Alex Hendrie

House to Hold Hearing on Yet Another Dem Tax Hike Proposal

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Posted by Spencer Peck, Alex Hendrie on Wednesday, July 24th, 2019, 12:25 PM PERMALINK

The Democrat led House Ways & Means Committee will hold a hearing this Thursday on the Social Security 2100 Act. The bill would raise taxes by a staggering $19 trillion, or $2.5 trillion per decade, over the Social Security window.

The proposal currently has 210 Democrat co-sponsors, or 89% of the Party’s membership in the House, signaling Democrats’ near universal shift towards higher taxes. It is also worth noting that the bill is just eight votes shy from majority support, and there are 25 remaining Democrats who could still sign onto the bill.

This bill fails to address the root issues underlying the Social Security crisis. It simply raises taxes on American workers and businesses, threatening economic growth for the entire country.

Tax Hikes in The Social Security 2100 Act
Democrats’ singular solution to fixing Social Security is to raise taxes. The enormous $18.9 trillion cost of this bill would be footed by just about every worker and business across the country. The list of proposed tax hikes in this bill is not a short one, and some of those provisions are listed here:

  • Lifting the payroll tax cap so that it applies to over $400,000 in income
  • Gradually increasing the payroll tax (both employer and employee side) from 6.2% to 7.4% by 2042.
  • Gradually increasing the self-employment tax from 12.4% to 14.8% by 2042, which hurts entrepreneurs and small businesses.

 

The Social Security 2100 Act Doesn’t Fix Social Security
This bill does nothing to address the structural problems behind Social Security. At its current rate, the Social Security trust fund is set to run out by 2035. At that point, the government could only pay out 80% of benefits, with that rate decreasing over time. 

The Democrat proposal makes no attempt to deal with root issues of Social Security, like raising the retirement age or using a more accurate measure of inflation. Instead, the bill simply demands that hard working Americans pay more in taxes.

Despite the left’s proclivity to identify tax hikes as the sole, one size fits all solution to every policy challenge, Republicans have been working hard to provide real solutions to the challenges facing Social Security. 

For example, back in 2016, Republican Congressman Sam Johnson of Texas sponsored the Social Security Reform Act of 2016. The bill made Social Security fully solvent, gradually increased benefits to lower-income retirees, and reduced taxes. The proposal utilized common sense reforms, like a slightly increased retirement age, and means testing for higher-income retirees. 

This thoughtful approach to Social Security reform should remind Democrats of the program’s historical roots. When it was passed in 1935, Social Security set the retirement age at 65, even though the average life expectancy at that time was 61. This is because the program was intended to serve as a supplement to personal retirement savings, instead of the sole income for retirees. That’s why the payroll tax was originally set at just 2%, compared to this bill’s proposed 7.4%. Private savings still outpace social securitypayments for the vast majority of Americans, which is why lawmakers should seek to promote and make easier personal retirement savings by supporting measures like the retirement reform bill proposed by Senator Rob Portman earlier this year.

Democrats’ Across the Board Tax Hikes
The Social Security 2100 Act is one of many Democrat tax hike proposals. Despite the historical economic growth spurred by the Republican Tax Cuts and Jobs Act, Democrats continue to propose hampering virtually every sector of the American economy with tax increases, with some recent examples included here:

  • Elizabeth Warren (D-Mass.) calling for a new 7% revenue tax on Corporations, raising taxes by $1 trillion on American businesses.
  • Days into the new Congress, the new House Democrat Majority changed the rulesto make it easier to raise taxes on the American people.
  • Alexandria Ocasio Cortez (D-NY) has proposed a top income tax rate of 70 percent. Many others have suggested applying this rate to capital gains income.
  • House Speaker Nancy Pelosi (D-Calif.) has called for repeal of the entire GOP tax cuts. This would see 90 percent of wage earners face higher taxes, and a family of four earning $73,000 in annual income seeing a tax increase of roughly $2,000 per year.
  • Bernie Sanders has proposed over $14 trillion in higher taxes as part of his proposal for a government takeover of the American healthcare system.
  • Warren has called for a wealth tax which would force some Americans to hand over 3 percent of their wealth to the government every year.
  • Democrats rejected a proposal by Ways and Means Ranking Member Kevin Brady (R-Texas) to extend middle class tax relief.  This amendment would have made the $2,000 child tax credit (up from $1,000) and the $24,000 standard deduction for families (up from $12,000) permanent for American families.
  • House Majority Whip Jim Clyburn (D-SC) has proposed legislation that would raise the corporate rate in order to restore non-profit deductibility of fringe transportation benefits. While the bill proposes a modest rate hike to 21.03 percent, it would undermine the success of the GOP tax cuts and open the door to additional corporate rate hikes to pay for leftist spending priorities.
  • Senator Tammy Baldwin (D-Wis.) and Rep. Bill Pascrell (D-NJ) have proposedincreasing taxes on carried interest capital gains, which would dangerously harm economic growth and investment.
  • Senator Brian Schatz (D-HI) and Congressman Peter DeFazio (D-Ore.) have introduced legislation that would institute a financial transactions tax of 0.1 percent on the sale of any stocks, bonds, and derivatives.\

