Alex Hendrie

IRS Data: Middle Class Americans Saw Biggest Tax Reduction from Trump Tax Cuts


Posted by Alex Hendrie on Tuesday, September 22nd, 2020, 5:10 PM PERMALINK

The IRS has released 2018 Statistics of Income (SOI) data. 

This data shows that middle income American families saw the biggest tax cut – measured as the percentage decrease in "total tax liability" between 2017 and 2018 – from the Trump-Republican Tax Cuts and Jobs Act (TCJA).

Total tax liability includes federal income taxes as well as taxes listed on IRS form 1040 such as social security taxes on self-employment income and tax applicable to individual retirement arrangements (IRAs).

As the data notes, Americans with incomes between $50,000 and $100,000 saw their tax liability drop by twice as much as Americans with income above $1 million:

-Americans with adjusted gross income (AGI) of $50,000 to $74,999 saw a 13.2 percent reduction in average tax liabilities between 2017 and 2018. 

-Americans with AGI of between $75,000 and $99,999 saw a 13.6 percent reduction in average federal tax liability between 2017 and 2018. 

-Americans with AGI of $1 million or above saw a 5.8 percent reduction in average federal tax liability between 2017 and 2018, less than half the tax cut seen by Americans with AGI between $50,000 and $100,000.


Drug Price Controls Could Cost Jobs in Key States

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Posted by Alex Hendrie on Thursday, September 17th, 2020, 12:58 PM PERMALINK

Price controls on prescription medicines proposed by President Trump and House Speaker Nancy Pelosi (D-Calif.) could have a significant negative economic impact on key states including Florida, Pennsylvania, Michigan, and North Carolina.

President Trump recently signed a “most favored nation” executive order that adopts foreign, socialist price controls by tying the prices we pay for medicines to the artificially low prices set by other countries. In addition, Speaker Pelosi has proposed H.R. 3, legislation that would force manufacturers to accept government set prices on hundreds of medicines or face a 95 percent excise tax.

Ahead of the 2020 election, lawmakers should consider the impact such proposals would have on jobs and the economy.

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.

These jobs support $1.1 trillion in total output, a significant contributor to the overall economy considering U.S. GDP at the end of 2017 was $19.7 trillion, according to the Bureau of Economic Analysis.

In addition to threatening jobs and the economy, price controls could have significant political impacts. For instance, in Michigan and Pennsylvania, the number of pharmaceutical jobs exceed Trump’s margin of victory in 2016. In Florida and North Carolina, the total number of direct, indirect and induced jobs exceed Trump’s margin of victory.
 

State

2016 Trump margin of victory

Number of direct pharmaceutical jobs

Number of direct, indirect, and induced pharmaceutical jobs

Florida

112,911

25,757

130,903

Pennsylvania

44,292

46,830

253,876

Michigan

10,704

15,982

86,485

North Carolina

173,315

44,969

251,053

 

Economic and political impacts of price controls in Florida

  • Pharmaceutical manufacturers directly employ 25,757 workers in Florida. When accounting for direct, indirect, and induced jobs, manufacturers are responsible for an estimated 130,903 jobs. These jobs contribute an estimated $29 billion in economic impact per year.
     
  • In the 2016 presidential election, Florida was decided by a margin of 112,911 votes. Donald Trump won the state by 48.6 of the vote, receiving 4,617,886 votes to Hilary Clintons 4,504,975 votes.  
     
  • If all 25,757 workers directly employed by the pharmaceutical industry in Florida voted as a bloc, they could have had a significant impact on the outcome. If all 130,903 workers whose jobs were directly or indirectly related to the pharmaceutical industry as a bloc, they could have decided who won the state.

 

Economic and political impacts of price controls in Pennsylvania

  • Pharmaceutical manufacturers directly employ 46,830 workers in Pennsylvania. When accounting for direct, indirect, and induced jobs, manufacturers are responsible for an estimated 253,876 jobs. These jobs contribute an estimated $67 billion in economic impact per year.
     
