Ryan Ellis

Why Does Coakley Want to Raise Taxes<br> On Families with Special-Needs Kids?

Posted by Ryan Ellis on Thursday, January 14th, 2010, 1:58 PM PERMALINK

Americans for Tax Reform today challenged Massachusetts Senate candidate Martha Coakley to defend her support for a tax increase on families with special-needs children.  Coakley has endorsed the Senate healthcare bill, which contains a new cap on flexible spending accounts (FSAs)--disproportionately raising taxes on these families.

Under current law, there is no legal cap on FSA contributions.  Most people defer $10 or $20 per paycheck to pay for eyeglasses, co-payments, and non-prescription medication.  Many families, however, defer thousands of dollars per year into FSAs to pay for special needs education on a pre-tax basis.  The Senate healthcare bill’s $2500 FSA cap won’t affect typical families, but it will especially impact families with special-needs children.

“Martha Coakley supports this tax increase on special-needs kids because she only cares about, in her words, ‘getting taxes up,’ said ATR President Grover Norquist.  “Maybe she should put her loyalty to Washington bureaucrats aside for the moment and stop to consider the pain she is causing for families with special-needs children.”

If a median-income family in Massachusetts has a special needs child whose tuition is $10,000 per year, the tax benefit from deferring this money with an FSA is $3560.  Under the Coakley FSA cap, this tax benefit would decline to $890—a tax increase of thousands of dollars on a working family with high medical bills.

“In what universe does Martha Coakley live where she thinks that raising taxes on these families is a good idea?”
continued Norquist.  “Only someone who is completely detached from the everyday lives of average Bay Staters could possibly support this boneheaded tax hike.”

The provision can be found on page 1999, section 9005 of the bill.

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Coakley Support for Senate Health Bill<br> Risks 22,000 High-Paying Mass. Jobs

Posted by Ryan Ellis on Tuesday, January 12th, 2010, 4:33 PM PERMALINK

Americans for Tax Reform today released an analysis showing the impact on Massachusetts of Martha Coakley’s support for the Senate healthcare bill.  Coakley is on record supporting the Senate government healthcare bill, which contains eighteen separate tax increases.  One of these is a new $2 billion per year (rising to $3 billion in 2017) tax on medical device manufacturers. 

Massachusetts can expect their share of this tax to be $760 million annually (rising to $1.14 billion in 2017).

According to a 2007 study by Advamed, a medical device manufacturing trade association, Massachusetts counts on medical device manufacturers for nearly 22,000 jobs.  This ranks the Bay State as second in the country behind California, or fourth in the country as a percent of all state jobs.  One in every 150 Massachusetts workers is employed in the medical device manufacturing industry.  The average medical manufacturing employee earns about $51,000 annually (higher than the Massachusetts average of about $42,000).  The state medical device manufacturing industry generated $8.2 billion in sales and paid $1.47 billion in wages

Each medical manufacturing job generates an additional 3.83 jobs in Massachusetts.  Each $1.00 earned by employees of a medical device manufacturer generates $2.48 of wages elsewhere in Massachusetts.  Each $1.00 of sales in medical device technology generates $2.06 in additional sales in Massachusetts.

A few examples of communities that will be affected by this new tax supported by Coakley are in the PDF.

“Martha Coakley has already been quoted as saying that taxes need to go up,”
said ATR President Grover Norquist.  “Raising taxes is not free—it will cost jobs.  People need to ask Martha Coakley why she wants to be the deciding vote on a government healthcare and taxes bill which will endanger 22,000 high-paying jobs in Massachusetts.”

The provision can be found on page 2020, section 9009 of the bill.

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Tax Return Preparer Regulation:<br> A Solution in Search of a Problem<br> In Search of Tax Revenue

Posted by Ryan Ellis on Wednesday, January 6th, 2010, 4:47 PM PERMALINK

Everybody knows by now that the IRS will be issuing regulations seeking to regulate unenrolled paid tax preparers.

Full disclosure: I am an Enrolled Agent, which makes me an IRS-regulated tax expert.  I have maintained my own tax preparation firm since 2004.  I was (briefly) an employee of H&R Block.