 

The Social Security 2100 Act is very clear in its intent: raise taxes on almost every American worker or business. The bill does nothing to address Social Security’s fundamental cost issues or insolvency.

Its tax hikes would hurt the very people Democrats are claiming to help. The enormous $19 trillion tax bill proposed here would cost the economy greatly, and rob Americans of the ever increasing fruits of their labor. Congress should reject the Social Security 2100 Act, along with all other Democrat tax hike proposals, and instead seek a smarter approach to retirement savings.

Photo Credit: 401(K) 2012


Sen. Warren’s Private Equity Tax Hike Bill Threatens Pension Plans and Investors

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Posted by Alex Hendrie on Wednesday, July 24th, 2019, 9:00 AM PERMALINK

Last week, Senator Elizabeth Warren released a proposal that includes several new, discriminatory taxes and regulations designed to stamp out the private equity business model. This proposal is synonymous with socialized medicine and the Green New Deal in its an attempt to impose big government, command and control policies on the US economy.

While Warren claims the bill will “rein in Wall Street,” it would ultimately harm businesses and workers that depend on private investment and the pension funds, charities and other investors that depend on private equity.

The left may not want to admit it, but private equity contributes to the economy through trillions of dollars of investment and millions of jobs. This investment benefits Congressional districts across the country and tens of thousands of American companies.

The proposal has been endorsed by a who’s who of the socialist left including Senator Bernie Sanders (I-Vt.), Senator Kirsten Gillibrand (D-NY), Congressional Progressive Caucus co-chairs Mark Pocan (D-Wis.) and Pramila Jayapal (D-Wash), and Reps. Rashida Tlaib (D-Mich.) and Ayanna Pressley (D-Mass).

First, the proposal calls for a tax increase on carried interest capital gains. As ATR has written on previously (see herehere), increasing taxes on carried interest is bad policy that undermines several long-standing principles of the tax code – the treatment of partnership income and the treatment of capital gains income.

A carried interest tax hike would arbitrarily treat private equity differently from other investments. There is no justification for differential treatment – the investor purchased an asset, grew the asset by making it more economically valuable, and sold the asset at a profit – exactly the same as any other type of investment.

A carried interest tax hike would also raise just $14 billion over ten years according to the Congressional Budget Office, making it useless as a pay-for.

The legislation would also impose a discriminatory limitation on the ability of private equity owned businesses to deduct reasonable amounts of business interest. The Tax Cuts and Jobs Act imposed a reasonable limitation on the ability of businesses to deduct net interest expenses under Section 163(J) of the tax code. Under the law, companies can deduct interest to the extent it is below 30 percent of EBITDA (earnings before interest, tax, depreciation and amortization).

The Warren bill will impose a more stringent standard that limits “excessive debt obligations” from being tax deductible by companies owned by private funds. In addition to being a discriminatory standard which goes after one type of business practice, the restrictive approach would harm business investment and economic growth.

The proposal also imposes a 100 percent tax on fees paid to investment firms from portfolio owned businesses.

Fund managers currently charge fees to portfolio companies for their services. However, these fees are often used to offset management fees paid from investors to funds.  This means that a tax on these fees will likely be passed on in the form of higher fees on investors.

In addition to tax increases, the proposal includes a number of burdensome new regulations. These regulations impose excessive transparency requirements and unnecessary restrictions on worker compensation.

Private equity advisers already have fiduciary duty to act in the best interests of their clients. Moreover, private equity firms are already heavily regulated under several laws, including the Investment Advisers Act of 1940.

It is also important to note that private equity firms are not guaranteed to receive large payouts -- a fact that this legislation routinely ignores. 

When it comes down to it, Warren’s proposed regulations and taxes will not leave the economy better off. While she attempts to portray private equity as a scourge on the economy, these firms have a role in investing, creating jobs, and lifting wages.

