Alex Hendrie

ATR Opposes Retroactive Changes to Conservation Easement Deduction

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Posted by Alex Hendrie on Friday, August 16th, 2019, 9:22 AM PERMALINK

ATR has released a letter in opposition to retroactive changes to the conservation easement deduction. As the Senate Finance Committee continues its inquiry into potential abuses of the conservation easement charitable deduction, they should reject retroactive tax increases that undermine confidence in the tax system and harm taxpayers that have relied on current law. 

Read the letter here or below. 

Dear Members of the Senate Finance Committee:

As the Committee continues its inquiry into potential abuses of the conservation easement deduction under IRC Section 170(h), I write to oppose any retroactive changes to the provision. ATR opposes retroactive tax increases that undermine confidence in the tax system and harm taxpayers that have relied on current law.

One legislative proposal referred to the Finance Committee, S. 170, has called for retroactive changes to the conservation easement deduction effective for tax years ending after December 23, 2016.  Such an effective date would disallow deductions for donations made as far back as January 2016 – more than 3-1/2 years ago. ATR believes there is no basis for a retroactive change, especially since the conservation easement deduction has been reaffirmed and strengthened by Congress in recent years. Any changes to the deduction rules should be made prospectively only – for donations after the date of enactment.

Retroactivity is Bad Tax Policy

The tax code relies on consistency, certainty, and fairness. Taxpayers routinely make decisions based on a reasonable interpretation of the law with the expectation that the future changes to the law will not be applied looking backwards.

Legislation that retroactively changes the tax code would violate this principle by affecting activity (in this case irrevocable conservation easement donations made and resulting deductions claimed) that has already occurred. This would also undermine confidence in the tax system and discourage taxpayers from taking advantage of explicit tax incentives (e.g., for charitable contributions, business investments, and energy efficiency) if they fear Congress might retroactively eliminate these incentives in the future.

Generally, even when Congress has determined a statutory provision is being used inconsistent with its original intent, Congress has disallowed or modified 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 Conservation Easement Deduction Has Routinely Been Reaffirmed By Congress

The conservation easement deduction was first created in 1976 and allowed taxpayers to claim a deduction for the donation of conservation easements to qualified land trusts. In 2006, the deduction was temporarily enhanced with strong bipartisan, bicameral support to allow taxpayers to deduct up to 50 percent of their adjusted gross income and carry forward any unused deductions for up to 15 years.  Congress made this enhancement permanent in 2015. 

This legislative history demonstrates clear, bipartisan support for the conservation easement deduction as an incentive for taxpayers to conserve their property for future generations. 

IRS Notice 2017-10 Does Not Justify Retroactive Legislation

Some have incorrectly suggested that IRS Notice 2017-10 released on December 23, 2016, would justify a retroactive legislative change as set forth in S. 170.

There is no justification for this claim. The IRS Notice required taxpayers and others to give the IRS additional information regarding certain conservation easement donations.

In no way did it change the law regarding the ability of taxpayers to take the conservation easement deductions.

Conclusion

Moving forward, lawmakers should conduct their review of potential abuses of IRS Section 170(h) in a way that gives stakeholders ample opportunity to weigh in on possible legislative solutions.

Any such legislative solutions should respect prior Congressional intent and avoid retroactive tax changes for those have relied on current law.

Onward, 

Grover G. Norquist
President, Americans for Tax Reform

Photo Credit: Henry Burrows


Democrats Are Wrong to Push A Tax on Stock Trades

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Posted by Alex Hendrie on Thursday, August 1st, 2019, 4:55 PM PERMALINK

It is six months until voters cast their first ballots in the Democrat presidential primary, but candidates have already rolled out a slew of tax increases on the American people.

One of these taxes, a financial transactions tax (FTT), is gaining traction among an increasing number of left-wing presidential candidates. FTTs would be imposed on the sale of any stocks, bonds, and derivatives.Kamala Harris’ plan for socialized healthcare included an FTT as one of the pay-fors. 

She is not alone – Bernie SandersElizabeth WarrenPete Buttigeg, and Kirsten Gillibrand have all floated an FTT of some form. 

These Democrats are wrong to push an FTT – this type of tax has failed when it has been tried before, would harm economic growth and investment, and would fail to raise any significant revenue.  

A financial transaction tax would harm investment & economic growth

An FTT will have broad, negative economic effects. By imposing a barrier to trades, this tax will increase the cost of capital and reduce productivity which would in turn harm wages and jobs. 