In fact, that's the first point to mention in all this: to read media accounts, one would think that preparer regulation doesn't exist now.  It does exist now, in spades, for a majority of tax returns.

Let's take a look at some numbers.  The IRS reported that in 2009, 132 million tax returns were filed.  Of these, 90 million were e-filed.  Almost by definition, the paper-filed returns were not done by preparers, who all use software.  Paper-filed returns are nearly-exclusively the domain of the computer-illiterate taxpayer at his kitchen table with a pencil and a desk calculator.

Of the 90 million electronic returns, 30 million were done using tax software at home.  These are dominated by a few big players, and work to make sure their software is strictly-compliant with current tax law.  So, no problems there.

That leaves 60 million returns done by a human being who prepares the return.  Most of these are done by paid preparers.  So the IRS is regulating the preparers of these 60 million returns, right?  Wrong.  Many--if not a majority--of these preparers are already regulated.  Some (like me) are Enrolled Agents, directly-regulated by the IRS.  Some are CPAs, who are regulated by the states.  Yet others are tax attorneys, who are regulated by state bar associations.

Furthermore, these 60 million returns were unchanged from 2008.  They've plateaued.  All of the growth in e-filing in 2009 was a result of increases in home tax preparation software.  As computer ownership and competency continues to deepen, and as these home tax software programs continue to improve, one can expect them to actually start eating into the human-to-human tax preparation business. 

What about poor neighborhoods that bad-actor preparers prey upon?  The IRS, faith-based, and community-activist groups have for years ramped up free returns in churches, schools, and community centers in these neighborhoods.  The IRS has a "Free File" program in partnership with home tax software preparers which can give a free or nearly-free return to tens of millions of Americans.

In short, IRS regulation of "unenrolled preparers" is a solution in search of a (probably declining and certainly over-blown) problem.  So what's going on here?

Money.  The long-term plan the IRS has is to insource all tax preparation to themselves.  In some countries, the tax office fills out your return for you, sends it to you, and makes you take them on if you disagree.  This is the opposite of how it works in this country, where the assertion of tax liability is made by the taxpayer, and the burden of proof is on the IRS if more is wanted.  If you don't believe that IRS preparation of tax returns will result in higher tax revenue, why does everyone who proposes it tout higher revenue collection as a benefit?  The fact is, people won't challenge the IRS over a spare $100 here or $300 there because they feel like they can't fight city hall.  Think about when you get your property tax assessment, and you get the idea.

Speaking as someone who gets the Enrolled Agent trade association publications, it's clear that the enrolled preparers view their relationship to the IRS in the same way a booster club might view their relationship to a college football team, or a third order might view their relationship to a religious community.  To them, the IRS is not the "benign adversary" they spar with in their client's corner.  Rather, they are the willing facilitator, always coming down on the IRS interpretation of tax law when encountering a gray area.  The IRS is licking their chops at getting all return preparers to think this way.  From there, it's a small step to insourcing preparation of the returns, either explicitly or in substance.  When that happens, taxpayers will find themselves without an advocate, forced to go it alone against an unrelenting bureaucracy with infinite resources to litigate.

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Backlash Against Senator Ben Nelson:<br> Don't Forget About Taxpayers

Posted by Ryan Ellis on Tuesday, January 5th, 2010, 4:27 PM PERMALINK

With all the talk about "backlash" against Senator Ben Nelson (D-Neb.), there's one group that's been left out.  This group is taxpayers. 

Nelson signed the Taxpayer Protection Pledge (sponsored by Americans for Tax Reform) in order to get elected to the Senate.  This Pledge binds him for his Senate career to oppose net income tax increases.  According to both the Congressional Budget Office and the Joint Committee on Taxation, there are billions of dollars in net income tax hikes in the Reid-Obama health bill, which Nelson now supports. 

Put simply, he broke his promise to the taxpayers of Nebraska and the rest of the country.  This bill raises income taxes on working families making less than $250,000 per year, the uninsured, small employers, health savings account and flex spending account owners, special-needs children, near-retirees, and a myriad of others. 

The full list of tax increases and what they will cost taxpayers can be found here for all to see. Nelson can no longer be considered a "moderate" Democrat or a "fiscal conservative."  He's joined up with the Chicago-style tax hike crowd in Washington, and it will cost taxpayers dearly.

