Alex Hendrie

Five Reasons to Oppose Biden’s Plan to Raise the Corporate Tax Rate

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Posted by Alex Hendrie on Wednesday, January 20th, 2021, 3:05 PM PERMALINK

President Joe Biden has proposed raising the corporate tax rate from 21 percent to 28 percent as part of his plan to raise taxes by as much as $4 trillion over the next decade.

Any effort to raise taxes on businesses should be rejected. It will prolong the economic downturn and harm workers and businesses. It will make America a less competitive place to do business and could see a return of corporate inversions and an increase in foreign acquisitions. It will also harm Americans that have their savings in a 401(k) or IRA or have begun investing in the stock market.

Here are five reasons to reject efforts to raise the corporate tax hikes:

1. Raising the corporate rate will prolong the economic downturn

Now is the worst time to raise taxes on businesses because the economy is weak and millions of Americans are out of work. Raising the corporate rate will make it harder for businesses to hire new Americans, prolonging the economic downturn.

Because of government mandated lockdowns and restrictions, 140,000 jobs were lost in December according to the Bureau of Labor Statistics. While 11 million jobs have been recovered since the peak of the pandemic, this represents just half of the total jobs lost.

Make no mistake - there is significant work to be done in order for the economy to fully recover. In the meantime, businesses and workers remain vulnerable. Rather than pushing tax increases, we should be pushing policies that encourage investment and job creation.

Even former President Barack Obama has warned against tax increases during an economic downturn. As Obama noted:

"The last thing you want to do is raise taxes in the middle of a recession because that would just suck up, take more demand out of the economy and put businesses in a further hole."

2. Raising the corporate rate will harm workers and families

Biden’s plan to raise the corporate rate will harm workers and families, with the costs of the tax passed down to them.

Numerous studies have found that between 50 percent and 70 percent of the corporate tax is borne by workers with the remaining being borne by shareholders. This means that increasing the corporate tax rate harms workers and reducing the tax benefits workers.

Not only is the correlation between worker wages and business taxes seen in economic studies, it has been seen in the strong economic conditions following the Tax Cuts and Jobs Act (TCJA), which reduced the corporate tax rate from 35 percent to 21 percent.

After the TCJA was signed into law, American workers saw unprecedented prosperity.

The unemployment rate hit 3.5 percent in 2019, a 50-year low.

Median household income increased by $4,440 or 6.8 percent – the largest one-year wage growth in history. Average hourly earnings grew by 3 percent or more for 20 consecutive months between 2018 and the start of 2020, according to BLS.

The bottom 25 percent of wage earners saw 4 percent or greater annual monthly wage growth for 26 consecutive months under President Trump, according to the Atlanta Fed. This wage growth was greater than the top 25 percent of wage earners in every month. 

Under this economy, there were more job openings than job seekers for 24 consecutive months. In March 2018, the ratio of unemployed persons to job openings dropped to 0.9. This ratio remained below 1.0 until the pandemic when it began to rise in March 2020.

Unfortunately, the COVID-19 pandemic put an end to this strong economy. However, the benefits in the years and months after the TCJA was passed are clear.

3. Raising the corporate rate will make the U.S. less competitive.

Biden’s plan to raise the corporate rate to 28 percent, which would be about 32 percent after state taxes, would give the U.S. one of the highest rates in the developed world.

The U.S. rate would be higher than key competitors such as the United Kingdom (19 percent), China (25 percent), Canada (26.5 percent), Ireland (12.5 percent), Germany (29.9 percent) and Japan (29.74 percent), according to data compiled by the Organisation for Economic Co-operation and Development (OECD).

Many countries also have lower rates for certain industries to encourage innovation and investment. For instance, China has a 15% rate for industries including high tech enterprises, while the United Kingdom has a 10 percent “patent box” rate for businesses that depend on patented inventions and innovations.

The U.S. is already lagging behind when it comes to promoting innovation. According to a Manufacturing Leadership Council study, the U.S. ranks 26th in research and development tax incentives when ranking the 36 developed countries in the OECD.

4. Raising the Corporate rate could lead to a return of foreign inversions and acquisitions

If Biden raises the corporate rate, it could cause a return of corporate inversions and see a surge in foreign acquisitions of U.S. businesses.

Concern over inversions grew during Obama’s second term because a number of large American businesses with combined assets of $319 billion announced plans to invert in 2014, according to the Congressional Budget Office.

Inversions occur when a U.S. business merges with, or acquires, a foreign business with the intent of incorporating the new, combined entity overseas. This happened because the U.S. tax code was uncompetitive and businesses were moving to countries with more competitive tax codes.

