Alex Hendrie

Democrats Call for Retroactive Tax Hike on Struggling Businesses in Biden Relief Bill

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alex Hendrie on Wednesday, February 3rd, 2021, 3:25 PM PERMALINK

120 Democrat lawmakers in the House and Senate are calling on Congress to pass a $250 billion retroactive tax hike on struggling American businesses in President Joe Biden’s $1.9 trillion Coronavirus package. This would undo the bipartisan net operating loss (NOL) tax cut that has provided liquidity to American businesses that have seen significant losses during the pandemic.

This tax hike contains no exception for President Biden’s pledge not to raise one penny of taxes on any American earning less than $400,000 per year. If Democrats have their way, small business owners below this threshold including restaurant owners and retailers could see a retroactive tax increase.

American businesses, including small and medium sized companies, have seen unprecedented challenges due to the Coronavirus pandemic. Small businesses have been hit particularly hard with forced shutdowns and new government mandates. However, many businesses regardless of size have struggled with a decline in revenues and additional expenses from implementing new technologies for remote work and retrofitting existing workspaces.

Lawmakers should not be clawing back relief for taxpayers after the fact based on the view that these taxpayers are not worthy of assistance. 

The bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March of 2020 allowed corporations to carry back net operating losses incurred in 2018, 2019, and 2020 back five years. It also expanded the ability of businesses organized as passthrough entities to use NOLs to offset against non-business income.

Congressional Democrats are now urging the repeal of this tax cut through passage of two provisions that was included in House Speaker Nancy Pelosi’s partisan HEROES (Health and Economic Recovery Omnibus Emergency Solutions) Act.

First, Democrats want to prevent businesses from carrying back losses before 2018. This would mean 2018 losses could not be carried back at all, 2019 losses could be carried back just one year (to 2018) and 2020 losses could be carried back just two years (2018 and 2019). The CARES Act provision allowing passthroughs to offset business losses against non-business income would also be suspended.

In addition, the Pelosi bill prohibits businesses from taking NOLs if they make “excessive” stock buybacks and dividend payments. This restriction is triggered if the total amount of dividends and repurchased shares since 2018 exceeds 5 percent of the value of the stock in the last day of any taxable year. The average annual dividend yield of a S&P 500 company is around 2 percent so this threshold can easily be triggered by dividend payments alone.

Finally, the bill denies carrybacks if a company triggers section 162(m) or 280(g) of the tax code – provisions that limit the ability of businesses to deduct compensation payments to executives.

Net operating loss carrybacks are not a handout to big businesses or specific industries. This provision is are available to any company and is available to sectors that have been particularly hit hard by COVID-19, such as restaurantsretailers, and airlines.

NOLs are also not a bailout. Businesses are already able to deduct operating losses under the tax code in the year the losses are incurred and can carryforward losses indefinitely to future years.

As a result, net operating loss carrybacks largely change the timing of taxes paid. In fact, the Joint Committee on Taxation finds that a majority of the revenue loss incurred to the government in the first couple of years that this provision is enacted will be offset because companies will eventually deduct fewer losses throughout the 10-year budget window.

There is nothing controversial about expanding net operating loss carrybacks during an economic downturn. Variants of this proposal have been enacted into law repeatedly over the past 20 years on a bipartisan basis and signed into law by Republican and Democrat presidents. For instance:

 

President Obama highlighted NOL expansion as a “fiscally responsible economic kick-start,” in a 2009 press release:

“The Economic Recovery Act included a provision that allowed small businesses to count their losses this year against the taxes they paid in previous years. "Today, the President extended that benefit for an additional year and expanded it to medium and large businesses as well. Business losses incurred in 2008 or 2009 can now be used to recoup taxes paid in the prior five years. This provision is a fiscally responsible economic kick-start, putting $33 billion of tax cuts in the hands of businesses this year when they need it most, while enabling Treasury to recoup the majority of that funding in the coming years as these businesses regain their strength and resume paying taxes.”

Similarly, key Congressional Democrats including House Speaker Nancy Pelosi (D-Calif.) and Ways and Means Chairman Richie Neal (D-Mass.) praised the inclusion of the NOL provision:

  • Speaker Pelosi: “The bill also has the net operating loss carryback, which businesses tell us is necessary for them to succeed and to hire new people, and also to mitigate some of the damage that has been done to the economy from past policies.”
  • Chairman Neal: “Finally, the bill provides net operating loss relief for many businesses that have been simply hanging on in this country over the last year. It is particularly important to retailers. Based on a bill that I filed with Representative Tiberi which became the basis for this provision, this relief for businesses, big and small, will provide quick capital at a time when it is currently impossible to find.”

 

Photo Credit: Geoff Livingston


Dems Falsely Blame Private Equity in Robinhood Controversy to Push Tax Hikes

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alex Hendrie on Tuesday, February 2nd, 2021, 3:23 PM PERMALINK

Democrats such as progressive Senator Elizabeth Warren (D-Mass.) and senior Ways and Means member Bill Pascrell (D-NJ) are vowing to crack down on private equity for their role in the recent GameStop-Robinhood trading controversy. 

