Alex Hendrie

ATR Opposes Section 206 of the "Lower Healthcare Costs Act"

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Posted by Alex Hendrie on Thursday, December 12th, 2019, 10:00 AM PERMALINK

Americans for Tax Reform President Grover Norquist has released a letter to Senate Majority Leader Mitch McConnell and House Minority Leader Kevin McCarthy in opposition to Section 206 of the "Lower Healthcare Costs Act."

If implemented, this provision would ban pharmacy benefit managers from offering guaranteed-level pricing contract arrangements, also known as spread pricing, in any contract with employers. This is yet another government mandate on private business that would raise costs on the U.S. healthcare system 

You can read the full letter here or below: 

Dear Leader McConnell and Leader McCarthy: 

I write to express concerns with Section 206 of the "Lower Healthcare Costs Act" as currently negotiated by the Senate HELP and House Energy and Commerce Committees. 

This section contains a provision that expressly prohibits pharmacy benefit managers (PBMs) from offering guaranteed level pricing contract arrangements, also known as spread pricing, in any contract with employers. 

Under any existing employer plan, a PBM will agree to reimburse an employer for prescription drug purchases in one of two ways –– exactly what was paid to the pharmacy or through spread pricing, which sets the price at a predetermined sliding scale. This is beneficial to the employer because it offers a more predictable, standardized amount, and aligns the employer and PBM's incentives to drive down pharmacy reimbursement costs. 

Because of this flexibility, many employer plans negotiate spread pricing contracts with PBMs, including many small employers. The federal government should not be in the business of dictating the terms of contracts between two private entities. Lawmakers should not intervene or impose restrictions on the ability of employers and PBMs to negotiate contracts designed to best fit the needs of the individual employer. 

Functionally, this proposal is just another imposed government mandate on private businesses that directly or indirectly will increase costs on the US healthcare system and distorts the economically efficient behavior and natural incentives created by the free market. 

Although this proposal is not as harmful as direct price controls proposed by Democrats in Congress and running for President, it should still be rejected as it interferes in private contracts by imposing restrictions on the contracts agreed to by PBMs and employers. 


Grover Norquist
President, Americans for Tax Reform

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ATR Urges No Vote on HR 5363, the FUTURE Act

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Posted by Alex Hendrie on Tuesday, December 10th, 2019, 10:37 AM PERMALINK

House Democrats will today bring up H.R. 5363 to the House floor, legislation that strengthens Historically Black Colleges and Universities (HBCUs) and Minority Serving Institutions. As a standalone provision, this legislation should be taken up and passed into law. 

However, Democrats are amending the legislation to include a $2.5 billion tax pay-for that will threaten taxpayer privacy and create a new precedent to misuse taxpayer information. While H.R. 5363 contains these provisions, it should be rejected by the House.

The FUTURE Act adds H.R. 5368, legislation that could subject 31.2 million individual disclosures to large-scale sharing of taxpayer information without taxpayer consent. Thousands of bureaucrats, government contractors, and educational institutions could have access to this taxpayer information. 

This would be the third largest disclosure of taxpayer information for non-tax purposes – second only to the Census and Obamacare.

While H.R. 5363 contains this poison pill, Congress should reject the bill to uphold taxpayer privacy and protect millions of taxpayers from new pathways of misuse of taxpayer data.

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Trump Admin Should Repeal FIRPTA To Continue Tax And Regulatory Relief

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Posted by Alex Hendrie on Friday, December 6th, 2019, 9:00 AM PERMALINK

The Trump Administration’s tax reform and regulatory reform has cut back on unneeded red tape and complexity, grown the economy, and promoted innovation and investment. The Trump Administration has further sought to reduce Americans’ tax burdens by discouraging tax hikes and instead promoting private investment in infrastructure like roads and bridges.

The Administration can build on this progress by promoting foreign investment in the U.S. and rolling back the burdensome Foreign Investment in Real Property Act (FIRPTA). In the short term, this means withdrawing Section Two of IRS Notice 2007-55.

