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Ryan Ellis

ATR Supports H.R. 3420, the "Truth in Obamacare Advertising Act of 2013"


Posted by Ryan Ellis on Friday, December 6th, 2013, 2:34 PM PERMALINK


Congressman Jack Kingston (R-Ga.) has introduced H.R. 3420, the "Truth in Obamacare Advertising Act of 2013."  It requires any Obamacare advertisement or educational promotion which is paid for with taxpayer dollars to include the following disclaimer:

"The Congressional Budget Office estimates that Obamacare will cost taxpayers $1.76 trillion over a decade."

If taxpayers are forced by the administration to pay for propaganda ads to buttress the failing Obamacare law, the least they should be able to expect is that the full cost of that law is disclosed in those ads.  That isn't too much to ask.

ATR urges all Congressmen to co-sponsor this common sense bill.

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Baucus Cost Recovery Draft Opposite of Real Tax Reform


Posted by Ryan Ellis on Thursday, November 21st, 2013, 5:21 PM PERMALINK


Senator Max Baucus (D-Mont.) today released his cost recovery tax reform draft.  In short, it would create a regime where business investments are never fully accounted for and capital investment takes a massive hit.  When capital investment suffers, so does everything else in an economy: wage growth, job creation, and growing nest eggs.

The conservative answer on cost recovery questions is very simple: all business inputs (including business investment purchases) should be eligible for immediate first-year expensing.  It should not matter whether a business buys a pencil, pays a wage, acquires a building, or purchases a computer.  All of those represent cash flow expenditures of the business, and should be deducted out of the business’ tax base the year they are spent.  This sane and common sense tax treatment is common to all major tax reform plans, including but not limited to: the flat tax, the FAIR Tax, the USA Tax, the Bradford-x Tax, the progressive consumption tax, and all kinds of value-added taxes (VATs).  This basic consumption-base, business cash-flow arrangement is the norm in academic tax literature.  Bizarre alternatives are only found in Washington, DC political back rooms.

Before getting into the many problems with the Baucus draft, there are three areas where it gets it right:

Small business expensing.  The draft makes “Section 179” permanent at $1 million of assets invested (with a phaseout between $2 million and $3 million of assets deployed).  That’s a very good change to the tax code that’s long overdue.

Treasury updates of cost recovery speed.  The Treasury Department is given power to update cost recovery periods to account for changing economic conditions.  This is a power they had under the 1986 Tax Reform Act, but Congress stripped them of it 2 years later.  This would allow a more pro-growth administration to speed up cost recovery, for example.

Deduction of inventory costs.  For taxpayers using the cash method of accounting, inventory costs would be deductible.  This is a big step in the right direction of a business cash flow model (unfortunately overwhelmed by what is done on depreciation and amortization).

Below are the major problems with the Baucus cost recovery draft:

Depreciation that never ends.  Emulating the tax treatment of business assets seen in European tax plans (which would explain how Senator Baucus got the idea from Senator John Kerry, a known Europhile), the Baucus draft would end the current depreciation rules for business tangible property.

Under current law, when a business purchases an asset, it usually must be slowly-deducted (“depreciated”) over several years.  The draft replaces this with a new four-tiered system of “asset pooling.”  Under asset pooling, businesses keep track of different classes of assets on their books.  The pool is increased by new asset purchases, and decreased by assets taken out of service and the deduction regime described below.  The asset pools can claim a deduction every year that ranges from 38 percent down to 5 percent of the value of the pool.

To use a common business purchase, computers are in “Pool 1,” which allows for a 38 percent deduction of the pool’s value every year.  Each year, a company can claim a deduction equal to 38 percent of their cost basis in all the computers they own (less any prior year deductions they have already claimed).

Hopefully, the problem here is obvious.  The company can only deduct 38 percent of each new computer’s purchase in the first year, and only 38 percent of the old computers’ remaining value (which declines every year, but never to zero).  The older computers’ cost is never recovered in full before obsolescence assuming the company continues to make capital investments.   It’s a dog chasing its tail.

Example

A company purchases a computer in Year A for $1000.  This is a “Pool 1” asset, so a deduction is taken at a 0.38 rate.  This $380 deduction reduces Pool 1’s value to $620.