The only problem? Private equity had no role in this event.

Democrats either don’t know or don’t care that there is a significant and clear difference between the type of investments seen in the Gamestop-Robinhood controversy and the investments made by private equity firms.

Private equity took no part in buying or selling GameStop – that was institutional investors and individuals trading on Robinhood.

Private equity doesn’t even make short term trades on publicly traded equities like GameStop.

Instead, they take companies private (hence the name) and invest in them based on the belief that these investments have long-term growth potential. Portfolio companies owned by private equity are held for a significant period of time, often 5 to 7 years. As the investment matures, the portfolio company may eventually become publicly traded as the investor seeks to cash out of their investment.

In a letter to the Acting Chair of the Securities and Exchange Commission, Senator Warren blames private equity for “recent chaos” and alleges they have been “treating the stock market like a casino.”

Similarly, in a tweet Rep. Pascrell said he has a bill that would stick it to hedge fund managers – raising taxes on carried interest capital gains, which is a tax hike that would impact private equity, not hedge funds.

Democrats are clearly using the recent event to push their ultimate goal of massive tax increases and more regulation.

For instance, Rep. Pascrell’s legislation would nearly double the tax rate on carried interest capital gains and is part of the left’s goal of taxing all investments as high as possible.  President Biden has vowed to raise taxes on all capital gains to 43.4 percent, a tax hike that would harm the 53 percent of American households that own stocks and hinder new investment in the economy, constraining economic growth.

Carried interest is no different from other capital gains and is rightly treated the same. In each case, the investor purchased an asset, grew the asset by making it more economically valuable, and sold the asset at a profit.

Sen. Warren wants to go even further that doubling taxes on private equity. In past years, she has proposed legislation she calls the “Stop Wall Street Looting Act.” It contains a slew of excessive tax hikes including a discriminatory limitation on deducting business expenses. It also imposes crushing regulations such as holding private equity liable for all debts, legal judgments and pension obligations of their portfolio companies – potentially bankrupting any firm in a single deal.

The proposal is so heavy handed that a study by USC Professor Charles Swenson found that it could shrink investments by between 25 percent and 100 percent. This means it would cost anywhere from 6.2 million jobs to 26 million jobs and would reduce state, local, and federal revenues by anywhere from $109 billion to $475 billion per year.        

By trying to lay the blame of the GameStop-Robinhood controversy at the feet of private equity – a party that doesn’t invest in short term equities – Democrats are proving they are living by the mantra of not letting a crisis go to waste.

The truth is, this is just another thinly veiled attempt to justify huge tax hikes and more regulation on the American economy and jobs across the country.

Photo Credit: Gage Skidmore


Biden’s Proposed Business Tax Hike Several Times Greater Than TCJA Tax Cut

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alex Hendrie on Monday, February 1st, 2021, 11:50 AM PERMALINK

President Joe Biden has proposed $4 trillion in new or higher taxes, including repeal of the Tax Cuts and Jobs Act (TCJA) passed in 2017.

As part of this plan, Biden has proposed raising the corporate rate from 21 percent to 28 percent, a 33 percent increase in the tax. He has also proposed a new global minimum tax, a 15 percent tax on “book earnings,” and a tax penalty for “outsourcing.”

Biden claims these tax hikes will ensure businesses “pay their fair share.”  In reality, it will result in a massive tax increase on American businesses several times greater than the tax cut businesses received through the TCJA.

While the Biden plan may seem like a modest tax increase given that the TCJA reduced the rate from 35 percent to 21 percent, this ignores the fact that the TCJA also included numerous base broadening tax increases.

While the TCJA reduced taxes by $1.5 trillion, the business tax cut was just one fifth of this tax cut because these tax cuts were “offset” with corresponding tax increases. The TCJA was hardly a windfall for American businesses – according to the Joint Committee on Taxation, the business and international tax provisions net out to a $329 billion tax reduction over ten years.

While the corporate tax rate reduction from 35 percent to 21 percent reduced taxes by $1.35 trillion over the ten-year budget window, this was offset with base broadening tax increases. For instance, the TCJA required businesses to amortize research and experimentation expenditures (a $120 billion tax increase), repealed the deduction for domestic production (a $98 billion tax increase), and created a cap on the ability of businesses to deduct net interest (a $250 billion tax increase).

The same is true for the international tax reform section of the law. While the TCJA ended the double taxation of foreign income (a $223 billion tax cut), it offset this provision with a one-time tax on repatriated earnings and new base-erosion provisions that each totaled hundreds of billions of dollars per decade.

The remaining $1.2 trillion of tax cuts were found in the individual section of the tax code, which includes the reduction in income tax brackets, the doubling of the child tax credit (from $1,000 per child to $2,000), the doubling of the standard deduction (from $12,000 to $24,000 for a family), the creation of the 20 percent small business deduction for businesses filing under the individual tax code, and the expansion of the death tax.

Biden’s corporate tax hike is significantly larger than the TCJA tax cut. While estimates of the Biden tax hike plan vary, his tax increase on businesses is anywhere from $1.1 trillion to $1.9 trillion over the next decade – roughly 4 to 6 times greater than the TCJA corporate tax reduction. 