This tax would also increase market volatility as there would be fewer buyers and sellers and therefore more price jumps.

An FTT would especially impact fund managers that are responsible for 401(k)s, pensions, and index funds and make frequent trades. As a result, returns on pension funds and other savings would be lower because of the increased the costs of buying and selling and the reduction in value of shares.

In fact, BlackRock has previously estimated a financial transaction tax of 0.1 percent would result in an investor losing $2,300 in returns on a $10,000 investment in a global equity fund over ten years.

A financial transactions tax is bad tax policy

Ideal tax policy should be economically neutral by taxing income once (ideally at the point of consumption).

The FTT violates this principle by imposing an additional layer of taxation on top of existing capital gains taxes, individual income taxes, and corporate taxes. 

Because it is levied on a transaction, this tax could be imposed on the same financial instrument multiple times. In addition, the FTT would often be imposed at the same time as the capital gains tax – tax would be paid on the act of selling the asset and also on the gain of the asset.

A financial transactions tax fails to raise the revenue supporters claim

This tax would have the indirect effect of reducing income tax and capital gains tax revenue because it would reduce trades and cause capital to flee.

Case in point - an analysis by the Congressional Budget Office found that imposing a FTT would “decrease the volume of transactions and would make some types of trading activity” and “probably reduce output and employment.” 

In fact, some have predicted that a financial transactions tax would raise little, if any, net revenue because of these negative impacts.

A financial transactions tax has failed in the past

In 1984, Sweden imposed a financial transaction tax, a proposal that lasted just six years. Even though investors were restricted in moving capital to foreign markets, most trading migrated to London to avoid the tax. 

Not only did this mean the FTT raised little revenue, capital gains tax revenue dropped because of a reduction in sales. When it was abolished in 1990, investment began to return to Sweden.

This is not an isolated incident.

When Italy and France imposed FTTs in 2012, both countries raised less than a quarter of expected revenues.

study of New York State’s FTT that was in effect between 1932 and 1981 found that the tax increased the cost of capital, reduced trading and increased market volatility.

Photo Credit: Sam Valadi


Importation is the Wrong Way to Address Drug Prices


Posted by Alex Hendrie on Wednesday, July 31st, 2019, 5:27 PM PERMALINK

The Department of Health and Human Services has announced an action plan to allow the importation of prescription drugs.

This plan would create two pathways for importation: 1) a forthcoming rule that would allow pilot projects to import drugs from Canada, and 2) guidance allowing manufacturers to import versions of their FDA approved drugs sold in foreign markets.

While there are significant details of this plan to be determined, this proposal is concerning and could have significant negative consequences to the U.S. healthcare system.

Importation is not free trade because there is no level playing field. Instead, it results in the importation of socialist, market distorting price controls. 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. 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: It is entirely unclear whether importation will reduce healthcare spending as noted by the Congressional Budget Office.

Importation is not a free trade measure because there is not a free market. 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.

This disparity exists because foreign countries freeload off American innovation. They 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: While the administration says their importation plan will be safe, the FDA 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.


Democrats are Wrong to Criticize Capital Gains Indexing

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Posted by Alex Hendrie on Wednesday, July 31st, 2019, 1:53 PM PERMALINK

Ways and Means Chairman Richie Neal (D-Mass) and Senate Finance Ranking Member Ron Wyden (D-Ore.) have recently released statements opposed to indexing capital gains taxes to inflation.

Neal and Wyden allege that indexing is a tax cut for “the rich,” that the policy will blow up the deficit and that executive action would be illegal.

Is Indexing an Irresponsible Tax Cut For The Rich? No.
Both Democrats allege that this is another tax cut for “the rich” following enactment of the Tax Cuts and Jobs Act. First, as noted by the Joint Economic Committee, the TCJA actually made the tax code more progressive. Millionaires saw the share of federal taxes they pay go up (from 19.3% to 19.8%), while those making less than $50,000 per year saw their share of federal taxes go down (from 4.4% to 4.1%).

Second, at worst indexing capital gains would reduce the share of the federal tax burden of the rich by a very minor amount. Democrats say that indexing capital gains would benefit the rich citing the Penn-Wharton Budget Model which said that 86 percent of the benefits follow to the top 1 percent of taxpayers.