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Happy New Year!<br>73 New Tax Hikes Take Effect

Posted by Ryan Ellis on Monday, January 4th, 2010, 4:32 PM PERMALINK

It might surprise many people to learn that not one, not two, but seventy-three new tax increases went into effect on January 1, 2010.  This was the result of Congress letting temporary tax relief expire.  They still have time to put the tax relief back in place before the end of the year, but they are gone for now.  A complete list of them is maintained by the Joint Tax Committee.  Here are some of the more recognizable tax relief which expired:

  • The first-time homebuyer credit ($10.8 billion)
  • The research and experimentation tax credit ($6.97 billion)
  • The AMT “patch” to prevent more families from paying the AMT ($63 billion)
  • The additional standard deduction for state and local real estate taxes ($1.46 billion)
  • The itemized deduction for state and local general sales taxes ($1.85 billion)
  • 15-year depreciable life for leasehold improvements and restaurants ($5.4 billion)
  • 50 percent partial expensing for business asset purchases ($5.074 billion)
  • Increase in small business expensing to $250,000 ($41 million)
  • Above-the-line deduction for college tuition and fees ($1.53 billion)
  • Above-the-line deduction for teacher classroom expenses ($228 million)
  • Tax-free distributions from IRAs to make charitable contributions ($591 million)
  • DC first-time homebuyers credit ($17 million)

All told, these expiring tax provisions total between $100-$150 billion of new tax hikes.

Estimated revenue effects of the individual provisions come from recent legislative scores by the Joint Tax Committee.

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Get Ready for the Other Shoe to Drop:<br> Volcker Commission Tax Hikes for Healthcare

Posted by Ryan Ellis on Monday, December 21st, 2009, 2:22 PM PERMALINK

It was little-noticed in late November when former Federal Reserve Chairman Paul Volcker announced that the tax reform commission he chairs would wait to deliver its report until "after the holidays."

What you might not see is the connection between this and the Reid-Obama government healthcare bill.

ATR has written considerably about the $500 billion in new tax increases to pay for this government takeover of health insurance.  Many have speculated that even this gargantuan sum of money won't be enough, especially as unanticipated cost over-runs typical of such schemes begin to take hold.

This is where the Volcker tax-hike commission comes in.

If the Obama Administration and Congressional Democrats are going to get their way and permanently raise federal spending to 25 or 30 percent of GDP (and the unfunded liabilities in Reid-Obama will do their part to push that along), they will need new sources of revenue (the historical level of federal taxes has been a bit over 18 percent of GDP).

It's likely the White House and Capitol Hill Democrats didn't want to announce all the new tax increases now, preferring to wait until "after the holidays" (and after Congress has already committed American taxpayers to this new scheme).

What types of tax hikes could there be?  How about a new value-added tax (VAT)?  Assuming a European VAT base, each 2.5 percent of VAT rate raises you 1 percent of GDP.  Tax hikes on international profits of U.S. employers is another tempting target.  How about carbon taxes or other energy tax hikes?  Some have called for the IRS to prepare your tax return for you, which "strangely" results in higher overall taxes collected.  Anyone for closing the "tax gap" through "revenue enforcement mechanisms?"  The list goes on and on.

The point is, the tax hike side of this health care debate has yet to show its final card.

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Why Supporting Reid-Obama Health Bill Violates Taxpayer Protection Pledge

Posted by Ryan Ellis on Monday, December 21st, 2009, 10:46 AM PERMALINK

Some have questioned whether supporting the Reid-Obama health bill is a violation of the Taxpayer Protection Pledge.  It is.  Let's use Senator Nelson's pledge as an example:

"I, Ben Nelson, pledge to the taxpayers of the State of Nebraska and to the American people that I will: ONE oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses, and TWO oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates."

Here is a link to the Tax Pledge language.

There are two promises in that Pledge.  The first says "I won't raise income tax rates."  The second says "I won't expand the income tax base on net unless it's to reduce tax rates."  Each is vital.

UPDATE: Senator Nelson violated the first part of the Pledge by supporting a hike in the Medicare payroll tax rate. This is an income tax rate hike on wages and self-employment income.