The inversion problem was solved when the TCJA was signed into law. In fact, after the TCJA, companies began to come back to America. The inversion problem was just one indicator of American uncompetitiveness. Prior to the TCJA, American businesses were vulnerable to foreign acquisitions.

According to a study released by EY, American companies also suffered a net loss of almost $510 billion in assets between 2004 and 2017. This was because the high U.S. rate and worldwide tax system meant non-U.S. companies could outbid U.S. companies.

If the corporate rate was lower between 2004 and 2017, the study estimates that U.S. companies would have acquired a net of $1.2 trillion worth of assets, meaning that more than $1.7 trillion in assets were lost because of the uncompetitive U.S. rate.

5. Raising the corporate rate will harm Americans with a 401(k) or invested in the stock market

Biden’s plan to raise the corporate rate will also harm the life savings of millions of Americans that are invested in the stock market or that are saving for retirement through a 401(k) or IRA. Raising the corporate tax rate will reduce the value of stocks, reducing the value of these life savings.

This has the potential to impact Americans across the country. According to recent data, 80 to 100 million Americans have a 401(k),  while 46.4 million households have an individual retirement account.

A majority of the assets in these accounts are invested in stocks. 401(k)s hold $6.2 trillion in assets and almost 70 percent of these assets (or $4.3T) are in stocks. 

Similarly, 53 percent of the more than $11 trillion in IRA savings are held directly in stocks while another 18 percent of savings are invested in funds that comprise stocks.

This is not the only source of life savings that could be reduced by Biden’s tax increase. 19 million Americans rely on public pension funds for their retirement and roughly half of the $4 trillion in savings is invested in stocks. 

This could also impact younger Americans that have begun investing in the stock market to increase their savings. Half of Gen-Zers and Millennials have begun trading in stocks as a way to increase their life savings, according to recent reports. Across the entire country, as many as 53 percent of American households’ own stock, according to the Federal Reserve. In addition, over 70 percent of households in the “upper-middle income group” owned stocks and the median value of these portfolios was over $40,000.

Photo Credit: Matt Bargar


Biden Treasury Nominee Janet Yellen Seeks Large Tax Increases

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Posted by Alex Hendrie on Tuesday, January 19th, 2021, 9:16 AM PERMALINK

Members of the Senate Finance Committee are considering the nomination of Janet Yellen to be Secretary of the Treasury.

Yellen supports several tax increases including repeal of the Tax Cuts and Jobs Act (TCJA), which reduced taxes for middle class families and small businesses. Yellen also supports a $2 trillion energy tax that would increase the cost of electricity and consumer goods and services for Americans across the country.

Yellen opposes the Tax Cuts & Jobs Act, as noted in an April 2018 op-ed where she argued that there was no need for a tax cut because, “the economy was already at or close to full employment and did not need a boost.”

Americans who found jobs after the enactment of the tax cuts would disagree. After the tax cuts were signed into law in December 2017, the unemployment rate dropped from 4.1% down to 3.5% just before the pandemic hit. African American unemployment dropped from 6.7% to 5.8% and Hispanic unemployment dropped from 5.0% to 4.4%. Over 5.1 million jobs were created from December 2017 to February 2020. Median household income increased by $4,440 or 6.8% in 2019 -- the largest one-year wage growth in history.

It is important to note that this economic prosperity came despite significant headwinds to the economy. In fact, Moody’s Analytics Chief Economist Mark Zandi estimated that tariffs imposed by President Trump cost 450,000 jobs per year they were in effect.

Repealing the Tax Cuts and Jobs Act will repeal the 20 percent small business deduction and raise the corporate rate, which will prolong the economic downturn and hider growth and the creation of new jobs.

It will also directly increase taxes on American families.

American middle-income families saw significant tax reduction because of the TCJA. Specifically, taxpayers with AGI of between $50,000 and $100,000 saw their tax liability drop by an average of 13 percent. This is more than twice as much as taxpayers with AGI of $1 million or more, who saw their average tax liability drop by 5.8 percent.

In addition, repeal of the tax cuts means the individual mandate tax will come back into force, hitting five million households with a tax of between $695 and $2,085. 75 percent of these households make less than $50,000 per year.

Yellen also supports an Energy Tax of at least $40 per ton of Carbon. Yellen is a founding member of the Climate Leadership Council (CLC), an “international policy institute” lobbying Congress to pass this carbon tax, which would increase every year at 5% above inflation.” Yellen is also the author of a recent study commissioned by CLC,  Exceeding Paris, that recommends a $43/ton carbon tax.