However, that same study shows that the top 0.1 percent see their share of federal tax burden drop from 13.6% to just 13.5% and the 99 to 99.9 percent percentile see their share drop from 15% to 14.9%.  In that context, it’s hardly a giant tax cut for the rich. 

It is also important to note that taxpayers in the 0-20, 20-40, and 40-60 percentiles see no change in their share of federal tax burden from indexing capital gains to inflation.

However, this line of thinking also misses the point. Proponents of cutting the capital gains tax support this policy because it is a tax on investment and productivity. As noted below, reducing the tax will increase economic growth and efficiency. 

Does this blow up the deficit? No.
The Penn-Wharton Budget Model estimates this proposal will cost $102 billion over ten years.

This estimate should be considered the ceiling as it does not account for economic feedback. As the report notes: “This 10-year cost estimate of $102 billion ignores potential behavioral responses by investors.”

Even ignoring economic feedback, this $102 billion cost is a drop in the bucket compared to the policies pursued by the left. House Democrats just pushed a budget deal that increased spending by $324 billion over two years. If the Democrats had their way, this deal would have had no offsets. Speaker Pelosi even reportedly rejected a proposal from the White House to offset $150 billion of this increased spending.

Putting this hypocrisy aside, it is important to note that reductions in the capital gains tax have increased revenue in the short term.

When tax rates are high, investors realize fewer gains. Conversely, when tax rates are lowered, investors realize their gains. In turn, this tax reduction triggers increased revenue to the federal government.

For example, capital gains tax cuts in 1997 and 2003 saw higher than projected revenues as noted in this document: 

  • In 1997, Congress cut the capital gains tax rate from 28 to 20 percent. Revenue estimators expected to collect $285bn of capital gains tax revenue for fiscal years 1997-2000. However, tax revenues came in at $374bn, 31 percent higher than revenue estimators suggested.
     
  • As part of a larger tax bill in 2003, the capital gains tax rate was reduced from 20 to 15 percent. In 2003, JCT/CBO anticipated the government would collect $327bn of cap gains tax revenue over the 5 year cap gains tax cut. However, the government collected $537bn.

 

Indexing Capital Gains Will Have Significant Economic Benefits

Lower capital gains tax rates increase the after-tax rate of return on assets and push asset values higher. As asset values increase, there are more gains to be taxed. In nearly every case save for the 1981 recession, lower tax rates have translated into higher stock prices. Only in one instance, 2013, did stocks increase after the capital gains tax rate was raised and this was because monetary policy stimulus dwarfed the impact of the capital gains tax increase.

This would directly benefit the 54 percent of Americans that own stocks. By increasing asset values, this policy would also benefit the 55 million workers that own a 401k.

Over the longer term, a capital gains tax cut spurs the growth of new businesses, increases the wages of workers, enhances consumer purchasing power, and grows the economy at large, resulting in more overall gains to be taxed.

In addition, a significant portion of an asset is inflation. In fact, 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.

Top Democrats used to agree that indexing capital gains to inflation was good for economic growth. In a speech on the House floor in 1992, then-Congressman and current Senate Minority Leader Chuck Schumer (D-NY) said: “If we really want to increase growth, there are proposals that we can do. I would be for indexing all capital gains and savings and borrowing.”

There is Strong Legal Precedent for Administrative Action

It is important to note that the IRS already makes inflation adjustments for over 60 tax provisions every year including adjusting individual income tax brackets, the standard deduction, and the Earned Income Tax Credit.

In addition, the authority to index capital gains taxes is based on existing legal precedent as outlined in legal memos (see here and here). According to these studies the cost basis of an asset when calculating the capital gains tax does not necessarily mean historical cost.

For instance, as noted in the 2010 Memo by Charles Cooper and Vincent Colatriano, the Supreme Court ruled that cost is ambiguous in Verizon Communications v. FCC (2002). As Cooper and Colatriano note, this eliminates the premise of a 1992 legal memo stating that the executive does not have legal authority:

“The Court unambiguously and forcefully rejected the notion that the term cost, either as a matter of common usage or as an economic term of art, unambiguously means only the historical price actually paid for an asset. The dictionary driven ‘plain meaning’ argument did not attract a single vote. Thus, the Court’s decision wholly eliminates the fundamental premise of the OLC’s dictionary driven ‘plain meaning’ analysis in its 1992 opinion.”