This proposal will instead threaten the ability of the industry to generate returns that flow through to pension plans, charities, and investors across the country. 

Photo Credit: Marc Nozell


ATR Leads Coalition Letter Opposing Inflationary Rebate Penalty in Medicare Part D


Posted by Alex Hendrie on Monday, July 22nd, 2019, 3:00 PM PERMALINK

ATR has released a coalition letter addressed to the Senate Finance Committee of 17 organizations opposing the creation of an Inflationary Rebate penalty in Medicare Part D. The penalty in question would impose price controls on prescription drugs, distorting the market and endangering the highly successful and popular Medicare Part D program.

You can read the letter here or below:

Dear Members of the Senate Finance Committee:

We write in opposition to creating an inflationary rebate penalty in Medicare Part D.

Under this proposal, a monetary penalty would be imposed on a manufacturer if the price increase of a medicine is greater than inflation.

We are concerned that this proposal institutes a new price control on Part D that will do nothing to directly help seniors and will instead create distortions that will undermine the free market and the success of Medicare Part D.

Part D works because it facilitates negotiation between different stakeholders. The system puts downward pressure on costs through competition between pharmacy benefit managers (PBMs), pharmaceutical manufacturers, plans, and pharmacies. At the core of this program is the non-interference clause which prevents the Secretary of Health and Human Services (HHS) from interfering with the robust private-sector negotiations. The Congressional Budget Office has even said that there would be a “negligible effect” on Medicare drug spending from ending non- interference.

An inflationary rebate penalty will undermine this by instituting a price fixing mechanism. Conservatives have long opposed price controls because they utilize government power to forcefully lower costs in a way that distorts the economically- efficient behavior and natural incentives created by the free market. When imposed on medicines, price controls suppress innovation and can severely limit access to new medicine. Over the long term, price controls deter the development and supply of new life saving and life improving medicines to the detriment of consumers, patients, and doctors.

Existing Part D negotiation already protects against price increases. Almost 100 percent of medicines are subject to “price protection rebates” negotiated by PBMs which effectively establishes a private sector ceiling or cap on the amount by which the price of a medication can increase.

An inflationary rebate penalty would do nothing to directly help seniors as there would be no tangible benefit in terms of bringing their own costs down. The federal government is the only direct beneficiary of these financial penalties. The revenue generated from this penalty would likely be used for other spending purposes rather than offsetting individuals’ drug costs. Undermining Part D with an inflationary rebate may also crowd out existing rebates and discounts which flow through to patients.

The fact is, the market-based structure of Part D is popular and successful. Since it was first created, federal spending has come in 45 percent below projections - the CBO estimated in 2005 that Part D would cost $172 billion in 2015, but it has cost less than half that – just $75 billion. Monthly premiums are also just half the originally projected amount, while 9 in 10 seniors are satisfied with the Part D drug coverage.

As you continue your efforts to lower healthcare costs, we urge you to reject any proposal that institutes an inflationary rebate penalty in Medicare Part D. A new price control will undermine the successful system that has served seniors well.

Sincerely,

Grover Norquist
President, Americans for Tax Reform

James L. Martin
Founder/Chairman, 60 Plus Association

Saulius “Saul” Anuzis President, 60 Plus Association

Lisa B. Nelson CEO, ALEC Action

Steve Pociask
President / CEO, American Consumer Institute

Dee Stewart
President, Americans for a Balanced Budget

Jeffrey Mazzella
President, Center for Individual Freedom

Ginevra Joyce-Myers
Executive Director, Center for Innovation and Free Enterprise

James Edwards
Executive Director, Conservatives for Property Rights

Matthew Kandrach
President, Consumer Action for a Strong Economy

Joel White
President, Council for Affordable Healthcare Coverage

Thomas Schatz
President, Council for Citizens Against Government Waste

Naomi Lopez Bauman
Director of Healthcare Policy, Goldwater Institute

Charles Sauer
President, Market Institute

Pete Sepp
President, National Taxpayers Union

Karen Kerrigan
President & CEO, Small Business & Entrepreneurship Council

Tim Andrews
Executive Director, Taxpayers Protection Alliance

Sara Croom
Executive Director, Trade Alliance to Promote Prosperity


Harris Can’t Explain How She’d Pay for KamalaCare

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Posted by Alex Hendrie on Wednesday, July 17th, 2019, 4:55 PM PERMALINK

In an interview with CNN, Presidential candidate Kamala Harris claimed that she could pay for socialized healthcare on America without tax increases on the middle class.