For instance, an October 22, 2020 analysis of the Biden tax plan released by the Tax Foundation estimates his business tax increase would increase revenue by between $1.4 trillion and $1.5 trillion. This includes raising the corporate rate to 28 percent, the 15 percent corporate minimum tax, and several international tax increases.

Similarly, an analysis of Biden’s plan by the American Enterprise Institute estimates the business tax increases in the Biden plan would raise taxes by $1.96 trillion over the next decade. An analysis by the Tax Policy Center finds that the Biden plan would raise taxes on businesses by $1.12 trillion over the first decade and by $1.8 trillion over the second decade of enactment.

While these estimates vary substantially, it is clear that Biden’s tax hikes would be significantly greater than the tax cut in the TCJA. Biden’s plan is not about making businesses “pay their fair share,” it is about dramatically increasing taxes on American businesses. If he has his way, businesses would pay substantially more than they have in decades.

Photo Credit: jlhervàs


Rep. Porter Calls for New Taxes and Regulations on Medical Innovators

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alex Hendrie on Monday, February 1st, 2021, 11:23 AM PERMALINK

Progressive Congresswoman Katie Porter (D-Calif.) has released a report arguing for massive new government taxes and regulations on medical innovators.

Rep. Porter calls for passage of the "Elijah E. Cummings Lower Drug Costs Now Act," legislation that would force pharmaceutical manufacturers to accept government set prices as dictated by President Biden’s chief health official or pay a 95 percent excise tax.

This is a terrible idea. The Coronavirus pandemic has proven we need strong medical innovation now more than ever. Manufacturers successfully developed COVID-19 vaccines at the fastest rate ever and today, millions of doses are being sent to Americans across the country. This accomplishment is remarkable, given that the fastest vaccine previously developed took four years. More broadly, new medicines, including vaccines and prescription drugs, can take over a decade to be developed and go through a stringent approval process. 

Rep. Porter makes the puzzling claim that American medical innovation is disappearing. However, the facts do not bear this out – the U.S. is a world leader in medical innovation. According to research by the Galen Institute, 290 new medical substances were launched worldwide between 2011 and 2018. Of these cures, the U.S. had access to 90 percent, a rate far greater than comparable foreign countries. For instance, the United Kingdom had 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent.

Medical innovation also supports millions of high-paying manufacturing jobs across the country that would be harmed by Rep. Porter’s approach.

Nationwide, the pharmaceutical industry directly or indirectly accounts for over four million jobs across the U.S, according to research by TEconomy Partners, LLC. This includes 800,000 direct jobs, 1.4 million indirect jobs, and 1.8 million induced jobs, which include retail and service jobs that are supported by spending from pharmaceutical workers and suppliers.

The average annual wage of a pharmaceutical employee in 2017 was $126,587, which is more than double the average private sector wage of $60,000. In Rep. Porter’s home state of California, pharmaceutical manufacturing is directly responsible for 140,000 jobs and supports 750,000 jobs when indirect effects are taken into effect.

Rep. Porter also criticizes the Tax Cuts and Jobs Act (TCJA), arguing that it turbocharged stock buybacks at the expense of new investment. First, this criticism fails to mention the strong economic growth and middle-class tax relief that was seen following passage of the TCJA. In addition, it ignores the fact that buybacks benefit millions of Americans invested in the stock market.

Corporations issue stocks to finance growth. These shares are purchased by investors varying from large institutional funds that have billions of dollars in assets to individuals investing their life savings. Investors make their money back through the price of the stock increasing or through the company paying out dividends.

Stock buybacks are not some nefarious act, but rather the process by which a company reduces the number of shares available to be purchased. Buybacks are akin to a company investing in themselves and can reduce future liabilities like dividend payments.

Money spent on buybacks does not disappear into thin air. Rather, it is simply a reallocation of capital that goes to more productive uses. This benefits millions of Americans across the country. For instance, 53 percent of American households’ own stock, according to the federal reserve.

In addition, 80 to 100 million Americans have a 401(k), 46.4 million households have an individual retirement account, and 21 million Americans participate in public pension plans.

Rep. Porter’s call for new taxes and regulations on American pharmaceutical companies should be rejected. This approach would harm medical innovation at a time that American innovators have succeeded in developing new treatments for COVID-19 at the fastest rate ever. It would threaten high-paying American jobs across the country that rely on pharmaceutical innovation including in her home state of California. Finally, it would harm millions of Americans directly or indirectly invested in the stock market. The fact is, this is the wrong approach to help our healthcare system or the economy.

Photo Credit: Deb Haaland


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

Share on Facebook
Tweet this Story
Pin this Image

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

Share on Facebook
Tweet this Story
Pin this Image

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

Share on Facebook
Tweet this Story
Pin this Image

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

Share on Facebook
Tweet this Story
Pin this Image

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

Share on Facebook
Tweet this Story
Pin this Image

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

Share on Facebook
Tweet this Story
Pin this Image

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


Pages

×