In Year B, the company purchases another $1000 computer.  This is added to the pool’s value, which increases to $1620.  A 0.38 rate deduction is claimed on this, or $616.  This reduces the pool’s value to $1004.

In Year C, the company purchases yet another $1000 computer.  This is added to the pool’s value, which increases to $2004.  A 0.38 rate deduction is claimed on this, or $762.  This reduces the pool’s value to $1242.

The real estate that time forgot.  There’s one area where the Baucus draft retains depreciation--real estate investments.  Under current law, real estate is depreciated over 330 months (27.5 years) for residential real estate, 468 months (39 years) for non-residential real estate, and 480 months (40 years) for overseas property and property subject to the corporate AMT.

The Baucus draft replaces all of these with a new and arbitrary 516 month (43 year) property depreciation for real estate.  This means that real estate purchased for business use faces a ridiculous amount of time before the cost is ever recovered—and thanks to inflation, the real cost is not anywhere near recovered.

Lifetime cap on business use of personal vehicle.  The draft imposes a $45,000 lifetime cap on depreciation deductions for business use of a personal vehicle.  This is a big tax increase on small business owners who use their cars a lot for business (think realtors, salesmen and even clergy).

“Mad Men haircut.”  The draft imposes an arbitrary restriction on advertising expenses.  Half of an annual expense can be deducted in the year paid, with the remaining half ratably amortized over 60 months (5 years).  For companies that advertise regularly, this means they effectively can never catch up.

Why advertising?  Why not business travel?  Why not supplies?  Picking on one ordinary and necessary business expense is arbitrary and a clear case of the tax code picking winners and losers.

Higher taxes on research and experimentation, and on energy.  The draft requires research and experimentation expenses, intangible drilling costs, and other energy extraction costs to be amortized over 60 months (5 years).  This would have a devastating impact on America’s energy production, which in turn will make energy more expensive for working families.

Other intangibles are forced to be amortized over 240 months (20 years), up from today’s 180 months (15 years).

LIFO repeal.  Under the draft, the “last in, first out” method of accounting for inventory is repealed.  Going forward, all inventory must be done in a “first in, first out” (FIFO) manner.  However, companies will have to pay taxes on their “LIFO inventory” (the aggregate net annual advantage in claiming LIFO instead of FIFO for the life of the business).  Businesses have eight years to pay this tax.

This is very unfair.  Some companies are decades old, and have been claiming LIFO that whole time (in accordance with tax law).  To retroactively repeal that legal tax treatment now is unfair, and is a retroactive tax increase.  The LIFO tax does not reflect actual income today, and is nothing more than a pure power grab. 

Green energy tax credits given a pass.  In the “Unaddressed Issues and Requests for Comment” section, the committee staff say that they haven’t made a decision on what to do with green energy tax credits set to expire at the end of 2013.  This just shows how backwards the committee’s work has been.  They are considering potentially making these ridiculous tax credits permanent, while arbitrarily increasing taxes on productive energy companies and manufacturers.

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A Tale of Two Repatriation Proposals


Posted by Ryan Ellis on Thursday, November 21st, 2013, 2:06 PM PERMALINK


All week, Senate Finance Committee Chairman Max Baucus' (D-Mont.) staff have been releasing discussion drafts on tax reform.  The international discussion draft contains an interesting provision that invites a comparison with recent tax history.  The draft proposes:

Earnings of foreign subsidiaries from periods before the effective date of the proposal that have not been subject to U.S. tax are subject to a one-time tax at a reduced rate of, for example, 20%, payable over eight years

Here's what this means: let's say you're a large, multi-national company that has lots of business done overseas.  You've invested there, earned profits there, and paid taxes to those foreign governments.  For most of the world's companies, that's the end of the story--after all, what remains is after-tax dollars. 

But what Chairman Baucus proposes is for the IRS to take another 20 percent of this money--money which has already and appropriately faced taxation in the country where you earned it.  It's true that this second layer of taxation could be paid over eight years, but that's hardly the point.

There is likely well over $1 trillion in after-tax earnings sitting overseas today.  One big reason companies don't bring this money back to the U.S. is because they would have to pay taxes on the difference between the U.S. rate (over 39 percent when states are included), and whatever rate they already paid overseas (the OECD average is just under 25 percent).