When Congress passed FIRPTA in 1980 there were Cold War-era driven concerns that foreign investors could purchase real estate that was culturally or strategically significant to the U.S. Today, these concerns have faded, but this outdated law is still needlessly restricting foreign investment into American real estate and infrastructure. In addition, there are other laws, including last year’s Foreign Investment Risk Review Modernization Act, that safeguard against national security risks of foreign investment in U.S. assets. 

FIRPTA results in higher taxes on foreign investment in real estate and infrastructure than on any other asset class such as stocks and bonds. FIRPTA imposes extra U.S. tax on the gain realized by a foreign investor on the deposition of an “interest” in the property. FIRPTA punishes foreign investments in many types of real property, from multifamily housing, to commercial buildings, to various types of infrastructure.

In 2007 the IRS worsened FIRPTA’s impact with the publication of Notice 2007-55, a non-regulatory guidance document that broke with 30 years of precedent. Prior to the IRS Notice 2007-55, liquidating distributions received by a foreign shareholder of a real estate investment trust (REIT) were treated as sale of stock. Section Two of Notice 2007-55 expanded FIRPTA by stating that these distributions should be treated as capital gains distributions subject to FIRPTA tax penalties. Because of the IRS notice, the FIRPTA penalty hits not only foreign investments in real property, but also foreign investments in companies that merely own and manage real property.  

This unilateral expansion of the FIRPTA penalty is problematic and should be fixed.

The IRS notice (and FIRPTA in general) picks winners and losers. It subjects foreign investment in real property to a higher tax burden than investment in any other asset class. 

A foreign taxpayer investing in a U.S. REIT will be subject to the FIRPTA tax penalty, but that same taxpayer would not be subject to U.S. tax from receiving a liquidating distribution from any other type of corporation. 

The IRS notice has also restricted foreign investment in U.S. real estate and infrastructure.  The U.S. is a top pick for foreign investors yet foreign investment in real estate is an anemic three percent of all foreign direct investment (FDI) in 2018. Withdrawing the notice should be step one toward correcting this problem.

The benefits of FIRPTA reform are not merely theoretical. When Congress made minor changes to FIRPTA that eased tax burdens for some foreign investors in 2015, billions of dollars were injected into the U.S. real estate market nationwide.

The potential gains are significant – A 2017 study by the Rosen Group found that full FIRPTA repeal would increase investment into the U.S. by between $65 billion and $125 billion creating284,000 to 147,000 new jobs. 

In the long term, Congress can unlock these economic gains by passing H.R. 2210, the “Invest in America Act.” This bipartisan legislation, which will fully repeal FIRPTA, was introduced by House Ways and Means Committee members John Larson (D-CT) and Kenny Marchant (R-TX). 

However, the Trump Administration need not wait for Congress to act to bring more badly-needed FDI dollars to the U.S. Aligning with its own priorities to reduce taxpayer and regulatory burdens, the Administration can act now to increase investment in the U.S., grow U.S. jobs, and raise Americans’ wages by pulling Notice 2007-55 and offering relief from FIRPTA double taxation.



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ATR Opposes Dem Green Energy Tax Legislation

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Posted by Alex Hendrie on Tuesday, November 19th, 2019, 11:48 AM PERMALINK

House Democrats have released a green energy tax extenders package that contains numerous wasteful and distortionary tax provisions. ATR urges lawmakers to reject this legislation, both as a stand-alone package or as part of broader legislation.

Broadly, ATR opposes tax extenders and supports efforts to repeal or make all extenders permanent as part of the broader goal of reducing the number of distortionary credits and deductions in favor of lower tax rates. 

Tax policy should be neutral in order to promote economic efficiency and growth and avoid picking winners and losers.

This proposal takes the tax code in the opposite direction by extending and expanding distortionary provisions. 

Imposes Retroactive Tax Increases

The legislation retroactively disallows the Alternative Fuel Mixture Credit (AFMC) for certain types of fuels.

Retroactivity is bad policy – any extenders should be dealt with prospectively, rather than retroactively. Taxpayers that have followed the law based upon reasonable statutory interpretations should be afforded certainty and fairness. Retroactivity undermines confidence in the tax system by affecting activity (in this case taxes paid, and credits claimed) that has already occurred.