An agency is prohibited from changing statutory language and cannot adopt an interpretation of language that is prohibited in statute. However, the Supreme Court has also routinely ruled that courts should defer to an agency interpretation of the law that is “reasonable”. As noted in a memo by Peter Ferrara, this position has been reaffirmed as recently as several weeks ago when the Supreme Court ruled in Kisor v. Wilkie (2019).

Photo Credit: New America


Dem Socialized Healthcare Plan Will Lead to Middle Class Tax Hikes


Posted by Alex Hendrie on Tuesday, July 30th, 2019, 9:16 PM PERMALINK

During tonight’s Presidential debate, several Democrat candidates including Elizabeth Warren were unable to answer whether they could pass socialized healthcare without tax increases on the middle class.

The fact is, there is no way to pay for Medicare for All without tax increases on the middle class.

The socialized healthcare plan proposed by Bernie Sanders includes a new, $3.9 trillion, 4 percent payroll tax on workers.

This tax kicks in for families earning $29,000 or more, far below former President Barack Obama’s definition of middle class of $250,000 in annual income.

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

It is also important to note that a significant portion of Sanders’ $14 trillion tax increase also relies on eliminating healthcare options for American families ($4.2 trillion ) and a 7 percent tax on employers large and small ($3.5 trillion).

Regardless, taxes on “the rich” will not come close to paying for Medicare for All.

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 co-mingling of taxes: 

  • 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.”)

 


Senator Cruz Leads Letter Urging Trump Admin to Index Capital Gains Taxes to Inflation

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Posted by Alex Hendrie on Monday, July 29th, 2019, 4:20 PM PERMALINK

Senator Ted Cruz (R-Texas) today released a letter urging Treasury Secretary Steven Mnuchin to use his executive authority to end the taxation of inflation by indexing the calculation of capital gains taxes.

Cruz was joined by 20 Senators: Kevin Cramer (R-N.D.), Jim Inhofe (R-Okla.), Marsha Blackburn (R-Tenn.), Thom Tillis (R-N.C.), Pat Toomey (R-Pa.), John Boozman (R-Ark.), James Lankford (R-Okla.), Steve Daines (R-Mont.), John Barrasso (R-Wyo.), John Kennedy (R-La.), Mike Braun (R-Ind.), Ron Johnson (R-Wis.), Cindy Hyde-Smith (R-Miss.), John Cornyn (R-Texas), Rand Paul (R-Ky.), Richard Burr (R-N.C.), Roy Blunt (R-Mo.), Roger Wicker (R-Miss.), Jim Risch (R-Idaho), Ben Sasse (R-Neb.).

As the letter correctly notes, indexing capital gains taxes to inflation will build on the success of the Tax Cuts and Jobs Act in growing the economy and increasing the wealth of American middle-class families:

“The United States economy has experienced historic levels of growth as a result of Congress and the current Administration’s policies such as the Tax Cuts and Jobs Act. Implementing a policy of indexing capital gains to inflation will help to perpetuate these successes by encouraging savings, investment, and innovation so that everyday Americans can continue to enjoy better lives and livelihoods.”

“All taxpayers appreciate Senator Cruz’s leadership in the fight to stop the government from taxing inflation. This has gone on too long. Taxing inflation is wrong and unfair,” said Grover Norquist, President of Americans for Tax Reform. “The Trump administration has the power to correctly define gains as real gains and not inflation gains.”

The full letter can be found here.