There is bipartisan recognition that an energy tax would harm low-income households and increase the cost of electricity and household goods. In 2016, Hillary Clinton decided to oppose a carbon tax after she learned the following from an internal Clinton report prepared by policy staff:

  • The Hillary memo states that a carbon tax would devastate low-income households: “As with the increase in energy costs, the increase in the cost of nonenergy goods and services would disproportionately impact low-income households.”
     
  • The Hillary memo states that a carbon tax would cause gas prices to increase 40 cents a gallon and residential electricity prices to increase 12% - 21%: “In our analysis, for example, a $42/ton GHG fee increases gasoline prices by roughly 40 cents per gallon on average between 2020 and 2030 and residential electricity prices by 2.6 cents per kWh, 12% and 21% above levels projected in the EIA’s 2014 Annual Energy Outlook respectively. 
     
  • The Hillary memo states a carbon tax would cause household energy bills to go up significantly: “Average household energy costs would increase by roughly $480 per year, or 10% relative to the levels projected in EIA’s 2014 Outlook.”
     
  • The Hillary memo states that a carbon tax would increase the cost of household goods and services: “The cost of other household goods and services would increase as well as companies pass forward the higher energy costs paid to produce those goods and services on to consumers.”

Photo Credit: Gerald R. Ford School of Public Policy University of Michigan


Congress Should Reject Biden $1.9 Trillion Spending Plan

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Posted by Alex Hendrie on Thursday, January 14th, 2021, 7:42 PM PERMALINK

President-elect Joe Biden has announced a $1.9 trillion COVID relief plan. This proposal contains numerous wasteful spending provisions that would do little to fight the pandemic and could prolong the economic downturn. This proposal should be rejected by Congress.

Congress has already provided trillions of dollars to individuals, small businesses, hospitals, and state and local governments, including the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act and the recently passed $900 billion relief bill attached to the December government funding bill.

Lawmakers should reject this and other efforts to pass trillions of dollars in new spending. The COVID-19 pandemic should not be an excuse for the left to enact vast new spending programs that will permanently expand the size and scope of government.

Biden’s plan calls for a $350 billion bailout for state and local governments, funding which is entirely unnecessary.  Many states have seen little or no negative budgetary impact because of the pandemic, with California reporting a $15 billion budget surplus.

In addition, as recently reported by the New York Times, Wisconsin expects to have money to contribute to its rainy-day fund, Maryland has increased its revenue projections, and Minnesota expects a surplus. In all, state collections declined just 4.4 percent through September compared to the first nine months of 2019, according to the Tax Foundation.

Congress has also already provided aid to states, including approximately $360 billion that directly went to state and local governments to help them response to COVID-19.

In fact, even before the last $900 billion package, lawmakers had provided states and localities with 17 times their 2020 revenue loss and double their expected 2020 and 2021 loss, according to the Heritage Foundation

Biden’s plan also calls for $400 additional unemployment benefits through September and proposes a nationwide $15 minimum wage. Biden’s $400-per week unemployment would prolong the economic downturn by creating a disincentive for workers to return to work and will unnecessarily drive up unemployment rates. It is important to note that these payments are on top of regular unemployment compensation that displaced workers receive from states.

This $400-per-week expansion would extend the $300-per week benefit that was passed for three months at the end of last year, as well as Nancy Pelosi’s $600-per-week unemployment expansion passed in the CARES Act.

The Pelosi proposal created a situation in which 68 percent of Americans got paid more on unemployment than in the workplace. The economic damage caused by this policy is long-lasting – a recent study conducted by the Heritage Foundation found the $600 UI policy would reduce GDP by between $955 billion and $1.49 trillion. 

In addition to this $400 UI, Biden calls for a $15 minimum wage. If implemented, this proposal would cost jobs across the country. The Congressional Budget Office has found a $15 minimum wage would cost 1.3 million jobs, while other studies have found over 2 million jobs would be lost. This is not hypothetical – when Seattle implemented a $15 minimum wage, thousands of jobs were lost, while other workers saw a reduction in hours worked.

 


Stimulus Payment Woes Prove the IRS Should Not Be Given More Power

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Posted by Alex Hendrie on Friday, January 8th, 2021, 12:12 PM PERMALINK

The IRS is unsurprisingly struggling to distribute stimulus checks to taxpayers. Some Americans will likely not receive their payments until they file months from now, while millions of payments have been sent to accounts that have been closed or are no longer active.

This news is more proof that the IRS should not be given more power, as some on the left are proposing.