In the past, when Congress has determined the statute of a law is inconsistent with Congressional intent, they have disallowed the provision on a prospective basis. For instance, when paper manufacturers claimed a credit for mixing diesel with alternative biomass fuels, or “black liquor,” Congress disagreed with this outcome and repealed the credit prospectively.

The retroactive repeal of the AFMC interferes with ongoing litigation, denies taxpayers due process, and creates potentially arbitrary and unfair outcomes. If Congress wants to make changes to the AFMC, they should be done on a prospective basis. 

[See ATR’s Letter in Opposition to a Retroactive AFMC here]

Extends Distortionary Solar & Wind Credits

In 2015, Congress passed bipartisan tax extender legislation, known as the Protecting Americans from Tax Hikes (PATH) Act. This legislation made many conservative tax provisions permanent like small-business expensing, research and development credits, and provisions to prevent double taxation on international income. As part of this agreement, wind and solar tax credits were phased out.

In violation of this agreement, Democrats would extend wind and solar credits through 2026. This will continue the pattern of routinely extending temporary tax provisions. 

As a coalition of conservative groups noted in a recent letter, there is no policy reason to extend these tax benefits as these types of energy technologies do not need their credits:

“The United States Energy Information Administration reported a year ago that 18 percent of the electricity grid in America was powered by renewable sources, including 3 percent from solar power alone. Besides accounting for half the renewable total, wind and solar power grew by nearly a third in just one year. Clearly these are not nascent industries in need of a tax break--they can and should stand on their own two feet.”

Lawmakers should allow these credits to phase out as agreed to in the 2015 PATH Act.

Expands EV Subsidies

The legislation would expand the electric vehicle tax credit so that it phases out at 600,000 vehicles per manufacturer rather than 200,000 vehicles as under current law. Lawmakers should reject this approach.

The EV credit is distortionary and regressive. The credit goes directly to individuals that purchase an EV and almost 80 percent of these credits go to those making $100,000 or more per year.  Unsurprisingly, this type of tax subsidy is also unpopular with the American people -- 67 percent of voters oppose subsidizing electric vehicles.

Moreover, expanding the credit is unnecessary and ineffective. There are already broad-based tax provisions that promote innovation such as the research and development tax credit. In addition, there is robust competition in the EV market and manufacturers who have exceeded the 200,000 cap have responded by reducing vehicle prices for consumers – taxpayers do not need a subsidy.

Finally, there is waste and fraud prevalent in the existing EV credit. A study released by the Treasury Inspector General for Tax Administration (TIGTA) found that over 16,000 taxpayers improperly claimed the EV credit between 2014 and 2018 resulting in a $73.8 million windfall.


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Lawmakers Should Reject Senate Finance Drug Pricing Bill

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Posted by Alex Hendrie on Monday, November 18th, 2019, 11:00 AM PERMALINK

Despite strong conservative opposition, the Senate Finance Committee recently approved the Prescription Drug Pricing Reduction Act (PDPRA), legislation that would impose another price-setting mechanism on the U.S. healthcare system. 

While supporters continue to call for full Senate consideration of this proposal, lawmakers should reject the PDPRA. The bill disrupts the existing structure of Medicare Part D and does nothing to directly help seniors.

[See also: PDPRA Punishes Innovative New Medicines]

The PDPRA imposes an inflationary rebate penalty on Medicare Part D drugs. This provision would force manufacturers to pay the government a 100 percent fee when the list price of a drug increases faster than inflation.

This provision is problematic because Part D is a system that relies on competition between several stakeholders, namely pharmacy benefit managers (PBMs), insurers, and drug manufacturers. The penalty is imposed on one Part D stakeholder, the drug manufacturer, after the price has been negotiated between several stakeholders. Essentially, the government is handcuffing the ability of manufacturers to negotiate on a level playing field with insurers and PBMs.