Slapping a 20 percent tax rate on this money is a huge cash grab by Washington.  It would be a tax increase of over $200 billion, payable over the next eight years.  This, in turn, would mean less money for companies to spend on creating jobs, investing in new plant and equipment, funding pension plans, etc.

Contrast this to a successful "repatriation" regime, the one which occurred in 2005. For that one year only, companies could voluntarily bring after-tax overseas earnings back to the United States and face an IRS double-tax no higher than 5.25 percent.  With this positive incentive, about $320 billion was brought back, resulting in a pro-growth cash windfall to the Treasury of about $17 billion.  This money was used for things like paying down debt, funding pensions, and deployment of new investment.

That's the model that tax reform should use, not a greedy cash grab by Washington.

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What If There Was an Escape Hatch from Obamacare?


Posted by Ryan Ellis on Monday, November 4th, 2013, 2:42 PM PERMALINK


 

What if someone told you that there was a way to escape from the worst of Obamacare's mandates, surtaxes, and regulations?  What if that escape plan involves a form of insurance millions of Americans are already covered by, and simply needs the states to not block its expansion to millions more?

It turns out, there is such an escape hatch.  The video above details what it is and how it would work.

Self insurance is one very viable way that Americans can drag themselves out of the Obamacare ditch.

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ATR Supports S. 1488, the "Fairness for American Families Act"


Posted by Ryan Ellis on Thursday, October 31st, 2013, 3:35 PM PERMALINK


ATR is proud to support S. 1488, a bill which would delay Obamacare's individual and employer mandates to purchase health insurance.

On July 2, 2013, the Obama Administration announced a one-year delay in the Obamacare employer mandate.  Changing any statute's effective date is in the purview of the U.S. Congress, not the Executive Branch.  While it is highly questionable whether the Obama Administration has the legal authority to delay the employer mandate, their admission that the Obamacare law is unworkable is all too accurate--just ask anyone trying to log onto the Obamacare website.

Unfortunately, this accommodation was provided only for Big Businesses.  ATR believes that individuals, small businesses, and families deserve at least the same reprieve from Obamacare’s costly mandates.  If the employer mandate can be delayed a year, so can (and should) the individual mandate, which adversely affects individuals, families and small business owners.

S. 1488 does two important things: first, it gives Congressional assent to the delay in the employer mandate, something which is necessary to prevent an imperial executive from changing laws at will.  Second, the bill creates a parallel one year mandate holiday for families and small business owners. 

S. 1488 currently has 43 co-sponsors.  All senators who want to protect families from Obamacare's failures and at the same time restore the rule of law should consider joining them.

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ATR Supports H.R. 2708, Which Cuts Taxes on Imports


Posted by Ryan Ellis on Tuesday, October 29th, 2013, 5:01 PM PERMALINK


ATR sent a letter on tariff reduction (full text) to the U.S. House today.  Below is an excerpt:

It should be emphasized that tariffs are taxes, pure and simple. Cutting tariffs is a good way to give much need tax relief to the American people and an American economy struggling with some of the worst long-term unemployment since the Great Depression.

The Conservative consensus has happily rendered earmarks beyond the pale. But MTB tariff-tax cuts are the opposite of earmaks: No federal money is spent on them. They’re completely transparent and widely publicized on the Congressional website. Every single one is thoroughly vetted by the U.S. International Trade Commission, the Department of Commerce and other U.S. government agencies. And while earmarks benefit only a tiny few, MTB tariff-tax cuts provide tax relief to a wide swath of U.S. industry and help keep U.S. jobs right here in America.

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100 Years of the Federal Income Tax: Then and Now


Posted by Ryan Ellis on Friday, October 4th, 2013, 12:30 PM PERMALINK


On this date 100 years ago, President Woodrow Wilson signed into law the Revenue Act of 1913. Let’s take a look at how the income tax became the raw deal it is today::

View PDF here.