He needs to read the second commitment in that promise.  The Senate bill contains a net income tax increase in the income tax base.

The full list of tax hikes with score is here.

You can see from the CBO score that this is a net tax increase of $498 billion over a decade.  This factors in the tax credits for individuals and small businesses.  The net income tax increase is smaller than this (since not all the tax hikes are income tax hikes), but it is still a net income tax increase over the budget window.  This is a violation of the second part of Senator Nelson's Pledge.

Pledge signers should read the whole Pledge, not just the parts they want to read.

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If Specter Votes for Health Bill Cloture He Will Violate Taxpayer Protection Pledge

Posted by Ryan Ellis on Sunday, December 20th, 2009, 5:56 PM PERMALINK

If Sen. Arlen Specter (D-Penn.) votes for cloture on the Manager’s Amendment or for final passage of the Senate healthcare bill, he will violate his Taxpayer Protection Pledge – a written commitment Specter made to Pennsylvanians and the American people.

“Senator Specter promised the people of Pennsylvania that he would vote against any income tax increases,” said Grover Norquist, president of Americans for Tax Reform. “Senate Democrat bosses have said that Senator Specter has promised to vote for a bill to give the government more control over health care.  That bill includes 18 different tax increases.”
When Sen. Specter ran for the U.S. Senate, he made a written Pledge to his constituents to oppose any net income tax hikes.  He is bound by that Pledge for the duration of his career as a senator.  The Senate healthcare bill contains nearly $500 billion in new tax hikes over the next decade, including billions in income tax hikes.

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NEWS: Comprehensive List of Tax Hikes in<br> Reid-Obama Health Bill UPDATED

Posted by Ryan Ellis on Saturday, December 19th, 2009, 1:46 PM PERMALINK

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List of tax hikes in original Reid bill

Manager's Amendment

CBO Score of Manager’s Amendment

JCT Score of Manager’s Amendment

(Page numbers reference ORIGINAL REID-OBAMA BILL unless noted):

Individual Mandate Tax (Page 324/Sec. 1501/$15 bil/Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following (page 71 of manager’s amendment updates Reid bill):

 Single2 People3+ People
2014$495/0.5% AGI$990/0.5% AGI$1485/0.5%/AGI
2015$495/1.0% AGI$990/1.0% AGI$1485/1.0%/AGI
2016+$495/2.0% AGI$990/2.0% AGI$1485/2.0%/AGI


Exemptions for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases (determined by HHS).

Employer Mandate Tax (Page 348/Sec. 1513/$28 bil/Jan 2014):  If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $750 for all full-time employees.  Applies to all employers with 50 or more employees.

If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer).

Excise Tax on Comprehensive Health Insurance Plans (Page 1979/Sec. 9001/$149.1 bil/Jan 2011): Starting in 2013, new 40 percent excise tax on “Cadillac” health insurance plans ($8500 single/$23,000 family).  Higher threshold ($9850 single/$26,000 family) for early retirees and high-risk professions.  CPI +1 percentage point indexed.  Longshoremen have been exempted (page 362 of the manager’s amendment)

From 2013-2015, the 17 highest-cost states are 120% of this level. 

Employer Reporting of Insurance on W-2 (Page 1996/Sec. 9002/Min$/Jan 2011): Preamble to taxing health benefits on individual tax returns.

Medicine Cabinet Tax (Page 1997/Sec. 9003/$5 bil/Jan 2011): No longer allowable to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin)

HSA Withdrawal Tax Hike (Page 1998/Sec. 9004/$1.3 bil/Jan 2011): Increases additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

FSA Cap (Page 1999/Sec. 9005/$13.3 bil/Jan 2011): Imposes cap on FSAs of $2500 (now unlimited).  Indexed to inflation after 2011 (added on page 363 of manager’s amendment)

Corporate 1099-MISC Information Reporting (Page 1999/Sec. 9006/$17.1 bil/Jan 2012): Requires businesses to send 1099-MISC information tax forms to corporations (currently limited to individuals), a huge compliance burden for small employers

Excise Tax on Charitable Hospitals (page 2001/Sec. 9007/Min$/immediate): $50,000 per hospital if they fail to meet new "community health assessment needs," "financial assistance," and "billing and collection" rules set by HHS (updated on page 364 of manager’s amendment).

