ATR Supports Permanent Small Business Expensing Bill
This week, the U.S. House of Representatives will vote on H.R. 636, “America’s Small Business Tax Relief Act.” Small businesses are the backbone of the economy and a pathway by which millions achieve the American dream. H.R. 636 will provide important tax relief to small business across the nation. ATR supports this legislation and urges members to vote yes.
H.R. 636, sponsored by Representative Patrick J. Tiberi (R-Ohio) expands and updates Section 179 of the tax code to provide small business owners, farmers and ranchers with regulatory relief that will help reduce the cost of capital and allow them to more easily invest their hard-earned resources back into their businesses.
Specifically, this legislation will make permanent a tax provision allowing small employers to expense up to $500,000 of equipment purchases per year. If current law is not changed, small businesses can only expense $25,000 of purchases for things like computers, office furniture, manufacturing equipment, etc. The rest must be subject to a slow, multi-year deduction process known as "depreciation."
For many Americans, starting a business is the reward for years of hard work, good decisions and innovative ideas. Each year, millions of Americans across the country invest countless hours, take out loans and enlist the help of friends and family in order to start their own business. This legislation will provide these small business owners with much needed tax relief that will help put them on the pathway to success.
ATR Supports Senate GOP Balanced Budget Amendment
This week, a Balanced Budget Amendment to the Constitution was introduced in the U.S. Senate. This Balanced Budget Amendment proposal is pro-taxpayer and will help put America on a path towards fiscal responsibility. ATR urges all Senators and Congressmen to support the BBA.
S.J. Res 6 has been cosponsored by all 54 Republican Senators. This common sense proposal will help direct members of Congress towards enacting fiscally responsible policies.
This amendment limits spending to 18 percent of Gross Domestic Product (GDP). Capping spending at 18 percent requires government to live within its means. This strict spending cap is a significant step towards reining in the size of government and will help protect taxpayers from reckless and unnecessary government spending.
Most importantly, this amendment will protect taxpayers from unnecessary and burdensome taxes and instead requires Congress to balance the budget in a responsible way. S.J. Res 6 requires a two-thirds supermajority of members of each House of Congress in order to enact any new tax. However, 48 members of the Senate and 221 members of the House have signed the Taxpayer Protection Pledge, promising their constituents they will not support any proposal that contains a net tax increase. Therefore, the BBA will prevent Congress from balancing the budget using tax hikes and will instead force politicians to address Washington’s rampant spending problem by reducing spending.
S.J. Res 6 will rein in out of control government spending, protect taxpayers and force Congress to live within their means. ATR encourages members of the Senate and House to support the BBA.
IRS to Steal Tom Brady's Superbowl MVP Truck
The world champion New England Patriots will celebrate with the city of Boston today in the now customary duck boat parade downtown. It would be fitting if an IRS agent was waiting for quarterback Tom Brady at the end of the route.
Specifically, he might want to talk about Brady’s new truck. You know, the 2015 Chevy Colorado he won as Super Bowl MVP. The same truck Brady wants to hand over to Patriots rookie cornerback Malcolm Butler, who won the Super Bowl on a last second interception.
The truck is considered a taxable prize under the Internal Revenue Code, section 74. It’s taxed at Tom Brady’s marginal income tax rate of 39.6 percent (plus state income tax, but I’ll leave the focus on federal here).
According to TrueCar.com, the fair market value of a 2015 Chevy Colorado is in the neighborhood of $34,000. This is likely an understatement, since it includes none of the options that Chevy no doubt added to the vehicle.
So Tom Brady will pay ($34,000 x 39.6 percent) in taxes, or $13,500 in income tax on this prize.
But the pain won’t stop there for the greatest quarterback in NFL history.
Don’t Forget About the Gift Tax, Tommy
According to ESPN, Brady has decided to gift the truck to Patriots rookie cornerback Malcolm Butler, who made the game-clinching interception on Sunday night. This is not a taxable event at all for Butler–gifts are never taxed to the recipient.
Brady is not so lucky. He’s going to have to pay gift tax on this transaction. The tax code only allows you to give $14,000 tax free from any one person to any one person before assessing a donor level tax on the gift.