It is expected that President Biden and a Democrat Congress will push to expand the power of the IRS. Biden Council of Economic Advisers member Jared Bernstein has said the incoming administration will seek “significant increases in IRS enforcement and auditing.”  Several dozen House Democrats have already proposed increasing funding for the IRS including providing $5.2 for “enforcement activities.”

Radical Democrats like Senator Elizabeth Warren (D-Mass.) and Representative Alexandria Ocasio-Cortez (D-NY) even want to have the IRS take over the tax preparation and filing process. This would replace the existing system of voluntary compliance, where Americans are responsible for filling out their own tax returns, with a system where the government assesses and files taxes for Americans.

Naturally, this would create a strong conflict of interest. Under a system of government-run tax preparation, the IRS would tell you how much you owe and give you the opportunity to contest. This would give the government an incentive to overcharge or withhold information from taxpayers.

At the very least, it would empower the IRS to collect even more personal information as noted in a recent report by the Progressive Policy Institute. As the report notes, the IRS does not have the information it needs to prepare tax returns for American families. This could deprive low-income Americans from important tax credits like the child tax credit and earned income tax credit (EITC).

In fact, in order to properly file for Americans, the IRS would have to have a “deep knowledge” of the personal lives of a family, which would result in a significant intrusion into the personal lives of American citizens.

Not only would giving the government this new power be unfeasible, it is also deeply unpopular. According to data by the Computer & Communications Industry Association, 60 percent of taxpayers oppose government tax preparation including 45 percent that “strongly oppose.” Just 8 percent of taxpayers strongly support government tax preparation.

Time and time again, the federal government and the IRS have proven they should have less, not more responsibility. The problems Americans are having receiving their stimulus payments is the latest example. Given this fact, efforts to expand the size and scope of the IRS and have the agency take over tax preparation should be rejected.

Photo Credit: frankieleon


Norquist on Fox News: Tax Hikes Will Come If Dems Win Georgia Runoffs

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Posted by Alex Hendrie on Wednesday, December 30th, 2020, 2:30 PM PERMALINK

In an interview with Fox News Channel’s Sandra Smith, ATR President Grover Norquist warned of coming tax hikes if Democrats win the Georgia Senate runoff elections on January 5th. 

As Norquist noted in an op-ed published on Fox News.com, Democrat challengers Jon Ossoff and Raphael Warnock would rubber stamp the Biden-Harris agenda of tax increases on families and businesses. 

Middle-class Georgians saw the greatest reduction in tax liability after the Tax Cuts and Jobs Act was enacted, as noted in an analysis by ATR. However, Democrats have repeatedly promised to repeal this law. 

Norquist on Dem promise to repeal the Trump Tax Cuts:

“We can just see what happened when the Republican tax cut passed. The median income family of four got a $2,000 tax cut. So, as Biden and his Vice President have said, and both of those liberal Democrats running for the Georgia Senate seats have said, they are going to abolish the Trump tax cut, the Republican tax cut on day one. That’s a $2,000 increase on the average family of four on day one.”

Norquist on Energy Tax Hikes: 

“Remember, they also support a tax on energy, a gasoline tax, a carbon tax. That will increase the cost of buying gasoline to fill up your tank. And they put it on automatic pilot. It goes up 5 percent a year every year out into the future. So, it’s not just a one-time gas tax and a tax on your home heating oil and a tax on your electricity and a tax on everything that gets shipped to you by truck or by train. That goes up year after year."

Norquist on Biden reinstating the Obamacare Mandate Tax:

“In addition, they want to bring back some of the Obamacare taxes. Remember the Obama penalty tax if you didn’t buy Obamacare. It was a $700 tax on a person, $2,000 on a family. Five million Americans were hit by that, maybe $100,000 in Georgia. The Republicans took that tax to zero. Biden has repeatedly said he would bring it back. Three quarters of the people who pay that tax earn less than $50,000 a year. So Biden’s promise that he won’t tax anyone that’s rich, that’s gone."

Norquist on Biden Plan to Raise the Corporate Tax:

“We don’t have to guess because we know when Obama and Biden were running things, the corporate tax rate was at 35 percent. Communist China is at 25. And Biden says he will bring it to 28 or 35…. He wants the taxes on American businesses to be a higher tax rate than China. Where to you think the world’s investment is going to go? It went to China when he was Vice President. He wants to send it back to China by making American businesses uncompetitive internationally because he would take the corporate rate up above China. Above Germany. Above France. Above England. Above Canada. And make us one of the least competitive nations in the world, which is where we used to be.”
 