The Proposal Undermines Part D Competition

Some PDPRA supporters claim that this policy is nothing more than the government placing a cap on the subsidies that manufacturers receive. This is misguided –– the federal government does not pay subsidies to drug manufacturers.

The government makes payments to insurers based on the negotiated price of a drug which includes substantial discounts off the list price. In actuality, this policy will disrupt existing negotiation in Part D. In fact, as noted by Doug Badger, this policy is “at odds with the Part D program’s reliance on private entities to negotiate discounts on behalf of seniors.”

Instead of having the government directly provide care, Medicare Part D leverages competition between pharmacy benefit managers (PBMs), pharmaceutical manufacturers, plans, and pharmacies to provide coverage to seniors. This lowers costs and maximizes access for seniors.

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.

This structure has been successful in driving down costs. 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.

Existing Part D Negotiation Already Protects Against Price Increases

“Price protection rebates” negotiated between PBMs and manufacturers are an example of existing Part D negotiation. Today, almost 100 percent of medicines are subject to these rebates.

Under these agreements, any price increase past a predetermined threshold results in increased rebates from the manufacturers to the PBM.

In effect, this establishes a private sector ceiling or cap on the amount by which the price of a medication can increase.

On the other hand, the inflationary rebate penalty could create a perverse incentive for manufacturers to automatically increase the list price of their drugs each year to keep pace with inflation. 

There is Strong Opposition from Conservative Groups and Senators

While supporters of PDPRA claim that the bill is bipartisan, there is significant opposition on the right.

An amendment to strip out the inflationary rebate penalty – the key provision of PDPRA – was supported by 13 out of 15 Republican Senators on the Finance Committee when it was offered in July.

The amendment was offered by Senator Pat Toomey (R-Pa.) and supported by Senators Mike Crapo (R-Idaho), Pat Roberts (R-Kan.), Mike Enzi (R-Wyo.), John Cornyn (R-Texas), John Thune (R-S.D.), Johnny Isakson (R-Ga.), Rob Portman (R-Ohio), Tim Scott (R-S.C.), James Lankford (R-Okla.), Steve Daines (R-Mont.), and Todd Young (R-Ind.)

There is also strong opposition from conservative groups. Almost 20 conservative groups including ATR wrote in opposition to PDPRA when the legislation was released in July. 

The Rebate Penalty Does Nothing to Directly Help Seniors

Not only is the proposal unpopular and disruptive to Part D, it would do little to directly help reduce seniors drug costs. Any revenue generated from this penalty goes directly into government coffers, not to seniors that may need help affording their medicines.

The proposal may actually have the opposite effect of crowding out the existing rebates and discounts which flow through to patients. 

In sum, the inflationary rebate penalty imposes a price-fixing mechanism into the Medicare Part D system by forcing manufacturers to pay a 100 percent fee if the list price of a drug increases faster than inflation. The revenue generated from this penalty would go straight to the government, and would do nothing to directly reduce drug costs. Congress should reject the PDPRA.

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ATR Supports Rep. Hern's "Pro-Growth Budgeting Act"

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Posted by Alex Hendrie, Samantha Capriotti on Friday, November 1st, 2019, 9:00 AM PERMALINK

Congressman Kevin Hern (R-Okla) today introduced the “Pro-Growth Budgeting Act,” legislation that will require dynamic scoring of major-sized legislation.  Americans for Tax Reform urges all members of Congress to support Rep. Hern's bill. 

Dynamic scoring allows policymakers to forecast the effects of fiscal policy based on the predicted behavior of people and organizations. Dynamic scoring takes into account multiple estimates on a bill’s effect on employment, GDP, investment, labor supply, interest rates, and other major economic indicators.

This legislation requires the Congressional Budget Office (CBO) to use dynamic scoring to assess the fiscal impacts of any major-sized legislation in addition to the 10-year static score that CBO already releases.

All legislation that affects revenue, spending, deficits, or debts above 0.25 percent of current projected U.S. GDP is subject to dynamic scoring under Rep. Hern's legislation. If a bill does not reach the 0.25 percent threshold, The House Budget Committee Chairman and Ranking Member can still request an analysis. 

