Ryan Ellis

Obama Administration Still Not Getting It on Corporate Inversions

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Posted by Ryan Ellis on Monday, September 8th, 2014, 5:48 PM PERMALINK

The big news in the tax world today is Treasury Secretary Jack Lew's speech on corporate inversions.  

Unfortunately, it's clear that the Obama Administration still doesn't understand this easy issue.

Inversions are inevitable if you have a flawed tax system.  Multi-national companies have offices around the world.  They can set up headquarters in America, or in any number of different countries.  No matter where they hang a shingle, they will have to pay the full U.S. corporate income tax rate on all U.S. profits.  So what's the big deal here?  The big deal is that our tax system is the worst in the world for these type of employers, and inversion is the entirely predictable result.

Worldwide vs. Territorial taxation. The U.S. is virtually the only country in the world that requires its companies to not only pay taxes on profits it earns here, but also exposes profits earned overseas to U.S. taxation when repatriated.  This is known as a "worldwide tax regime." Other countries have what we should have, a "territorial tax regime," where taxes are owed only where they are earned.

The highest tax rate in the world.  Combine this double taxation with the highest corporate income tax rate in the developed world (over 39 percent, compared to a developed nation average under 25 percent), and you have a recipe for corporate inversions to happen. Companies are simply not going to expose their profits earned overseas (and which already have faced taxation abroad) to even more taxation in the United States, which taxes more heavily than anyone else.

A simple solution: lower the tax rate, stop double taxing.  Responsible policymakers know that there is a very simple, two-pronged approach to stopping inversions--dramatically lower the tax rate on businesses, down to the developed nation average of 25 percent (or even less).

That by itself will do most of the work.

Combine that with adopting a territorial tax regime, and the problem is solved.  Companies not only won't want to move abroad to protect their shareholders, employees, and customers from unfair tax rules--we will actually see other countries' companies wanting to set up shop here.

The Obama Administration just doesn't get it.  It's clear, unfortunately, from Lew's speech that the Obama Administration just doesn't get it.  Let's break it down:

Lew calls for a phony corporate tax reform with a top rate of 28 percent and higher taxes than before.  A top rate that high simply isn't enough to make America competitive around the world. We would still have a tax rate significantly higher than the developed nation average. Combine this with tax increases to pay for it even bigger than the rate reduction, and companies are worse off than before.

They want to use the net tax increase money for another round of stimulus spending on roads.  If there's something we do know, it's that companies are doing inversions because they are overtaxed.  Increasing their taxes, and then using the money to finance union-contract road deals, is only going to make the problem worse.

Where's the end to double taxation?  You won't find it here.  Not only does the administration not ending the worldwide double tax regime--they are actually proposing making it worse.

Retroactive tax increases on companies who should have hired psychics. Arguably, the most offensive part of the plan is that it would apply to companies who have already made the inversion decision, months or even years before the law is passed.  Apparently, the companies who were making sound business decisions at the time neglected to hire psychics to divine what Congress might do (and apply backwards) months or years in the future.  There's a reason the Constitution forbids "ex post facto" laws, and this is it.

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ATR Supports H.R. 3522, "Employee Health Care Protection Act"

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Posted by Ryan Ellis on Monday, September 8th, 2014, 5:18 PM PERMALINK

The U.S. House of Representatives this week will vote on H.R. 3522, the "Employee Healthcare Protection Act," sponsored by Congressman Bill Cassidy (R-La.)

ATR urges all Members of Congress who want to prevent Obamacare from doing even more damage to their constituents to vote for this legislation.

H.R. 3522 actually implements for workers what President Obama famously promised about his signature healthcare law: "if you like your plan, you can keep it."  Millions of Americans on the individual health insurance market now know this was not true, and those who get health insurance at work will find themselves in the same boat this year.

The bill allows any group health plan offered at work in 2013 to continue to be offered in 2014. It's as simple as that.

Starting this fall, up to 50 million American families could see plan cancelation or disruption due to Obamacare forcing their employers to adopt different health insurance plans.  They won't have the chance to keep their old plan, because it won't be available to them anymore.  H.R. 3522 would prevent that from happening.