Year-end Budget Agreement Includes Important Pro-Growth Tax Cuts

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Posted by Alex Hendrie on Monday, December 21st, 2020, 2:15 PM PERMALINK

Lawmakers have agreed to a year-end legislative package to fund the government and provide COVID-19 relief. While this agreement includes several wasteful spending provisions, the proposal also includes significant tax reduction that will help American families and businesses. These tax cuts should be supported by members of Congress.

Importantly, this agreement makes a number of tax extenders permanent, which will help put an end to the annual Congressional process of routinely extending specific, temporary tax cuts for one or two years at a time, instead of focusing on broad based tax reduction. Not only does this practice promote uncertainty, it distorts the revenue baseline and obscures the true cost of tax provisions.

Provisions made permanent include excise tax cuts for wineries, distilleries, and breweries, the 7.5 percent AGI threshold for the medical expense deduction, and the railroad track maintenance credit.

The proposal also extends other tax cuts for five years, including the CFC look-through rule, the employer tax credit for paid family leave, and the New Markets Tax Credit.

In addition, lawmakers prevented a tax increase on small businesses that have received PPP loans in the COVID-19 stimulus section of the agreement.

Unfortunately, there are some concerning tax provisions that are being extended. For instance, the agreement again extends distortionary and wasteful green energy tax credits, which should be allowed to expire. 

However, in net, these tax cuts should be supported by lawmakers.

Key provisions include:

Protects Small Businesses from Tax Increases on PPP Loans

Lawmakers have protected small businesses from being taxed on their Paycheck Protection Program (PPP) loans.  This will ensure that the five million struggling businesses that received an average loan of $100,000 from the program will not owe the government taxes on business expenses paid (such as rent and wages) with these loans.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the PPP to provide small businesses impacted by COVID-19 with emergency liquidity, so they could continue making payroll and meeting other business expenses. 

However, on April 30, the IRS released Notice 2020-32, which prohibited businesses from deducting expenses paid with a PPP loan, even though these expenses would otherwise qualify as ordinary, tax deductible business expenses.

By imposing taxes on PPP loans, the IRS essentially canceled a significant portion of the loan, eroding the financial assistance granted. If this tax increase was allowed to go into effect, it would have harmed small businesses across the country as they attempt to survive and re-engage in commerce in the wake of the pandemic.  

Enacts Permanent Tax Relief for Breweries, Wineries, and Distilleries

The tax extenders agreement makes the Craft Beverage Modernization and Tax Reform Act (CBMTRA) permanent. This tax cut, which provides federal excise tax relief for breweries, wineries, and distilleries, was first enacted through the Tax Cuts and Jobs Act of 2017. This tax reduction allowed these businesses to hire more employees, purchase new equipment, and expand production.

If lawmakers had failed to act, this tax cut would have expired at the end of the year, and businesses across the country would have faced a tax increase.

ATR has kept a running list of dozens of distilleries, breweries, and wineries that have been able to expand production, hire new workers, and invest in the economy thanks to the CBMTRA. Making these tax cuts permanent will help businesses continue supporting the economy and workers.  

Provides Five-year Extension of CFC Look-through Rule

Congress has also included a five-year extension of the controlled foreign corporation (CFC) look-through rule under IRC section 954 (c)(6). This five-year extension will help American businesses compete overseas and will provide important certainty for businesses. Moving forward, this tax cut should be made permanent.

The CFC look-through rule helps provide cash-flow and liquidity for American businesses operating overseas by protecting payments such as dividends, interest, and royalties from taxation when they are made between two U.S. subsidiaries. Without the look-through rule, American businesses will be double taxed on income earned overseas.

It is important to note that the CFC look-through rule is not a “tax loophole.” It does not give taxpayers a windfall, but instead levels the playing field. Foreign companies typically do not face additional tax when redeploying capital amongst different subsidiaries, so the CFC look-through rule ensures American businesses can compete.

Unnecessarily Extends Wind and Solar Subsidies

Unfortunately, the agreement extends tax subsidies for wind and solar energy for one and two years, respectively. These tax credits were created decades ago as temporary provisions with the intent of helping a nascent industry get on their feet and to reduce dependency on foreign oil.

However, that is not what has happed – these provisions have been routinely extended. For instance, the wind production tax credit was first created in 1992 and has already been extended 12 times.

These credits should be eliminated, as noted in a recent letter led by ATR and signed by two dozen conservative organizations. The fact is, wind and solar credits are no longer needed since renewable energy technologies are established and can compete with existing energy sources.