The CBO would be required to disclose its data sources and transformations and the models it used to determine the dynamic score.  This provision increases transparency and ensures that lawmakers are receiving reliable, unbiased information.

Dynamic scoring gives policymakers a more detailed picture of the economic impacts of legislation. For example, when forecasting the economic impact of raising the marginal income tax rate, the static score would assume that the government would raise more revenue with no distortions. 

A dynamic score would rightly take into account that the tax would create a disincentive to work. 

Static scoring has impeded lawmakers from considering the full effects of legislation in the past. Ignoring real-world economic indicators led the CBO to estimate that the Taxpayer Relief Act of 1997 would only create $120 billion in revenue over six years.  Once implemented, the legislation generated $2.52 trillion in revenue, surpassing the CBO’s static estimate by $2.4 trillion.

Ignoring the real-world economic impacts of legislation can lead to bad policymaking because the full impact that legislation has on the U.S. economy is not considered.

Congressman Kevin Hern's proposal rightly corrects this by making dynamic scoring available so that lawmakers can consider the full macroeconomic impact of major legislation.

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GILTI High Tax Rule Provides Important Relief, But Can Still Be Improved 

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Posted by Alex Hendrie on Monday, October 28th, 2019, 10:57 AM PERMALINK

The Tax Cuts and Jobs Act contained numerous reforms to the U.S. tax code. Among these reforms were several changes to the international tax system.

Implementing these reforms has been a complex process. To its credit, the Treasury Department has done a good job mitigating some of the more problematic aspects of this transition. However, there is more that can be done to promote American competitiveness and offer relief to businesses.

One of the major changes to the international tax system was the creation of the Global Intangible Low-Taxed Income (GILTI) provision. GILTI was designed to prevent taxpayers from eroding the U.S. tax base by 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 calculations. This resulted in a post-TCJA tax code where American businesses faced additional foreign tax liability because GILTI inadvertently taxed high-tax foreign income that was previously exempt from U.S. taxation.

To resolve this problem, Treasury has proposed rules that allow businesses to elect a high-tax exclusion (HTE) for a Controlled Foreign Corporation’s (CFC) 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 HTE ensures the integrity of the new, territorial tax system in a way that protects the U.S. tax base without subjecting taxpayers to double taxation or creating perverse incentives for businesses to restructure.

However, there are ways to improve this rule.

For one, the effective date of the HTE should be available back to when the GILTI provision first took effect. The proposed rule applies “beginning on or after the date that final regulations are published.” Ideally, this rule should also apply for 2018 and 2019 – the years that GILTI has been in effect.

Second, the ability to elect the HTE should be available year-to-year. Under the proposed rule, any HTE election must be retained for five years, an unnecessary limitation that can lock taxpayers into an election that can result in increased taxes due to the complex interaction of various credits and deductions at the international level. Ideally, the HTE should be made on a year-to year basis.

There should be little concern that a taxpayer could use this flexibility to game the system as that would require a taxpayer to go through the complex task of manipulating income in multiple foreign jurisdictions and across multiple taxable systems with different anti-abuse regimes.

As it stands, a five-year limitation requires a taxpayer to project business changes, changes to tax law, and economic trends over this five-year period – a difficult, if not impossible task. Companies are already required to report financial information and file taxes ever year, so all the information to model and comply with electing into the HTE should already be available.

Third, the GILTI HTE determination made at the QBU (Qualified Business Unit) level should be relaxed. While Treasury decided on the QBU-by-QBU approach to prevent blending low-tax and high-tax income within a CFC, the existing approach is too stringent. 

Taxpayers often do not have readily available information broken down at the QBU level so this could create extensive compliance burdens for taxpayers. In some cases, a taxpayer may have hundreds of QBUs in a single country.

A solution to this complexity could be allowing a taxpayer to aggregate QBUs in a single country for purposes of determining whether income is high-taxed. This solution would still uphold the integrity of the tax law as it would be difficult to blend high and low-tax income when aggregating income from the same country. Moreover, this approach is consistent with legislative intent of lawmakers to prevent allocating income to low-tax jurisdictions.