Background

  • The Trump administration is considering indexing capital gains taxes to inflation, as reported by Bloomberg on June 27, 2019.
    • Treasury Secretary Mnuchin acknowledged that the policy is “under consideration” in a July 18 article.
    • The Treasury Department has the authority to redefine the calculation of capital gains taxes by excluding inflation from tax owed, based on several legal analyses going back several decades.
    • According to these studies, the “cost basis” when calculating the value of the asset for tax purposes need not necessarily be the historical cost.  More information on this authority can be found here.
  • There is strong support for indexing capital gains taxes to inflation:
    • The President’s Chief Economic Adviser Larry Kudlow wrote in support of the policy in a CNBC in August 2017.
    • Vice President Mike Pence supported indexing and led the effort as a Congressman in 2007. Pence introduced legislation sponsored by 88 Members of Congress including Ways and Means Republican Leader Kevin Brady (R-Texas).
    • The National Federation for Independent Business endorsed the policy in July 2018.
    • The Chamber of Commerce wrote a letter supporting indexing capital gains taxes to inflation in July 2019.
    • Then-Congressman Chuck Schumer (D-N.Y.) endorsed indexing in a 1992 floor speech. Schumer correctly stated that indexing would increase growth and lead to more savings and borrowing.
    • The Small Business and Entrepreneurship Council wrote in support of indexing capital gains taxes in a July 2019 letter.
    • The Farm Bureau supports indexing capital gains taxes to inflation.
    • Conservative activists including former Senator Jim DeMint and former Attorney General Ed Meese endorsed indexing in a July 2019 Conservative Action Project memo.
    • 51 conservative groups including ATR, the American Conservative Union, Citizens Against Government Waste, FreedomWorks, and National Taxpayers Union urged Trump to end the inflation tax in a January 2019 letter.
  • Indexing capital gains to inflation will have several strong economic benefits:  
    • The unlocking effect: High tax rates lead investors to “lock-in” their holdings. As tax rates come down, this “lock-in” effect is reduced and many assets are sold that would otherwise have remained locked-in by investors seeking to avoid the tax. The selling triggers the tax which is then paid by the investor usually at tax season time.
    • Increasing asset values: Lower capital gains tax rates increase the after-tax rate of return on assets and push asset values higher. As asset values increase, there are more gains to be taxed. In nearly every case, save for the 1981 recession, lower tax rates have translated into higher stock prices. Only in one instance, 2013, did stocks increase after the capital gains tax rate was raised and this was because monetary policy stimulus dwarfed the impact of the capital gains tax increase.
    • The dynamic effect: Over the longer term, a capital gains tax cut spurs the growth of new businesses, increases the wages of workers, enhances consumer purchasing power, and grows the economy at large, resulting in more overall gains to be taxed.
  • Inflation comprises a significant portion of capital gains taxes:
    • For instance, 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.
    • This is not an isolated case. Inflation comprises 64 percent of tax owed on Exxon Mobil shares purchased at the beginning of 2000 and sold in 2019 and 70 percent of tax owed on IBM shares purchased in 1970 and sold in 2019.

 

 

Photo Credit: Gage Skidmore


Senate Finance Republicans Stand Against Price Controls

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Posted by Alex Hendrie on Thursday, July 25th, 2019, 3:56 PM PERMALINK

The Senate Finance Committee recently marked up the Prescription Drug Pricing Reduction Act (PDPRA). During this markup, Senator Pat Toomey (R-Pa.) introduced two amendments to oppose socialist price controls.

The first amendment removed the Medicare Part D inflationary rebate penalty in PDPRA. The second amendment prohibited the Department of Health and Human Services International Pricing Index from being enacted.

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.) joined Sen. Toomey in supporting both amendments. Senator Richard Burr (R-NC) also supported the amendment to remove the Part D inflationary rebate penalty.

These Senators deserve praise for voting against these harmful policies and standing with taxpayers, seniors and free market policies.

Unfortunately, both amendments failed to receive majority support with the Senate Finance Committee.

See also: 

  • An inflationary rebate penalty 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 [link]
  • The International Pricing Index harms patients and suppresses innovation [link]

Photo Credit: Gage Skidmore


ATR Urges Support for Toomey Amendment to Senate Finance Drug Pricing Bill


Posted by Alex Hendrie on Wednesday, July 24th, 2019, 1:25 PM PERMALINK

Senator Pat Toomey (R-Pa) is expected to offer an amendment to the Prescription Drug Pricing Reduction Act (PDPRA) that will be marked up by the Senate Finance Committee on Thursday.

This amendment removes the Medicare Part D inflationary rebate penalty. ATR urges all Senators to support, co-sponsor and vote for this amendment.

Medicare Part D has existed as a market-based program that relies on 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. 

PDPRA undermines this system by instituting a price control mechanism into Part D in the form of an inflationary rebate penalty. Instead of being determined by market forces, prices will now in part be determined through government price setting.

This will disrupt the ability of all stakeholders to negotiate in a way that keeps prices low. In fact, this rebate does nothing to directly lower costs for seniors and may result in a windfall for plans as they are not forced to pass along any savings.

Part D 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.

Part D has also succeeded in keeping costs low and providing seniors with the medicines they need. 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 roughly $35 per month, just half the originally projected amount, while 9 in 10 seniors are satisfied with the Part D drug coverage.

As the Senate Finance Committee takes up their proposal, they should adopt Toomey’s amendment to strip the inflationary rebate penalty and safeguard free market competition in Medicare Part D.


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


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