Later this week, the Senate Health, Education, Labor, and Pensions (HELP) Committee is expected to markup legislation related to surprise medical billing and healthcare transparency.

This markup is a positive step forward in protecting patients, reducing costs, and making the healthcare system less opaque.

During the markup, it is expected that proposals to allow the importation of prescription medicines into the U.S. will be offered.

These amendments should be rejected.

Importation of medicines results in the importation of socialist, market distorting price controls. These importation proposals do not address the root cause of high prices, will allow unvetted, potentially dangerous medicines into the U.S. and will harm American innovation.

Importation Has Long Been Championed by the Far-Left: Importation will allow drugs from countries with socialized medicine is. This policy has long been supported by U.S. Senator Bernie Sanders and opposed by proponents of free markets and limited government. 

While importation may sound like a reasonable free market solution, it is actually a clever ploy to trick proponents of limited government into supporting socialist policies that would jeopardize the development of the next generation of life-saving, life-improving medicines.

Importation is Not the Solution to High Prices: The U.S. represents one-third of the market for medicines in the developed world, but pays for as much as 70 percent of the costs, according to the President’s Council for Economic Advisors.

Importation would do nothing to solve this problem. Instead, it would only siphon off drugs from other markets and exacerbate the true problem – foreign countries freeloading off American innovation.

Other countries have lower prices because they impose heavy handed government price controls and other regulations. This limits access to medicines and suppresses innovation. 

This is not hypothetical – of the 290 new medical substances that were launched worldwide between 2011 and 2018, the U.S. had access to 90 percent. By contrast, the United Kingdom had 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent. The reference pricing policies used in Europe delay new drugs coming to market by an average of 14 months, according to one study.

Importation Schemes Are Potentially Dangerous to Consumers: The Food and Drug Administration has long expressed concern over allowing the importation of medicines. Agency officials have repeatedly stated there is no way to assure the safety, authenticity, or effectiveness of imported drugs, or whether the drugs are from the country the packaging claims it to be.

Attempting to construct such a system would be a bureaucratic nightmare and will be incredibly costly to taxpayers. This is not a partisan issue -- every single Commissioner of the FDA and every HHS Secretary in the past 18 years has acknowledged allowing importation of price-controlled medicines is dangerous.

Importation Would Threaten the U.S. Role as a Leader of Medical Innovation: The U.S. is a leader in medical development with more than half of pharmaceutical / biotech research being conducted in this country.

This research supports numerous high paying jobs, leading to a stronger economy. Conversely, creating barriers to innovation will threaten these jobs and hurt the economy.

Currently, it costs more than $2.6 billion and takes 10 - 12 years to develop a drug, conduct clinical trials, and obtain Food and Drug Administration (FDA) approval for each drug that makes it onto the market.

This innovation directly benefits the U.S. in the form of high-paying jobs, a stronger economy R&D, and access to more life-saving medicines.

In a letter to Members of the Senate Finance Committee, ATR President Grover Norquist urged Congress to maintain America’s competitiveness in the global economy by making permanent the Controlled Foreign Corporation (CFC) look-thru rule, which is set to expire on January 1, 2020.

The CFC look-thru rule is a key factor in maintaining a globally competitive tax code. First put in place in 2006, the CFC look-thru rule allows U.S. foreign subsidiaries to avoid double or additional taxation when transferring assets or capital between countries. As the letter explains, allowing this provision to expire will harm American businesses and competitiveness:

“Allowing the expiration of this provision will subject American businesses to additional taxation when they are seeking to redeploy business earnings from one CFC to another. The majority of America’s foreign competitors do not face additional taxation when redeploying capital, so this provision is key to ensuring U.S. businesses are on a level playing field.”

Making the CFC look-thru rule permanent will build on the success of the TCJA, which moved toward a ‘territorial tax system’ where certain types of foreign earnings by American companies were exempt from double taxation.

The full letter can be found here and is below:

Dear Chairman Grassley, Ranking Member Wyden, and Members of the Senate Finance Committee:

I write in support of a permanent Controlled Foreign Corporation (CFC) Look-Thru Rule.

The CFC look-thru rule is a key component of a modern, globally competitive U.S tax system and    should be made permanent, or at the very least, extended. However, if lawmakers fail to act soon, the CFC look-thru rule will expire effective January 1, 2020.

Allowing the expiration of this provision will subject American businesses to additional taxation when they are seeking to redeploy business earnings from one CFC to another. The majority of America’s foreign competitors do not face additional taxation when redeploying capital, so this provision is key to ensuring U.S. businesses are on a level playing field.

The CFC look-thru rule was first enacted in 2006 under IRC section 954(c)(6). It exists as an exception to Subpart F base erosion rules which are designed prevent a business from improperly shifting passive income (rents, royalties etc.) to low tax jurisdictions. Under this provision, any income designated as Subpart F income would be subject to full U.S. corporate tax. The look-thru rule exempts payments from Subpart F when these payments are between two U.S. foreign subsidiaries in different countries.

A permanent CFC look-thru rule compliments the goals of the TCJA. During consideration of the Tax Cuts and Jobs Act in 2017, Congress preserved the CFC-look thru rule in recognition that U.S. tax should not be owed when an American company redeploys capital among foreign subsidiaries. However, lawmakers did not extend the provision, so it will expire effective 2020.