Rather than re-extending wind and solar credits, lawmakers should prioritize broad-based tax policies. Moving forward, Congress should allow these provisions to expire as part of revenue-neutral, pro-growth tax reform.

Permanently Expands Medical Expense Deduction

The tax extenders deal permanently allows middle class taxpayers to claim the medical expense deduction if their healthcare expenses exceed 7.5 percent of adjusted gross income (AGI). Before Obamacare, this threshold was 7.5 percent of AGI and was claimed by more than 10 million families, whose average income was around $53,000 a year.

In 2010, Obamacare raised the threshold to 10 percent of AGI, which increased taxes on families by $200-$400 per year and violated the Obama-Biden pledge not to raise taxes on families earning $250,000 or less. The TCJA restored the threshold to 7.5 percent of AGI temporarily for two years, but the 10 percent threshold was brought back at the start of 2019.

 

Photo Credit: Lara Eakins


Republicans Hold the Line Against Pelosi’s $3 Trillion Spending Plan in New COVID Relief Bill

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Posted by Alex Hendrie on Sunday, December 20th, 2020, 11:00 PM PERMALINK

Lawmakers have reached an agreement to fund the government and provide additional Coronavirus relief. While this package is far from perfect and contains several wasteful spending provisions, it rejects the Pelosi/Biden effort for $3 trillion in new spending.

Instead, the COVID relief bill reportedly allocates roughly $325 billion in new taxpayer dollars after spending offsets won by Republicans, which means the final proposal is just 10 percent of total spending that Pelosi and Democrats demanded earlier this year.

Importantly, the package does not include the $1 trillion in state and local bailout money pushed by Democrats that would have subsidized poorly run blue states. Republicans also offset new COVID-19 spending by repurposing unused Paycheck Protection Program (PPP) funds and rescinding over $400 billion in unused funds allocated to the federal reserve by the Coronavirus Aid, Relief, and Economic Security (CARES) Act earlier this year.

Unfortunately, as part of this legislation, Democrats have forced inclusion of hundreds of billions in wasteful spending including a new $300-per-week supplemental unemployment program that will discourage Americans from returning to work and $600 direct payments to individuals that will do nothing to help the economy recover.

While these provisions should be opposed, it is important to note that this wasteful spending could have been much worse.

Democrats will undoubtedly continue to push for new trillion dollar bills next year. President-elect Joe Biden has already said that any Coronavirus package now is a “down payment” for more COVID-19 spending in 2021. House Speaker Nancy Pelosi (D-Calif.) will also continue pushing the $3 trillion HEROES Act, which contained the $1 trillion state bailout as well as countless other liberal priorities unrelated to the pandemic.

Key highlights of this agreement include:

Additional Unemployment Benefits That Could Prolong the Economic Recovery

The $300-per-week expanded unemployment payments included in the budget agreement could prolong the economic recovery by creating a disincentive for workers to return to work that unnecessarily drives up unemployment rates. It is important to note that these payments are on top of regular unemployment compensation that displaced workers receive from states.

This $300-per-week expansion is a watered-down version of Pelosi’s $600-per-week unemployment expansion, which created a situation in which 68 percent of Americans got paid more on unemployment than in the workplace. The economic damage caused by this is long-lasting – a recent study conducted by the Heritage Foundation found that the Pelosi expansion will reduce GDP by between $955 billion and $1.49 trillion. 

Direct Cash Payments That Go to Americans Regardless of Their Financial Need

Coronavirus aid should be targeted to help families and businesses that need it. New stimulus payments would not do that – they would go to Americans regardless of whether they need money, have a job, or have experienced any direct financial hardships from the pandemic. Incidentally, this proposal is supported by socialist Bernie Sanders, who supports trillions of dollars in middle class tax increases and new spending programs.

The fact is, the economy is already recovering and millions of Americans are back at work. Since an April high of 14.7 percent, the unemployment rate has dropped to 6.7 percent in November. Over 12 million Americans have gained jobs since the April low. In addition, personal savings rates are extremely high – Americans saved an average of almost 20 percent of their income between April and October, more than three times the 6 percent average savings rate over the past two decades.

Given this improving economic situation, any aid should be narrowly tailored to helping those that need it most and toward addressing the underlying problems of the economy.

No State and Local Bailout

Fortunately, the budget agreement does not include Democrat proposals for hundreds of billions to a trillion dollars in state and local aid. This new spending is entirely unnecessary and Republicans should be applauded for rejecting this proposal.

While some states have seen their revenues drop, others have seen revenue increase. In all, state collections declined just 4.4 percent through September compared to the first nine months of 2019, according to the Tax Foundation.