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Coming to a Friday News Dump Near You: The Obamacare Individual Mandate Tax Form

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Posted by John Kartch, Ryan Ellis on Thursday, August 7th, 2014, 12:14 PM PERMALINK

The IRS recently released a batch of Obamacare-related draft tax forms for the 2014 tax year. Conspicuously absent from this collection is a form to calculate one’s penalty for noncompliance with Obamacare’s individual mandate.

ATR fully expects this draft tax form to be released in a Friday news dump during the dog days of the August recess.

It is clear from the new draft 1040 form already released that every American filing an income tax return will have to attest to their compliance with Obamacare’s individual mandate.

In the “Other Taxes” section of the draft 1040 form, line 61 reads: Health care: individual responsibility (see instructions) 

Line 61 is underlined in the graphic below:

The expected Friday-news-dump individual mandate compliance tax form will, at a minimum, contain:

  • The name and health insurance identification number of the taxpayer.
  • The name and tax identification number of the health insurance company providing the “qualifying” coverage as determined by the federal government.
  • The number of months the taxpayer was covered by this insurance plan.
  • Whether or not the plan was purchased in one of Obamacare’s “exchanges.


When the draft tax form is finally released, it will be posted here. 


Photo Credit: 
John Kartch

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ATR Supports Bill Ending Marriage Penalty in Child Tax Credit

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Posted by Ryan Ellis on Wednesday, July 23rd, 2014, 2:20 PM PERMALINK

The U.S. House of Representatives this week will consider H.R. 4935, the "Child Tax Credit Improvement Act," sponsored by Congressman Lynn Jenkins (R-Kan.)  This bill is a common sense update of the income tax's child tax credit provision, and we urge all Members to vote for it.

Under the tax code, filers with dependent children living with them receive a credit against tax of $1000 for each dependent child under the age of 17.  This credit begins to phase out when adjusted gross income (AGI) exceeds $75,000 ($110,000 in the case of a married filing jointly couple).

There are two issues with the child tax credit which H.R. 4935 addresses:

The credit amount was never indexed to inflation.  The child tax credit was first passed in 1997, and expanded in 2001 and 2003.  Since that time, it has been set at $1000 and never indexed to inflation.  H.R. 4935 corrects that beginning in 2015.

The phaseout limit was never indexed to inflation, and contains a marriage penalty.  The phaseout limits ($110,000 for married couples, $75,000 for most others) were also never indexed to inflation.  In addition, there is a marriage penalty in that the phaseout range for married couples begins at less than double the level for other taxpayers.  The current credit phaseout range creates an incentive for parents to cohabitate rather than get married, even though the tax code should be neutral on such decisions.

H.R. 4935 corrects both problems.  The married phaseout level is set to double the "other" phaseout level ($150,000 vs. $75,000).  In addition, these phaseout rates are indexed for inflation starting in 2015.


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Corporate Inversions Caused by High U.S. Tax Rate on Companies

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Posted by Ryan Ellis on Friday, July 18th, 2014, 12:17 PM PERMALINK

There's a lot in the news this week about "corporate inversions."  That's when a U.S. company with a foreign subsidiary becomes a foreign company with a U.S. subsidiary.

Not surprisingly, Congressional Democrats are out demonizing these companies for daring to look out for their shareholders, employees, and customers.  What you won't hear many Democrats talk about is why these companies feel compelled to do an inversion in the first place.

In a word, it's all about the U.S. corporate tax rate, plus a few other details.

The U.S. has the highest tax rate on businesses in the developed world.  Our corporate tax rate (including states) is 39.1 percent.  Flow-through firms face an even higher rate, approaching 50 percent depending on their state.

Compare this to business taxes overseas, which average about 25 percent in the developed world.  

Each of our major trading partners--Canada, Mexico, Japan, the United Kingdom, Germany, and France--have business tax rates lower than ours.  There are also minor trading partners (Ireland and the Netherlands being good examples) who have significantly lower rates and have been attracting capital recently.