Assuming this will be Brady’s only gift to Butler this year, the transaction sets up a taxable gift for Brady of $20,000 (the $34,000 value of the truck minus the $14,000 gift tax exclusion). Assuming Brady has made at least $1 million of taxable gifts up to this point in his life (a safe bet), he will owe a 40 percent gift tax on this $20,000 taxable gift.
That’s a $5000 gift tax on top of a $13,500 income tax on the truck, for a combined federal tax hit of $18,500.
That’s over half the value of the truck itself.
What About His Game Check?
Note that the above analysis is only for the federal income tax owed and gift taxes due on the MVP prize. What about the paycheck Brady collected for winning the Super Bowl?
According to CNBC, the NFL pays a player on a Super Bowl winning team a salary of $97,000 for the game. Brady doesn’t appear to have any Patriots team bonuses for the game, so this is likely the amount we’re dealing with.
Brady will face income tax at the top rate of 39.6 percent. In addition, since this is a wage, he will also owe the top Medicare tax of 3.8 percent, half of which will be picked up by the NFL. Put those together, and Brady will pay $42,000 in federal taxes on the game.
He didn’t get hit that hard by the Legion of Boom Seattle defense, but the IRS is a much bigger foe.
ATR Supports Legislation to Prevent the IRS from Targeting Taxpayers Based on Political Ideology
ATR supports several bills that will protect taxpayers from being targeted by the IRS because of their political beliefs or affiliation. We urge members of the U.S. House of Representatives and U.S. Senate to support this legislation.
The IRS has the power to designate groups as tax-exempt social welfare organizations provided they are primarily engaged in activities to promote the common good and general welfare of society. However their ability to impartially perform this responsibility has been called into question since it was revealed that they had inappropriately targeted conservative social welfare groups for scrutiny.
S. 273, sponsored by Senator Ted Cruz (R-Texas) and H.R. 599, sponsored by Representative Paul Ryan (R-Wis.) would make it a criminal offense for any IRS employee to willfully discriminate against groups based on their political beliefs or any policy statements made.
S.283, sponsored by Senator Jeff Flake (R-Ariz.) would roll back the IRS standards of definitions for “social welfare organizations” to January 1, 2010. The bill will also suspend any IRS rulemaking in this area until 2017.
These bills will help protect taxpayers from future IRS overreach. In the wake of the IRS targeting conservative groups based solely on their ideology, this legislation is needed now more than ever.
The Obama Budget's Double Taxation of U.S. Employers
President Obama released his FY 2016 budget yesterday. It contains dozens of tax increases that go on for page after page. Buried in there is a series of tax increases on U.S. employers who also do business abroad. Because the U.S. has a "worldwide" tax regime, any further U.S. taxation of overseas income represents a double tax on that income. By definition, these overseas profits have already faced taxation in the country where they were earned. The United States should instead move to a "territorial" tax system, where the IRS only taxes profits earned inside our borders. That's what the rest of the developed world does, and it's time to modernize the code to reflect current best practices.
Unfortunately, the Obama budget moves in the wrong direction in three key ways.
Immediate 14 percent tax on overseas earnings. U.S. companies who earn money overseas have a problem. They have already paid taxes on these profits in whatever country they earned the money in. But if they try to bring their after-tax profits back to the United States, they face a double tax from the IRS. They have to pay the difference between the U.S. corporate income tax rate (which is over 39 percent when states are--properly--included), and the rate they already paid overseas (the OECD average is under 25 percent).
The Obama budget makes this problem even worse by slapping an immediate 14 percent tax (close to 20 percent when states are included) on all after-tax earnings overseas--whether the money ever comes back to the United States or not.
A much saner strategy would be to make this decision optional and beneficial for companies. Back in 2005, companies could voluntarily bring back overseas after-tax corporate earnings with a small double tax of 5.25 percent. When given this choice, over $300 billion came back that year alone. In the absence of a territorial system, which would have no double taxation at all, U.S. policymakers should give strong consideration to another round of repatriation.