[Click here for video]

This claim is laughable.

Bernie Sanders, a leading supporter of socialized medicine, which he calls Medicare for All, has admitted that American families will pay more taxes. His plan even includes a new, $3.9 trillion, 4 percent payroll tax on workers. 

This is likely the tip of the iceberg when it comes to tax increases on the middle class because the Sanders proposal only raises $14 trillion, roughly 40 percent of the cost of his Medicare for All Plan which would require $32 trillion and $36 trillion over the next decade.

For her part, Harris has repeatedly proposed repealing the Tax Cuts and Jobs Act, a middle-class tax cut which reduced taxes for an average family of four by $2,000 and reduced overall tax liability by an average of 24.9 percent.

Even assuming Kamala Harris is sincere in her desire to “pay for” socialized healthcare through taxing “the rich,” this would not come close to financing Medicare for All. 

At one point, the CNN host pushed back on the Harris claim that the middle-class won't get hit with a tax hike, and said some people think she's trying to "find money in magical ways."

For instance, a “wealth tax,” a financial transactions tax, a 10 percent surtax on “the wealthy,” a 70 percent top rate, and doubling the tax rate on capital gains would pay for roughly 20 percent of the cost of Medicare for All according to the best-case scenario estimates by the left.

It is also important to note that these estimates assume no negative economic feedback, no changes in behavior, and do not account for any revenue loss from the corresponding other tax increases: 

  • A wealth tax (2% annual tax on $50 million in wealth, 3% annual tax on $1 billion) – a $2.75 trillion tax increase
  • A financial transactions tax (0.1 percent on every transaction) – a $777 billion tax increase
  • A 10 percent surtax on the wealthy ($2.9 mil in income and above) -- an $800 billion tax increase
  • 70 percent top marginal income tax rate – a $353 billion tax increase
  • Doubling tax rates on capital gains -- a $1.5 trillion tax increase
     

Total: $6.17 trillion (19 percent to 21 percent of the $32 - $36 trillion cost of “Medicare For All.”


Treasury’s GILTI Rules A Positive Step Forward


Posted by Alex Hendrie on Tuesday, July 9th, 2019, 2:19 PM PERMALINK

The Tax Cuts and Jobs Act passed by Republicans at the end of 2017 dramatically improved the U.S. tax code. This law reduced tax rates for individuals, corporations, and small businesses and updated the outdated worldwide system of taxation by moving closer to a territorial system of taxation.

Thanks to these reforms, unemployment is at 3.7 percent, a 50-year low. Wages have grown by 3.1 percent over the past 12 months and GDP has averaged 3 percent quarter-to-quarter growth since the tax cuts were passed.

Despite these gains, there were some unintended outcomes resulting from the tax cuts. For instance, the new GILTI provision (Global Intangible Low-Tax Income) was designed to prevent taxpayers from eroding the U.S. tax base by improperly assigning income to low tax jurisdictions. However, GILTI was based off the pre-TCJA tax system which required companies to allocate a portion of domestic expenses to foreign income for purposes of calculating foreign tax credits.  In the post-TCJA world, this resulted in additional foreign tax liability and meant that GILTI inadvertently taxed high-tax foreign income that was previously exempt from U.S. taxation.

It is clear based on the conference report to the TCJA that Congress never intended to exempt high-tax foreign income:

“The Committee believes that certain items of income earned by CFCs should be excluded from the GILTI, either because they should be exempt from U.S. tax – as they are generally not the type of income that is the source of base erosion concerns – or are already taxed currently by the United States. Items of income excluded from GILTI because they are exempt from U.S. tax under the bill include foreign oil and gas extraction income (which is generally immobile) and income subject to high levels of foreign tax.”

Fortunately, Treasury’s GILTI rules released last month help alleviate this problem.

Under the rules, businesses can apply a high-tax exception that exempts foreign income if this income is subject to foreign taxes above 90 percent of the corporate rate (18.9 percent based on the 21 percent corporate rate).

This is a positive step toward upholding the integrity of the new, territorial tax system and protecting taxpayers from double taxation.

Moving forward, lawmakers should continue examining GILTI and the international provisions of the TCJA so that these provisions do not unduly burden legitimate business activity.