Congress has already provided aid to states, including approximately $360 billion that directly went to state and local governments to help them response to COVID-19. This is on top of the $500 billion in short-term loans the Federal Reserve has made available to state and local governments, of which only $1.7 billion has been used.

In fact, according to the Heritage Foundation, “Congress has already authorized federal aid to state and local governments equal to 17 times their 2020 revenue losses and two times their expected 2020 and 2021 combined losses.” 

Moving forward, lawmakers need to continue holding the line against the Pelosi-Biden agenda of trillions in wasteful new spending. The COVID-19 pandemic should not be an excuse for the left to enact vast new spending programs that will permanently expand the size and scope of government.

Photo Credit: Gage Skidmore


Congress Must Stop PPP Small Business Tax Increase in End of Year Package


Posted by Alex Hendrie on Wednesday, December 16th, 2020, 11:00 PM PERMALINK

If Congress fails to act before the end of year, struggling small businesses will be taxed on their Paycheck Protection Programs (PPP) loans. Given that businesses across the country are enduring government-mandated lockdowns, this tax could mean the difference between surviving and shutting down.

Lawmakers are negotiating an end-of-year government funding package and another Coronavirus relief bill. As part of this proposal, they must include legislation allowing business to deduct PPP loans when spent on ordinary, necessary business expenses, as is typically allowed.

Failing to act will impose taxes on as many as five million small businesses across the country that have relied on PPP loans to keep the lights on since the program was created. According to recent data from the Small Business Association, the average loan received by businesses was just $100,000 and more than two thirds of companies received a loan of $50,000 or less.  PPP loans are calculated based on the average monthly cost of salaries that a business incurs, so the average loan is correlated to the number of workers a business has on their payroll.

The PPP was enacted through the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act to provide small businesses impacted by COVID-19 with emergency liquidity so they could continue making payroll and meeting other business expenses. While conservatives typically oppose new government spending programs, the PPP was necessary because of the unprecedented situation where governments forcefully closed businesses due to the pandemic.

While this aid provided a much-needed lifeline for small businesses, the IRS and Treasury Secretary Steven Mnuchin ruled that businesses would be taxed on these PPP loans. This announcement was made on April 30 when the IRS released Notice 2020-32, which prohibited businesses from deducting expenses paid with a PPP loan such as payroll, rent, and utility expenses, even though these expenses would otherwise qualify as ordinary, tax deductible business expenses.

By imposing taxes on PPP loans, the IRS essentially canceled a significant portion of the loan, eroding the financial assistance granted. This will harm small businesses across the country as they attempt to survive and re-engage in commerce in the wake of the pandemic.  

This tax is even more harmful given Congress is proposing $300 billion in additional PPP funding in the next COVID-19 relief package. This additional funding was included because governments are still restricting the ability of small businesses to fully open and conduct business.

Taxing previously granted PPP loans undermines the benefit of any new loans – essentially, the government will be giving with one hand and taking away with the other. Small businesses would also face a compliance nightmare – they will have to track loans received (including documenting what they were spent on), pay taxes on them, and then apply for new loans.

If Congress fails to stop this tax increase on small business PPP loans, hundreds of thousands of American businesses will face a tax hike. The number of businesses that will face a tax hike in key states is broken down below: 

California

  • Number of businesses receiving PPP: 623,360
     

Georgia

  • Number of businesses receiving PPP: 174,429
     

Kentucky

  • Number of businesses receiving PPP: 50,655
     

Massachusetts

  • Number of businesses receiving PPP loan: 118,392

 

North Carolina

  • Number of businesses receiving PPP loan: 129,289
     

New York 

  • Number of businesses receiving PPP loan: 348,870
     

Ohio

  • Number of businesses receiving PPP loan: 149,144
     

Pennsylvania 

  • Number of businesses receiving PPP loan: 173,552 
     

Texas

  • Number of businesses receiving PPP loan: 417,276
     

This tax hike will also impact hundreds of thousands of businesses in key industries: 

Health care

  • Number of businesses receiving PPP loan: 532,775
     

Construction

  • Number of businesses receiving PPP loan: 496,551
     

Manufacturing

  • Number of businesses receiving PPP loan: 238,494
     

Accommodation and Food Services

  • Number of businesses receiving PPP loan: 383,561

 


Lawmakers Announce Surprise Medical Billing Deal That Avoids Price Controls

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Posted by Alex Hendrie on Monday, December 14th, 2020, 1:20 PM PERMALINK

Late last week, leaders in Congress announced an agreement on surprise medical billing legislation that avoids relying on government price controls.