Tax reform made the U.S. more competitive by moving the tax code toward a territorial tax system. Multiple changes were made to the tax code including exempting certain types of foreign earnings from U.S. taxation and implementing several new international tax provisions such as Global Intangible Low- Tax Income (GILTI) and the Base Erosion Anti-Abuse Tax (BEAT).

Under the new system, certain types of foreign earnings repatriated back to the U.S. are exempt from double taxation, while other types of earnings are subject to the 10.5 percent GILTI rate or the 21 percent rate under Subpart F rules.

It is important to note that a permanent CFC look-thru rule does not give taxpayers a windfall or an opportunity to completely avoid taxation on foreign income – while the provision exempts qualifying payments from Subpart F taxation, these may still be subject to base erosion provisions like GILTI.

The CFC look-thru rule is a key pillar of a competitive, territorial tax system and should be made permanent. Failing to act will undermine the gains of the TCJA in making the U.S. tax code more competitive by unnecessarily imposing taxation on U.S. businesses when they seek to deploy capital from one country to another.

Thank you for your consideration. If you have any questions, please contact me or ATR’s Director of Tax Policy Alex Hendrie at 202-785-0266.

Onward,

Grover G. Norquist
President, Americans for Tax Reform

ATR President Grover Norquist wrote in opposition to retroactive changes to the Alternative Fuels Mixture Credit in a letter to members of the Senate Finance Committee. 

ATR supports efforts to repeal or make all extenders permanent as part of a broader goal to lower tax rates across the board. When extenders are repealed or made permanent, it creates certainty for taxpayers and businesses.

ATR also believes that extenders should be dealt with prospectively instead of retroactively, because law-abiding taxpayers should not be penalized for following the law based on reasonable statutory interpretations.

[Read the Full Letter Here]

Based on these two principles, ATR opposes retroactively changing the Alternative Fuels Mixture Credit as proposed in The Tax Extender and Disaster Relief Act of 2019 (S. 617). As the letter notes:

“…this legislation retroactively disallows taxpayers blending butane with gasoline from claiming the AFMC. This is bad policy that interferes with ongoing litigation, denies taxpayers due process, and creates potentially arbitrary and unfair outcomes. ATR opposes this change and urges Congress to instead consider changes to the AFMC prospectively.”

Prior to the AFMC’s expiration on December 31, 2017, several taxpayers claimed the credit for blending butane with alternative fuels, and the IRS has denied these claims. Retroactively changing the AFMC to disallow these claims is bad tax policy. As the letter explains:

“Tax policy is based on consistency, certainty, and fairness. Taxpayers routinely make decisions based on a reasonable interpretation of the law with the expectation that the future changes to the law will not be applied looking backwards.

Retroactively changing the tax code punishes taxpayers based on activity that has already occurred.

Legislation that retroactively changes the AFMC would violate this principle by affecting claims from past tax years.

This would also set the precedent that Congress can disallow taxpayers from claiming other provisions in the future and undermines confidence in the tax system.”

AFMC claims by taxpayers that blended butane with traditional fuels are currently being adjudicated in court. By retroactively disqualifying taxpayer AFMC claims, Congress would interfere with ongoing litigation. If Congress disagrees with the outcome of the litigation, it should change the law on a prospective basis.

Instead of interfering with ongoing litigation and retroactively disallowing tax credits to law-abiding taxpayers, Congress should modify the credit prospectively if lawmakers take issue with butane qualifying for the AFMC. Read the full letter here.

House Democrats voted against several Republican proposals to permanently cut taxes for the middle class.

The Democrat-controlled House Ways and Means Committee debated four pieces of legislation this week with very little public notice. Republicans offered numerous pro middle-class amendments, but Democrats shot down every proposal.

Republicans offered amendments to make the Tax Cuts and Jobs Act’s middle-class tax cuts permanent. If adopted, these amendments would have meant a permanent: 

• Doubled standard deduction: this expansion resulted in dramatic tax reduction for the 105,055,150 million taxpayers that took it before the passage of tax reform, a number that has only increased since the TCJA became law.
• Doubled child-tax credit: this expansion benefited over 22 million American middle-class families that claim the child tax credit.
• Individual rate cuts: a family of four earning the median income of $73,000 is seeing a federal tax cut of $2,000, while overall tax liability has dropped by almost 25 percent, according to a report from H&R Block.
   

All of these provisions have helped middle-class Americans, and Democrats were unanimous in opposing them.

Democrats also unanimously opposed repealing the Medical Device Tax, an Obamacare holdover that devastated the American healthcare system while it was in effect. The medical device tax was in effect from 2013 and 2015 but Congress has suspended the tax since 2016. When it was in effect, research indicates that the tax reduced research and development by $34 million in 2013 and disproportionately harmed companies with lower profit margins. This resulted in a loss of approximately 28,000 jobs.

Finally, Democrats unanimously voted against cutting taxes for Americans with high medical bills. Before Obamacare, families facing high medical bills could deduct expenses that exceeded 7.5 percent of their AGI. According to the IRS, approximately 10 million families took advantage of this deduction each year before Obamacare was signed into law. In 2010, the average taxpayer claiming the deduction earned just over $53,000 annually.

Obamacare increased the threshold to claim the medical expense deduction to 10 percent of AGI. The TCJA restored the pre-Obamacare 7.5 percent threshold, but House Democrats opted not to make that increased threshold permanent.

Every time Democrats had the opportunity to extend or make middle-class tax cuts permanent, they refused. The next time Democrats tell you that they are for cutting taxes for the middle class, remember this week’s votes.