Lastly, the “All or nothing rule” should be removed from the proposal. The proposed rule applies the HTE broadly to each CFC in a group of commonly controlled CFCs. Like the QBU-by-QBU application, this all or nothing rule can result in extensive compliance burdens as it would require a taxpayer to compile (and the IRS to audit) new QBU-level data across all operations.

A better alternative is to follow the precedent set under the existing Subpart F high-tax exclusion. Under this exclusion, a taxpayer can make the election on an item-by-item basis. This will also significantly lessen compliance burden on taxpayers as reporting only has to be made on relevant QBUs.

To be clear, Treasury’s proposed GILTI rule is on the right path. A high-tax exclusion will mitigate unnecessary double taxation while upholding the integrity of the TCJA.

However, there remains some outstanding issues with the rule that should be resolved. Doing so will dramatically improve the GILTI high-tax exclusion to promote flexibility, ease compliance burdens, and ensure the international tax system remains strong.

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USMCA's Biologics Provision Is An Important Step Towards Stronger IP Protections

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Posted by Alex Hendrie, Tom Hebert on Monday, October 28th, 2019, 10:08 AM PERMALINK

The United States-Mexico-Canada Agreement (USMCA) represents a much-needed update to the 25-year-old North American Free Trade Agreement (NAFTA).

The global economy has changed significantly since the United States, Mexico, and Canada signed the NAFTA in 1992. The new USMCA recognizes this reality and modernizes trade relations between the three nations to better fit the new realities of the 21st century.

Importantly, the USMCA includes 10 years of data protection for lifesaving biologic medicines. This change will bring Mexico and Canada’s intellectual property protections up to U.S. standards that have existed for nearly a decade. 

Strong protection for biologics is critical. Biologics are the next generation of medicines, and are more costly and complex to produce than other cures. Data protection recognizes the extraordinary time, resources, and opportunity cost that innovators must devote to go through the FDA approval process. 

A recent study from the Tufts Center estimates that it costs an average of $2.6 billion over the course of 10 to 15 years to develop a new medicine. The USMCA’s 10-year period allows innovators to earn a positive rate of return on the immense costs associated with research, development, and the FDA approval process. The USMCA’s 10-year standard has bipartisan support and was signed into law by President Obama. 

America is a world leader in medical innovation. In 2017, the U.S. exported $51.2 billion in biopharmaceuticals. Such exports have grown 174 percent from 2002 to 2017. This research and development supports high-paying U.S. jobs across the country.

IP rights are also key to the U.S. economy at large. The U.S. Department of Commerce and U.S. Patent & Trademark Office found that IP-intensive industries contributed $6.6 trillion to the U.S. economy in 2014, or 38.2 percent of GDP. These industries directly and indirectly support 45.5 million jobs, account for $842 billion in merchandise exports, and generate $81 billion in service exports—well over half of all US exports.

While the USMCA will better ensure that North America remains a centerpiece of innovation, the agreement’s strong protection of IP rights is not universal. Many countries have policies that restrict innovation and punish ingenuity. 

As the Trump administration continues to negotiate better trade deals, the USMCA’s strong protections for biologics should serve as the model.

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Report: Free File Tax Prep Program is Working

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Posted by Alex Hendrie on Tuesday, October 22nd, 2019, 2:41 PM PERMALINK

Despite the claims of the Left, the Free File tax preparation program is working as a solution to tax complexity for millions of Americans. This finding is based on a recent report conducted by the non-profit MITRE Corporation for the IRS.

The report found that the original goals of Free File have been met:

“The program objective of providing the venue for free tax filing for 70 percent of the population has been met. The e-filing objective has been met.”

Free File has offered this tax preparation option at a fraction of what it would cost the government to provide: 

“The [IRS] partnership with the [Free File] Alliance has allowed the IRS to fulfill a would-be-costly obligation at a fraction of the expenses….the program also increased the proportion of e-filings resulting in further cost savings to the IRS as electronic returns are far cheaper to process than paper forms.”