A new global minimum tax of 19 percent. Another provision in the Obama budget would say that companies have to pay a tax rate of 19 percent (really 24 percent when states are included) on their global profits. This means that companies who do business in countries with the good sense to have low, internationally-competitive corporate income tax rates will be punished. This is a clear case of rich, developed, and bloated countries picking on developing countries in Eastern Europe and elsewhere who are trying to attract capital. American companies are merely being used as a football here.
A real territorial system would not care what the tax rate overseas is, since it would not concern itself with overseas profits. Trying to slap global minimum taxes around the world is a sure recipe for forcing companies out of the United States entirely. Speaking of that...
New restriction on "corporate inversions." President Obama and Congressional Democrats like to rail against "corporate inversions" (when a U.S. company is bought out by a foreign company) in the same way an angry drunk objects to the bruises on his wife's face. We have the worst corporate income tax system in the world. We impose the highest marginal income tax rate in the world. We force our companies to live under a totally insane worldwide tax regime which exposes their profits to all sorts of international double taxation. We force companies to slowly deduct investments and double tax their equity, yet they can write off debt interest immediately. It's the opposite of what you want to do if you want to attract jobs and capital to the United States.
Yet the Obama budget makes it worse. It changes tax rules so that if 50 percent or more of the shareholders in the acquired company were in the old company, the new business is treated as if it were domestic. To translate that into English, it exposes these companies to full international double taxation, and potentially causes massive "exit taxes" on companies just trying to comply with a very punitive tax system.
The solution for "corporate inversions" is simple--fix the U.S. tax system so that we're inviting capital and jobs in, rather than pushing them out the door.
Obama Budget Creates Second Death Tax
ATR Supports Bill to Repeal and Replace Obamacare
This week, the U.S. House of Representatives will vote on H.R. 596, legislation to repeal and replace Obamacare. ATR supports this bill and urges members to vote yes.
The legislation, introduced by Representative Bradley Byrne (R-Ala.), will repeal Obamacare 180 days after the law is enacted to allow has time to enact free market reforms that provide American families with lower medical costs, stronger care and protect the doctor-patient relationship.
Put simply, Obamacare has not worked how its supporters have hoped. It has raised the cost of healthcare for millions of Americans, cost countless more their jobs and created thousands of complex and unnecessary regulations. Obamacare also contains dozens of tax increases so repealing the law will reduce the taxes of American families.
Americans deserve a healthcare system that provides them with affordable and efficient care, not one that is overly complex and leads to uncertainty. This legislation will help give Americans the healthcare system that they need and deserve.
ATR Supports Bill Improving 529 College Savings Plans
The U.S. House of Representatives will soon vote on H.R. 529, a bill to improve 529 college savings plans. ATR supports this legislation and urges members to vote for it.
529 savings plans help middle class families achieve the American dream. These plans allow parents to invest after-tax earnings into a plan that collects interest, and can later be spent tax-free on their children’s college education. As of 2014, an average of $21,000 has been invested in nearly 12 million accounts.
The proposed legislation, introduced by Representative Lynn Jenkins (R-Kan.), will make several important improvements to 529s. The bill allows computers to be purchased using funds drawn from an account, streamlines the paperwork burden, and allows money withdrawn from a 529 to be redeposited without penalty if a student withdraws from school due to illness or for other personal reasons.
Today, a college education is as important as it has ever been. H.R. 529 will strengthen college savings plans to help ensure that a college education remains an affordable and realistic goal for middle class families.
Obama Budget Creates Second Death Tax
The Obama budget calls for a stealth increase in the death tax rate from 40% to nearly 60%. Here's how it works:
Under current law, when you inherit an asset your basis in the asset is the higher of the fair market value at the time of death or the decedent's original basis. Almost always, the fair market value is higher.
Under the Obama proposal, when you inherit an asset your basis will simply be the decedent's original basis.
Example: Dad buys a house for $10,000. He dies and leaves it to you. The fair market value on the date of death is $100,000. You sell it for $120,000. Under current law, you have a capital gain of $20,000 (sales price of $120,000 less step up in basis of $100,000). Under the Obama plan, you have a capital gain of $110,000 (sales price of $120,000 less original basis of $10,000).