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Cory Booker's Tax Increase Plan


Posted by Ryan Ellis on Thursday, September 26th, 2013, 6:17 PM PERMALINK


BookerFail.org already did a great write-up of the Booker tax plan earlier today, so I won't repeat the good work they've done there.  I would just add four thoughts:

The Booker plan is a net tax hike of $500 billion to $1 trillion.  BookerFail demonstrated that the gross tax increases in the plan total some $1.5 trillion over the next decade.  Giving Booker credit for his corporate income tax rate cuts and other tax relief lowers the impact, but it's still a massive net tax hike.  Using a back of the envelope calculation, we'd estimate the net burden at more than $500 billion but less than $1 trillion over ten years.

The Booker plan is a straight rip-off from the Obama 2012 re-election campaign.  Reading the proposal would give tax experts flashbacks to this February 2012 campaign document, or even this more recent dust-off of the same.  Call it "tax reform by copy and paste."  And you thought most politicians were lazy.

The plan would still leave New Jersey employers paying the highest income tax rate in the developed world (almost).  The plan touts a cut in the federal corporate income tax rate from 35% to 28%.  A 28% federal rate doesn’t get you anywhere, though, if you’re looking to help international competition. 

New Jersey’s corporate rate is 9%, so you would still have a combined marginal rate of 34.5%, even after accounting for the deductibility of the state tax on federal returns.  Compare that to the developed nation average, which is under 25%.  New Jersey employers would still be paying the highest tax rate in the developed world, except for outlier country Japan (who has a 37% rate).  

New Jersey incorporated employers would still face a higher marginal income tax rate than major global competitors Canada, Mexico, the U.K., France, and Germany.

The plan raises taxes on New Jersey partnerships, Subchapter-S corporations, LLCs, and other startups.  Booker has no plan to lower the tax rate for unincorporated small businesses in New Jersey.  That rate easily approaches 50% (federal-state combined).  Why does Booker want to lower rates for giant multinational companies (and even here, not enough to make a difference), but not for Main Street New Jersey small and mid-sized employers?  Does he not know how the tax system is set up for employers?

According to the IRS, New Jersey is home to over 600,000 sole proprietors, and nearly 300,000 owners of partnerships and S-corporations.  These 900,000 New Jersey business owners won't get rate relief under the plan, but they will pay all the tax increases.  That's not fair.

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ATR Supports H.R. 3077, the "TELE-MED Act"


Posted by Ryan Ellis on Monday, September 23rd, 2013, 3:19 PM PERMALINK


ATR supports H.R. 3077, the "TELE-MED Act," sponsored by Congressman Devin Nunes (R-Calif.)  This legislation advances a common-sense update to Medicare rules which should inject more competition into the program, make it work more efficiently for taxpayers, and give a wider range of services to Medicare beneficiaries.

H.R. 3077 would permit Medicare patients to receive care from doctors across state lines, using consultations on the Internet, by telephone, etc.  As long as a doctor is licensed in his home state, he will be able to provide care and consulting to patients living in other states.

While a small improvement, this is exactly the type of consumer-driven change Medicare needs.  Patients should not be restricted by antiquated rules into seeking out care within only an arbitrary political boundary.  In the 21st century, those boundaries don't mean a whole lot in most areas of business, and they should not be determinative in Medicare, either. 

It would surprise most people that Medicare patients are not free to contract across state lines today, and there's no good reason why seniors shouldn't be able to do so going forward.

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ATR Supports H.R. 3093, the "Union Bailout Prevention Act"


Posted by Ryan Ellis on Friday, September 20th, 2013, 4:36 PM PERMALINK


ATR is proud to support H.R. 3093, the "Union Bailout Prevention Act," sponsored by Congressman Diane Black (R-Tenn.) 

The bill would prevent the Obama Administration from granting an Obamacare waiver to Big Labor.  Under the law, union-negotiated health insurance plans cannot benefit from the premium tax credits contained in Obamacare.  Big Labor would like a waiver to change that.

Where were the unions when they had a chance to stop Obamcare?  Answer--they supported its passage.  To seek a sweetheart deal now is not acceptable.  They helped make this bed, and they should have to sleep in it along with the rest of us.

H.R. 3093 makes it abundantly-clear that unions are to get no special treatment from this administration when it comes to Obamacare.  If the unions want to help us repeal the law, they are welcome to join us.

All Congressmen who want to make sure there are no more Obamacare waivers--especially for those who supported the law's passage--should co-sponsor H.R. 3093.

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