While conservatives can debate the extent to which the government should impose rules and regulations on surprise medical billing, lawmakers should be applauded for avoiding price controls in their proposal and should reject efforts to add price controls back into a legislative package.

The bipartisan, bicameral agreement was announced by House Ways and Means Committee Republican Leader Kevin Brady (R-Texas) and Chairman Richard Neal (D-Mass.), House Energy and Commerce Committee Republican Leader Greg Walden (R-Ore.) and Chairman Frank Pallone, Jr. (D-N.J.), House Education and Labor Committee Republican Leader Virginia Foxx (R-NC) and Chairman Bobby Scott (D-Va.), and Senate Health Committee Chairman Lamar Alexander (R-Tenn.) and Ranking Member Patty Murray (D-Wash.).

Surprise medical billing occurs when an individual receives an unexpectedly high medical bill as a result of being out-of-network or receiving emergency care. 

Over the past 18 months, some lawmakers have pushed legislation to address this problem by using the heavy hand of government to set rates for any payments made to out-of-network providers. Under this proposal, the government would set a benchmark rate to resolve out-of-network payment disputes between insurers and providers. Benchmark rate-setting would replace private negotiations between insurers and providers with government-set prices, resulting in a blatant price control on the healthcare system. 

The negative impact of price controls would be devastating to healthcare providers. When applied to surprise medical billing, price controls would result in a 20 percent pay cut for doctors, according to the nonpartisan Congressional Budget Office. Over the long-term, price controls could lead to a shortage of doctors and care.

There is strong opposition to price controls in surprise medical billing.

Senator Marsha Blackburn recently released a letter signed by Senator Ron Johnson (R-Wis.), Roger Wicker (R-Miss.), Rand Paul (R-Ky.) and Mike Lee (R-Utah) calling on Congress to reject price controls in an end-of year package.

Senator Kelly Loeffler (R-Ga.) also released a healthcare reform proposal that explicitly rejected price controls.

Earlier this year, Congressman Andy Harris (R-Md.) released a joint letter with almost 40 members of Congress in opposition to price controls in surprise medical billing.

The deal reached by Congressional leaders avoids imposing these government price controls on surprise medical billing. Lawmakers should be applauded for this stance and should reject efforts to add price controls back into a legislative package.

 

Photo Credit: Alex Proimos


Congress Must Pass the Small Business Expense Protection Act Before the End of the Year 

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Posted by Alex Hendrie on Friday, December 11th, 2020, 11:13 AM PERMALINK

If Congress fails to act before the end of the year, millions of struggling small businesses will be stuck with a tax bill of thousands, or even hundreds of thousands of dollars because they are forced to pay taxes on federal COVID-19 loans. 

Lawmakers can protect small businesses by passing S. 3612, the “Small Business Expense Protection Act,”  introduced by Senator John Cornyn (R-Texas), Senate Finance Committee Chairman Chuck Grassley (R-Iowa), Finance Ranking Member Ron Wyden (D-Ore.), Senator Tom Carper (D-Del.), and Senate Small Business Committee Chairman Marco Rubio (R-Fla.). Congress should ensure this bill is included in an end-of-year legislative package.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act created the PPP to provide small businesses impacted by COVID-19 with emergency liquidity so they could continue making payroll and meeting other business expenses.

However, on April 30, the IRS released Notice 2020-32, which prohibited businesses from deducting expenses paid with a PPP loan such as payroll, rent, and utility expenses, even though these expenses would otherwise qualify as ordinary, tax deductible business expenses.

Essentially, the IRS cancelled a significant portion of the PPP loan given to small businesses by imposing taxes on the loans.  This will erode a portion of the financial assistance granted through the program and will harm small businesses across the country as they attempt to survive and re-engage in commerce in the wake of the pandemic.  

The IRS Notice clearly disregards Congressional intent, as Section 1106(i) of the CARES Act clearly states that any PPP loan should be exempt from taxation if such loan is forgiven. Further, Congressional leaders from both sides of the aisle recently urged Treasury to reverse course, noting that the IRS Notice “ignores the overarching intent of the PPP, as well as the specific intent of Congress to allow deductions in the case of PPP loan recipients.”

Small businesses across the country are still struggling to keep the lights on due to the Coronavirus pandemic. The last thing these businesses need is an unexpected tax bill on the expenses paid with PPP loans. Lawmakers must step in and protect businesses by passing the Small Business Expense Protection Act.

Photo Credit: Ben Schumin


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