There are exemptions for most households, but this misses the larger point: the whole reason we have step up in basis is because we have a death tax. If you are going to hold an estate liable for tax, you can't then hold the estate liable for tax again when the inheritor sells it. This adds yet another redundant layer of tax on savings and investment. It's a huge tax hike on family farms and small businesses.
It's like a second death tax (the first one has a top tax rate of 40% and a standard deduction of $5.3 million/$10.6 million for surviving spouses). Conceivably, an accumulated capital gain could face a 40% death tax levy and then a 28% capital gains tax on what is left. Do the math, and that's an integrated federal tax of just under 60% on inherited capital gains.
"The national death tax dates to World War I. Most states have abolished their state death tax. They know the death tax is simply yet another layer of taxation on the life savings of Americans," said Grover Norquist, president of Americans for Tax Reform. "Heck, Sweden abolished its death tax a decade ago. The world has learned from failure and moved on. Obama thinks he is being left-wing. He is just showing his age."
Obama Budget: Highest Cap Gains Tax Since 1997
President Obama's budget calls for a hike in the capital gains and dividends tax rate from 23.8% today (20% plus 3.8% Obamacare surtax) to 28% (including the Obamacare surtax).
The capital gains tax has not been that high since President Clinton signed a rate cut in 1997.
It would represent a massive hike in the rate since Obama took office. When he was sworn in, the rate was 15%. He proposes to nearly double it to 28% in the twilight of his administration.
"Bill Clinton signed Republican legislation reducing the capital gains tax from 28% to 20%. The economy strengthened," said Grover Norquist, president of Americans for Tax Reform. "During his presidency Barack Obama has increased the capital gains tax from 15% to 20%, then from 20% to 23.8% and now he wants to increase it again to 28%. As a result Obama's 'recovery' has been the weakest since 1960. Obama has a sluggish economy and a very slow learning curve."
Obama Budget Creates Second Death Tax
CBO Still Refuses to Score Obamacare, Ignores 15 Tax Hikes in Healthcare Law
The Congressional Budget Office (CBO) this week released their annual Budget and Economic Outlook which sets the budget baselines and estimates for the whole year.
Buried in Appendix B of the report is CBO's attempt to provide an updated score of Obamacare. But that's not what they did. They only scored the "coverage provisions" of the law, ignoring some fifteen tax increases which are also a part of Obamacare and its cost to taxpayers.
Here's what the report says about its half score:
"Those estimates address only the insurance coverage provisions of the ACA and do not reflect all of the act’s budgetary effects. Because the provisions of the ACA that relate to health insurance coverage established entirely new programs or components of programs and because those provisions have mostly just begun to be implemented,CBO and JCT have produced separate estimates of the effects of the provisions as part of the baseline process. By contrast, because the provisions of the ACA that do not relate directly to health insurance coverage generally modified existing federal programs (such as Medicare) or made various changes to the tax code, determining what would have happened since the enactment of the ACA had the law not been in effect is becoming increasingly difficult. The incremental budgetary effects of those noncoverage provisions are embedded in CBO’s baseline projections for those programs and tax revenues, respectively, but they cannot all be separately identified using the agency’s normal procedures. As a result, CBO does not produce estimates of the budgetary effects of the ACA as a whole as part of the baseline process."
List of tax hikes ignored in the CBO half-score of Obamacare
-3.8 percent surtax on investment income
-Hike in top Medicare payroll tax rate to 3.8 percent
-Medicine cabinet tax
-Additional surtax on health savings account (HSA) distributions
-Cap on flexible spending accounts (FSAs)
-Medical device tax
-High medical bills tax
-Tax on employer retiree drug coverage in Medicare
-Charitable hospital tax
-Pharmaceutical manufacturers tax
-Health insurance tax
-Tax on executive compensation in the health sector
-"Black liquor" tax hike
-Codification of "economic substance doctrine"
All these tax increases can be read about in detail here.
All this is simply not credible. The Joint Tax Committee (JCT) produced all sorts of revenue estimates in the larger CBO report. JCT projects how much the death tax will collect each and every year for the next ten years, for example. It claims to know how much the federal government will collect in gas taxes. Is it believable that JCT could not also project how much a dozen or so Obamacare tax provisions will generate?