Free File was originally created 15 years ago as a public-private partnership between the IRS and tax preparation companies. Since its inception, the program has provided 70 percent of taxpayers (those with Adjusted Gross Income of below $66,000) with access to free online tax preparation software.

Throughout its history, Free File has been used by 53 million Americans and has resulted in $1.6 billion in savings. The average AGI of taxpayers using Free File is $23,247, so the benefits largely go toward lower income Americans.

Criticism of Free File Misses the Mark 

Despite this success, the Left has repeatedly claimed the program isn’t working. Critics point to the relatively low usage rate among eligible taxpayers as supposed proof that Free File isn’t working. However, this argument misses the mark. 

While only 3 million returns are filed through the Free File, tens of millions of returns are filed for free through other means.

In fact, the combined number of taxpayers using a paid preparer, self-filing through other means, or receiving free tax preparation software through other means totals over 90 million taxpayers, not far from the 103 million taxpayers that MITRE says is eligible for Free File. For instance:

  • 3 million taxpayer returns are processed through the Volunteer Income Tax Assistance Program, a free program offered by brick and mortar preparers.

  • An estimated 17.7 million taxpayers received tax preparation software for free outside the Free File program.

  • 8.7 million taxpayers self-prepared their own taxes using paper forms.

  • Nearly 10 million taxpayers participated chose to self-prepare their taxes and receive their refund immediately through a Refund Anticipation Check (RAC) or Refund Anticipation Loan (RAL).

  • Of those eligible for Free File, another 51 million used a paid preparer.  

The Left Wants to End Free File So the Government Can Take Over Tax Preparation 

The MITRE study was commissioned in part because of intense criticism from many on the Left that Free File was not working.  However, this criticism is borne from the Left’s desire to have the government file taxes.

Case in point – every April 15, far-left politicians such as Congresswoman Alexandria Ocasio-Cortez (D-N.Y.), Senator Bernie Sanders (I-Vt), and Senator Elizabeth Warren (D-Mass) call for the government to take over tax filing.

To be clear – this would be a terrible idea.

MITRE has previously noted that having the IRS file taxes would not be cost-beneficial and would not keep pace with innovation in the private sector. Similarly, Obama IRS Chief John Koskinen has said in the past that the IRS does not have the capability or interest in creating a government tax preparation system.

Even if they did, it would represent a huge conflict of interest. Under this system, the IRS assesses your taxes and then tells you how much you owe. Naturally, this creates an incentive to overcharge or withhold information from taxpayers. At the very least, it would empower the IRS to collect even more personal information and create a new pathway for the agency to target taxpayers.

The proposal is also 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.

Free File Should Be Improved, Not Ended 

While the MITRE report concludes that Free File is working, it points out areas of possible improvement. This is the right approach.

Throughout the history of Free File, the agreement between the IRS and tax preparation companies has successfully been updated seven times, so there is clear precedent for improvements.

Moving forward, MITRE suggests several ways to improve the program including having the IRS take steps to better promote Free File, conducting studies to better understand taxpayer filing preferences, and taking steps to improve taxpayer experience while utilizing Free File.

These and other reforms should be considered to build on the success of the program.

The recent MITRE study confirms that Free File is working. Since it’s inception, the program has promoted electronic filing and has assisted low-income Americans with tax complexity.

Critics on the Left desperately want to end the program as a first step toward having the government file taxes. This would not solve tax complexity, would needlessly waste government resources, and would open the door for the IRS to target taxpayers in new ways. 

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Lawmakers Should Ensure A Part D Benefit Redesign Does Not Disincentivize High Value Medicines

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Posted by Alex Hendrie on Tuesday, October 22nd, 2019, 2:22 PM PERMALINK

There are many areas of the healthcare system that lawmakers are currently striving to reform. (See full letter here.)

One of these areas is redesigning the Medicare Part D drug program with a number of systemic changes, including helping seniors better manage their out of pocket costs. 

Several months ago, the Senate Finance Committee advanced legislation – the Prescription Drug Reduction Act of 2019 – which among other things, included a proposal to redesign the Medicare Part D benefit.  The redesign, among other things, eliminates the current coverage gap, caps out of pocket costs for seniors at $3,100 and concerningly, places a new government liability on a select group of manufacturers. 