Inflation is A Significant Portion of Capital Gains Taxes

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Posted by Alex Hendrie on Tuesday, July 9th, 2019, 8:00 AM PERMALINK

Recent media reports suggest that the Trump administration is considering using its regulatory authority to index capital gains taxes to inflation through regulation.

This would have clear, immediate economic benefits and will increase the wealth of Americans across the country.

In many cases, inflation comprises a significant portion of the gain when paying capital gains taxes.

[Click here for a PDF of this memo.]

Inflation Comprises 70 Percent of Tax Owed on IBM Shares Purchased in 1970

For example, a taxpayer purchasing one share of IBM stock at the beginning of 1970 would have paid $14.81.

If they sold their share at the beginning of 2019, the total value would be $134.42. This would mean the gain is $119.61 and total tax owed – assuming the 20 percent capital gains tax and the 3.8 percent Obamacare net investment income tax – is $28.47.  

Under an inflation adjustment, the value of a dollar in 1970 equals $6.66 dollars today.

Therefore, if inflation were accounted for, the value of the share would be adjusted to $98.65 and the gain ($134.42 - $98.65) would be just $35.77.

Under this example, tax owed would be $8.51 instead of $28.47 as inflation accounts for 70 percent of the gain.  

Inflation Comprises 64 Percent of Tax Owed Exxon Mobil Shares Purchased in 2000

In another example, a taxpayer purchasing one share of Exxon Mobil stock in 2000 would pay $41.44.

The value of the share at the beginning of 2019 is $73.28 so the gain is $31.84. Tax owed – assuming the 20 percent capital gains tax and the 3.8 percent Obamacare net investment income tax – would be $7.58.

Under an inflation adjustment, the value of a dollar in 2000 equals $1.49 today. Therefore, if inflation were accounted for, the value of the stock would be $61.75. The true, inflation-adjusted gain is just $11.53 and total tax owed is $2.74.

This means that inflation makes up nearly 64% of the increase in value of the share.

 

Inflation Comprises the Entire Gain of Gain of Coca-Cola Shares Purchased in 1998

In some cases, inflation makes up the entire gain and the taxpayer actual has a loss when inflation is accounted for.

A taxpayer that purchases one share of Coca-Cola stock in 1998 would have paid $32.38 per share. Today, that share would be worth $48.13 with a gain of $15.76 and a tax liability of $3.75.

However, because of inflation, the value of a dollar in 1998 is worth $1.56. The inflation adjusted value of the stock is therefore $50.50 and the taxpayer has an inflation adjusted loss of $2.38.


Stock values calculated are adjusted for splits and based on data here: 
https://www.macrotrends.net/stocks/research

Inflation adjustments calculated through Bureau of Labor Statistics inflation calculator: https://data.bls.gov/cgi-bin/cpicalc.pl

 
   
   
 

Photo Credit: Can Pac Swire - Flickr


An Inflationary Rebate Penalty Will Harm Medicare Part D


Posted by Alex Hendrie on Monday, July 8th, 2019, 11:23 AM PERMALINK

The Senate Finance Committee is reportedly making strong progress toward finalizing bipartisan drug pricing legislation.

This is a positive step forward toward lowering healthcare costs and follows recent action by the Senate Health, Education, Labor, and Pensions (HELP) Committee in proposing surprise billing legislation designed to protect patients and make the healthcare system less opaque.

While the interest of lawmakers in reforming the healthcare system is a positive, recent press reports suggest that the Finance Committee is considering including an inflationary rebate penalty to Medicare Part D in their proposal.

Under this plan, a manufacturer would be required to pay a penalty in the form of a rebate if the price of a medicine rises faster than inflation.

This proposal is misguided and threatens to erode the existing, market-based structure of Medicare Part D. Part D works because it facilitates negotiation between pharmacy benefit managers (PBMs), pharmaceutical manufacturers, and pharmacies.

At the core of this program is the non-interference clause which prevents the secretary of Health and Human Services (HHS) from interfering with the robust private-sector negotiations.

An inflationary rebate would undermine non-interference and could disrupt incentives for negotiations between stakeholders. Manufacturers would be on the hook for any price increase in a way that would limit leverage in negotiations.

Private sector negotiations already lower costs for patients and promote access through existing rebates and discounts. These may be crowded out by this new rebate at the expense of consumers. In addition, PBMs already negotiate price protection rebates that establish a private sector cap on the increase of medicines.

The Part D program has a record of success. Since it was first created, federal spending has come in 45 percent below projections - the CBO estimated in 2005 that Part D would cost $172 billion in 2015, but it has cost less than half that – just $75 billion. Monthly premiums are also just half the originally projected amount, while 9 in 10 seniors are satisfied with the Part D drug coverage.

