IRAs and 401(k) plans. The accounts must be drawn down, regardless of whether the taxpayer has other funds with which to support themselves.
H.R. 975 would put a stop to this absurd law by permitting seniors a tax-free rollover of their RMD into a HSA. Because HSA dollars have no required distributions, this allows savings to be preserved for things like long-term care insurance, Medicare premiums, and other health needs as one gets further into retirement.
With healthcare costs spiraling out of control, seniors need this common sense reform now more than ever to help pay for their healthcare expenses. ATR supports this legislation and urges Congress to bring this legislation forward for a vote.
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ATR Supports Tax Relief for Working Parents
Last week, H.R. 750, the “Family Care Savings Act” was introduced in the U.S. House of Representatives. This legislation will make improvements to dependent care flexible spending accounts (FSAs) and help Americans manage the rising costs of raising a family. ATR endorses this bill and urges members of the House to support this legislation.
H.R. 750, introduced by Representative Patrick McHenry (R- N.C.) and Representative Grace Meng (D- N.Y.) raises the cap on dependent care FSAs from $5,000 to $10,000 and indexes it to inflation after the first year of enactment. These FSAs allow employees to save part of their pre-tax earnings for specific expenses including medical and dependent care. Dependent care FSAs can be used for children under the age of 13, anyone who is physically or mentally unable to care for themselves, or any adult whose care is predominantly paid for by another person.
This legislation will provide a much needed update by increasing the current cap which was set almost 30 years ago when dependent care FSAs were first created in 1986. H.R. 750 will improve dependent care FSAs and help families plan and budget for the expenses of caring for children, disabled spouses, or elderly parents.