Combine this with the fact that the U.S. has a worldwide tax regime (exposing our companies' profits earned abroad to potential double taxation) and painfully slow cost recovery tax rules, and you have created an atmosphere where corporate inversions become very attractive.

If you want to reverse this trend, there's only one way to really do it--lower the tax rate that businesses pay.  At the very least, companies here should not face a tax rate higher than the 25 percent average rate they would face elsewhere in the developed world.

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ATR Supports Bill Appointing Inspector General for Obamacare

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Posted by Ryan Ellis on Wednesday, July 9th, 2014, 5:34 PM PERMALINK

Americans for Tax Reform is proud to support S. 2430, the "Special Inspector General for Monitoring the ACA (SIGMA) Act of 2014," sponsored by Senator Pat Roberts (R-Kan.)

Obamacare is a giant law which spans many government agencies.  Congressional oversight has been stymied by the administration, and taxpayers frankly "don't know what they don't know" about how the government is implementing President Obama's healthcare law.  What has leaked out has been a tale of woe involving broken websites, overpaid contractors, and late Friday afternoon bureaucrat resignations.

S. 2430 would create an inspector general that could knock on doors across the government, from Kathleen Sebelius' Department of Health and Human Services, to the Treasury Department, the Social Security Administration, the Pentagon, the Department of Homeland Security, the Veterans' Administration, the Department of Labor, and even the Peace Corps.  No stone would be left unturned.  Reports would start flowing to Congress and taxpayers on a quarterly basis.

This inspector general office would follow in the footsteps of other recent predecessors for Iraq reconstruction, Afghanistan reconstruction, and the TARP bailout.  These inspectors general have recovered billions of dollars in savings for taxpayers, and resulted in prosecutions of hundreds of bad actors.

It's about time taxpayers got to the bottom of how Obamacare is being implemented.  S. 2430 is a necessary step to get there.

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ATR Supports Anti-Fraud Reforms in EITC

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Posted by Ryan Ellis on Wednesday, July 9th, 2014, 4:00 PM PERMALINK

The Earned Income Tax Credit (EITC) is a refundable tax credit for low income American families with wage income.  Almost without exception, these households do not have an income tax liability. The EITC, then, is really a check written by the IRS to keep households out of poverty.  It is not income tax relief.

The EITC has a high error rate.  The IRS itself admits that, in 2013 alone, 22 to 26 percent of all EITC payments were made in error.  The erroneous payments totaled between $13.3 billion and $15.6 billion.  This was spending, right out of the Treasury Department, to people who were never eligible for this money.

Congressman Cory Gardner (R-Colo.) will this week introduce legislation called the "Earnings Advancement and Recovery Now (EARN) Act."  It makes four essential EITC reforms:

--increase the penalty for those who engage in willful or reckless content with regard to the EITC

​--expand the EITC disallowance period to five years for willful or reckless EITC recipients

--expand the IRS' math error authority to cover EITC claims, and

--expand penalties for erroneous EITC claims

These measures are simple reform tools for an EITC which has completely failed in its mission. No private sector business could tolerate payment errors to a quarter of their payees, but that's exactly what's happening at the IRS with the EITC.  ATR urges all Congressmen to co-sponsor and support this common sense EITC reform package.

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House Should Pass Permanent Partial Expensing Tax Relief

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Posted by Ryan Ellis on Monday, July 7th, 2014, 3:30 PM PERMALINK

The U.S. House this week will consider H.R. 4718, a bill introduced by Congressman Pat Tiberi (R-Ohio) to make permanent a tax provision providing for partial expensing of business tangible asset investment.  ATR urges all Congressmen to support and vote for H.R. 4718.

Under tax law, most business expenses (wages, rents, etc.) can be deducted as costs against business income. Companies pay taxes on whatever profit is left.  One big exception is when businesses invest in essential assets like computers and machinery.  These assets are subject to long, muti-year deductions called "depreciation."  A computer, for example, takes five years to fully deduct from business taxable income.

Under ideal tax policy, all business expenses--from wages to computers to paper clips--would be immediately deducted in full in the year of purchase.