Moving forward, lawmakers should enhance market-based competition in order to put downward pressure on costs and promote increased access. An inflationary rebate penalty would distort the incentives to negotiate efficiencies and would allow the government to set arbitrary prices.


Senate Should Reject Legislation to Weaken Pharmaceutical Patents

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Posted by Alex Hendrie on Tuesday, June 25th, 2019, 9:00 AM PERMALINK

Later this week, the Senate Judiciary Committee is expected to markup several pieces of legislation related to pharmaceutical patents. 

During this markup, it is likely that two pieces of legislation would be considered that will badly damage the U.S. system of property rights and medical innovation.

The first piece of legislation, the “Affordable Prescriptions for Patients Act,” would create unintended consequences to the development of new medicines and the patent system broadly. The legislation as introduced on May 9, 2019 creates two new terms – product hopping and patent thicketing.

These terms were defined so broadly under the legislation that they would impact innovators that play by the rules, not just bad actors:

  • “Product hopping” is defined as attempts to block generic entry through the creation of new healthcare delivery efficiencies. However, in many cases, these efficiencies create substantial value to patients that improve quality of life, are more convenient or efficient to administer, or come with fewer side effects.  They are not intended in any way to block generic competition. Moreover, new innovations do not extend the patent protection for the original product.
  • “Patent thicketing” is defined as efforts by manufacturers to obtain multiple patents in order to create long-term monopolies. This definition is so broad that it ignores the need of manufacturers to protect their innovations with patents. In addition, patents are not given out freely – they are granted by the U.S. Patent and Trademark Office for novel and non-obvious inventions. In addition, patents only provide a right to the claimed invention and once it expires, generic competition can enter the market.
     

Recent media reports indicate that the bill’s sponsor Senator John Cornyn (R-Texas) is revising the legislation to more narrowly target bad actors and protect innovators that are playing by the rules.

According to Bloomberg, the new version may narrow the existing vague standards in order to curb unnecessary lawsuits and may give the Food and Drug Administration, rather than the Federal Trade Commission, jurisdiction over enforcement.

This is a positive development and Senator Cornyn should be commended for his willingness to carefully consider this complex issue.

It is also expected that the “No Combination Drug Patents Act,” introduced by Senator Lindsay Graham (R-SC), will be considered during the markup. This legislation should be rejected. 

Like the Cornyn legislation, this proposal would attempt to curb so-called patent thicketing. This legislation creates a “presumption of obviousness” for new innovations (a new dosage, method of administration, or formulation) to an existing drug or biologic.

This would presume certain new innovations as obvious meaning the patent is not valid. Patents for new improvements such as allowing a medicine to be taken orally instead of injected, or a new version of the drug that may reduce side effects would be denied under this standard. 

It is important to note that where a new innovation qualifies for patent protection, there is no prolonged patent life for the old version and generic entry into the market place is unaffected by the improvement.

While new innovations improve quality of life for patients, the legislation provides no allowance for patent protection.

It is also unclear how this presumption would be enforced or how an innovator could challenge the presumption.

Patents play an important role in the healthcare system and should be protected. Developing new medicines is a costly and uncertain process and the patent protection system is key to ensuring that costs can be recouped and risks can be taken.

Patents are not absolute – while they prevent competitors from bringing an exact duplicate to market, they do nothing to prevent the development of similar medicines. In fact, there are numerous cases of strong competition between different products designed to treat the same disease.

The strong patent system is why the U.S. is a world leader in medical innovation. This benefits the entire country – more than 4.7 million jobs and $1.3 trillion in economic output is supported directly or indirectly by the pharmaceutical industry. 

Disincentivizing medical innovation could lead to long-term shortages, increase costs to the healthcare system, and harm the development of the next generation of medicines including biologics. As lawmakers consider legislation reforming the patent system, they should be sure to consider the immediate and long-term damage these reforms could have on the U.S. patent system.

Photo Credit: Prayitno


Senate HELP Committee Should Reject Importation Proposals


Posted by Alex Hendrie on Tuesday, June 25th, 2019, 9:00 AM PERMALINK

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.


ATR Releases Letter Urging Congress to Make the CFC Look-Thru Rule Permanent

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Posted by Alex Hendrie on Monday, June 24th, 2019, 9:59 AM PERMALINK

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

Photo Credit: Guy Middleton


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