Efforts to reform Part D should be welcomed, however any reform should be done in a way that does not create winners and losers in the marketplace by disincentivizing high value, innovative medicines for seniors as the Finance Committee package risks doing with its redesign.

The Medicare Part D program has been successful due to its original design that relies on market forces. Part D is successful 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 these robust private-sector negotiations.

While this system is successful in maintaining low overall program costs, there is room to improve so the program remains competitive for innovation and manageable for seniors and their out of pocket expenses.

However, the existing Part D benefit structure is needlessly complex for seniors, manufacturers, payers and taxpayers, and creates distortions in the market place.

Under the existing system, seniors are required to pay a deductible up to $415. Once this amount is reached, a senior enters the initial coverage gap where they are required to pay 25% of costs throughout the initial coverage threshold. The plan is required to cover the remaining 75% so the senior’s maximum out of pocket cost up to this point is $1,266.25 ($415 + 25% of the initial coverage period).

Once the initial coverage threshold is exceeded, a senior enters the donut hole coverage gap.

Within the donut hole, consumers have been forced to pay out-of-pocket costs far exceeding other coverage thresholds.


In 2019, this coverage gap was hit at $8,139.54 in total spending and $5,100 in out-of-pocket costs. Past this threshold, seniors are required to pay 5% of the drug’s list price, the plan pays 15% and Medicare pays for 80%.

As noted by AEI, once a patient reaches the catastrophic phase of the design, there is limited liability for plans which can result in additional and unnecessary out of pocket costs for enrollees.

Figure 1 shows that distortions exist at each level of the current benefit design for patients, manufacturers, payers and taxpayers.

Lawmakers rightly want to improve this system. However, the proposed Senate Finance proposal does not adequately fix the existing distortions.

The Senate Finance bill contains several reforms:

  • This reform creates an out of pocket cap for seniors, which will help lower out of pocket spending for Americans.
  • A new catastrophic threshold of $3,100 in out of pocket costs is created, and patients would pay nothing after that cap is reached. 
  • To pay for this cap, starting in this catastrophic threshold, a new 20% liability is imposed on manufacturers whose patients enter the catastrophic phase, with the plan paying 60% of costs and Medicare paying 20%.
  • The new, 20 percent liability is similar to the 70 percent donut hole liability that is currently present in the benefit design. However, unlike the current donut hole design, this 20 percent liability is imposed on every dollar of new spending.


The Senate Finance Committee’s Part D redesign shifts manufacturer liabilities from many to a select and valuable few and does so by creating a new liability that only targets a segment of manufacturers whose patients enter the catastrophic phase.  While the goal of this reform is worthwhile, the policy it takes to get there creates new liabilities to the government and leaves distortions in the benefit and thus the marketplace.

The pay for mechanism for redesign disproportionately falls on manufacturers of high value, innovative drugs, as noted by Avalere, which could harm innovation in some disease areas, including diseases with little or no treatment options for seniors.

While the Senate Finance Committee’s out of pocket cap redesign appears to level the playing field, it does so with a dangerous side effect. As written, it is undeniable the Senate Finance Committee’s new 20 percent liability requirement will directly affect investment patterns present and future for companies that are pursuing high value therapies for Part D populations under the current benefit design.  

In fact, according to Avalere, the new increased liability in some classes of drugs could exceed 500%.

A better solution to reform the Part D benefit would be to reform it in a way that does not punish (and disincentivize) the development of high value treatments.

As lawmakers continue to look for ways to further improve the existing Finance Committee Part D redesign package, they should not overlook its damaging creation of new liabilities placed solely on one group of stakeholders.  A better option would not institute new liability that would greatly disrupt the marketplace which so many innovators have been working under. 

In considering any redesign for Medicare Part D, policy makers should ensure they do as much as possible to reduce distortions in the marketplace and ensure companies continue to compete and develop high value medicines for America’s seniors.

Photo Credit: Flickr