Tax on Innovator Drug Companies (Page 2010/Sec. 9008/ $22.2 bil/Jan 2010): $2.3 billion annual tax on the industry imposed relative to share of sales made that year.

Tax on Medical Device Manufacturers (Page 2020/Sec. 9009/$19.2 bil/Jan 2010): $2 billion annual tax on the industry imposed relative to shares of sales made that year.  Exempts items retailing for <$100.  Rises to $3 billion annually in 2017 (updated by page 364 of manager’s amendment).

Tax on Health Insurers (Page 2026/Sec. 9010/$59.6 bil/Jan 2011): $10 billion annual tax on the industry imposed relative to health insurance premiums collected that year.  Phases in gradually until 2017.  Fully-imposed on firms with $50 million in profits (updated on page 365 of manager’s amendment)

Eliminate tax deduction for employer-provided retirement Rx drug coverage in coordination with Medicare Part D (Page 2034/Sec. 9012/$5.4 bil/Jan 2011)

Raise "Haircut" for Medical Itemized Deduction from 7.5% to 10% of AGI (Page 2034/Sec. 9013/$15.2 bil/Jan 2013): Waived for 65+ taxpayers in 2013-2016 only

$500,000 Annual Executive Compensation Limit for Health Insurance Executives (Page 2035/Sec. 9014/$0.6 bil/Jan 2013)

Hike in Medicare Payroll Tax (Page 2040/Sec. 9015/$86.8 bil/Jan 2013): Current law and changes:


First $200,000
($250,000 Married)

All Remaining Wages
Current Law1.45%/1.45%
2.9% self-employed
2.9% self-employed
Reid-Obama Tax Hike1.45%/1.45%
2.9% self-employed
3.8% self-employed

The 0.9% new rate addition is not deductible for the self-employment tax adjustment.  Updated by page 372 of manager’s amendment.

Blue Cross/Blue Shield Tax Hike (Page 2044/Sec. 9016/$0.4 bil/Jan 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services

STRICKEN: Tax on Cosmetic Medical Procedures (Page 2045/Sec. 9017/$5.8 bil/Jan 2010): New 5% excise tax on elective cosmetic surgery to be paid by the surgery patient.

REPLACED BY: Tax on Indoor Tanning Services (Page 373 of Manager’s amendment/$2.7 billion/July 1, 2010): New 10% excise tax on indoor tanning salons

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UPDATED: List of Tax Changes in<br> Reid Manager's Amendment

Posted by Ryan Ellis on Saturday, December 19th, 2009, 9:54 AM PERMALINK

Full bill is here.  Page references are below.

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(Page numbers below reference manager amendment.  These should be read in context of original Reid bill)

Individual mandate surtax (page 71) Assuming a bronze-level plan is more expensive (a near-certainty), this penalty is now the greater of a flat dollar amount ($495 single, $990 two persons, $1485 three persons or more), or a percentage of “household income” (0.5% 2014, 1.0 percent 2015, 2.0 percent 2016 and afterwards)

Longshoremen have been exempted (page 362) from the 40% “Cadillac plan” excise tax which will be assessed on comprehensive health insurance plans

FSA cap (page 363) the $2500 cap on flex spending accounts is now indexed for inflation starting in 2012

Tax on charitable hospitals (page 364) made less onerous by changing calculation input from the lowest amount charged, to the amount generally billed by a hospital

Medical device manufacturer's tax (page 364) now starts in 2010 and raises $2 billion per year ($3 billion starting in 2017)

Insurance company profit surtax (page 365) now fully implemented on companies with $50 million in profits; now up to $10 billion in total taxes, assessed on a pro-rated basis to insurance companies based on profits; exempts the non-profit insurance plans

Medicare payroll tax (Page 372) shall now rise from 2.9 percent to 3.8 percent for wages and self-employment income above $200,000 ($250,000 married).  Current 2.9 percent rate retained for wages and self-employment income below this amount

10 percent tax on the cost of indoor tanning services (page 373) This replaces the “botax” cosmetic surgery tax, which has been stricken

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