For many years, the tax code has had a temporary provision which allows companies to deduct much of the cost of these asset purchases in the year they are made.  H.R. 4719 would permanently allow a company to deduct half the cost of a new investment, meaning only the other half would be subject to long and complex depreciation rules.

Congress has a long history of support for this concept, so it makes sense to have it become permanent tax law on the way to full business expensing of all purchases. 

--In 2002, Congress created a 30 percent partial expensing rule for asset purchases made through 2005

--In 2003, Congress raised this partial expensing level to 50 percent

--In 2004, Congress broadened the scope of what was covered under partial expensing

--In 2010, Congress created a 100 percent (i.e., full expensing) tax relief provision for 2010 and 2011, reduced to a 50 percent partial expensing for 2012 and 2013

--Unless Congress moves soon, there will be no partial expensing at all in the 2014 tax year.

There is a long history of Congress supporting partial expensing.  For long-run planning purposes, however, businesses need to know that tax law won't keep changing on them.  That's why it's so important to have the certainty that H.R. 4718 brings.  

Business investment is ultimately what creates new business capital, and with it new jobs.  If Congress wants to create an environment for job creators to thrive, passing permanent partial expensing is the best jobs package possible.


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Wyden Highway Bill Markup Is a Tax Hike on Middle Class Savers and a Taxpayer Protection Pledge Violation

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Posted by Ryan Ellis on Tuesday, June 24th, 2014, 1:12 PM PERMALINK

On Thursday, the Senate Finance Committee will mark up a bill to spend taxpayer dollars on highways through the end of 2014.

In order to pay for this new half-year of federal spending, the chairman's mark puts into place $9 billion of permanent tax increases on the American people. ATR has said that we oppose tax increases for highway reauthorization, and we have made suggestions on where to cut spending instead.

The largest of these tax hikes is by far the most damaging.  In a move to raise nearly $4 billion from savers, the chairman's mark changes the rules for distributions on inherited 401(k)s and IRAs.  

Under current law, those who inherit an IRA can elect to "stretch" distributions from the IRA over the remainder of their lifetime, which could obviously be decades.  This allows IRA money to continue to largely grow tax-free, creating an even bigger nest egg than if the IRA was simply distributed upon the death of the original owner.  This is the proper tax treatment of savings under a consumption base, and should actually apply to all types of savings, not just IRAs.

Under the chairman's mark, this "stretch IRA" concept, which is a conventional estate planning tool used by middle class families, would be abolished.  In its place would be a requirement in most cases (surviving spouses being the biggest exception) that an inherited IRA be distributed over just five years.  Thus, the tax deferral advantages of a stretch IRA are almost completely obliterated.

Unlike the type of estate planning tools used by rich Americans like Bill and Hillary Clinton, a "stretch IRA" is used by normal, middle class Americans and their financial planners (except maybe Vice President Joe Biden).  This is the stuff of PBS pledge drive specials and walk in bank advertisements, and should not be confused with the complex estate planning that the uber-wealthy use.

To put it bluntly, this IRA tax increase is an income tax increase on the middle class.  Because the entire bill is a net income tax increase, it also violates the Taxpayer Protection Pledge.  ATR urges senators to oppose and vote against the chairman's mark on Thursday, and on the floor if necessary.

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ATR Supports S. 2488, the "Working Parents Home Office Act"

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Posted by Ryan Ellis on Friday, June 20th, 2014, 2:00 PM PERMALINK

ATR is happy to support S. 2488, the "Working Parents Home Office Act," sponsored by Senator Mitch McConnell (R-Ky.)  

Under current tax law, a taxpayer is allowed to claim a deduction for a home office related to a trade or business.  Among other restrictions, tax law provides that the home office space must be exclusively (that is, 100 percent) business use.

That is not realistic for startup companies that get launched from home.  In many cases, parents (especially Moms) starting a new business also have to take care of children at home, often in very close proximity to a child (like a baby).

S. 2488 would loosen the "exclusive business use" home office requirement in this case.  It would allow for incidental parental child care in a home office, while preserving the ability of stay-at-home entrepreneurs to deduct their home office in full.  

ATR encourages all pro-taxpayer senators to support and co-sponsor this common sense legislation.

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