  • In the 2016 presidential election, Pennsylvania was decided by a margin of 44,292 votes. Donald Trump won the state with 48.2 percent of the vote, receiving 2,970,733 votes to Hillary Clinton’s 2,926,441 votes. 
     
  • If all 46,830 workers directly employed by the pharmaceutical industry in Pennsylvania voted as a bloc, they could have decided who won the state.  If all 253,876 workers whose jobs were directly or indirectly tied to the pharmaceutical industry voted as a bloc, they would constitute a group five times the margin of victory. 

 

Economic and political impacts of price controls in Michigan

  • Pharmaceutical manufacturers directly employ 15,982 workers in Michigan. When accounting for direct, indirect, and induced jobs, manufacturers are responsible for an estimated 86,485 jobs. These jobs contribute an estimated $22 billion in economic impact per year.
     
  • In the 2016 presidential election, Michigan was decided by a margin of 10,704 votes. Donald Trump won the state with a 47.3 percent of the vote, receiving 2,279,543 votes to Hilary Clinton’s 2,268,839 votes. 
     
  • If all 15,982 workers directly employed by the pharmaceutical industry in Michigan voted as a bloc, they could have had decided who won the state. If all 86,495 workers whose jobs were directly or indirectly related to the pharmaceutical industry voted as a bloc, they would constitute a group eight times the margin of victory.   

 

Economic and political impacts of price controls in North Carolina

  • Pharmaceutical manufacturers directly employ 44,960 workers in North Carolina. When accounting for direct, indirect, and induced jobs, manufacturers are responsible for an estimated 251,053 jobs. These jobs contribute an estimated $74 billion in economic impact per year.
     
  • In the 2016 presidential election, North Carolina was decided by a margin of 173,315 votes. Donald Trump won the state with 49.8 percent of the vote, receiving 2,362,631 votes to Hilary Clinton’s 2,189,316 votes. 
     
  • If all 44,969 workers directly employed by the pharmaceutical industry in North Carolina voted as a bloc, they could have had a significant impact on the outcome. If all 251,053 workers whose jobs were directly or indirectly related to pharmaceutical industry as a bloc, they would make up a group about one and a half times the margin of victory.  

Photo Credit: Chris Potter


Census Data: Wages Grew by $4,400 Last Year, a 6.8 Percent Increase

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Posted by Alex Hendrie on Wednesday, September 16th, 2020, 8:30 AM PERMALINK

Median household income increased by $4,440 or 6.8 percent in 2019 – the largest one-year wage growth in history.

In addition, the poverty rate declined from 11.8 percent to 10.5 percent, hitting a 50-year low, according to recently released Census Bureau data.

The 6.8 percent wage growth in 2019 exceeds the wage growth experienced during the entire Obama Administration. In 2008, median income was $59,877. By 2016, it had grown to just $62,898 – an increase of just $3,021 or just 5 percent. 

Since 2016, real median household income has increased by almost 10 percent and was $68,703 in 2019. While this is benefiting Americans at every income level, lower wage workers are seeing their incomes grow faster than higher wage workers according to the Federal Reserve Bank of Atlanta. 

According to the Census data, real median income increased at record levels in key demographics. African-Americans saw 7.9 percent wage growth, Hispanic Americans saw 7.1 percent wage growth, and Asian Americans saw 10.6 percent wage growth.

This strong wage growth lifted 4 million Americans out of poverty in 2018 and 2019.

This good news again demonstrates that the Trump-GOP policies of tax cuts and deregulation work.

While the Coronavirus pandemic interrupted the strong American economy, there are already signs that we are recovering quickly.

Over 10 million jobs were created in the last four months and analysts are predicting third quarter annualized GDP growth of 30 to 35 percent.

Moving forward, we need to ensure that pro-growth policies remain in law so that workers and businesses can continue recovering and thriving. While President Trump and Republicans are promising to push policies that allow the economy to regrow and have pledged to create another 10 million jobs, Democrats and Joe Biden are pushing for at least $4 trillion in tax increases. 

Biden has repeatedly promised to repeal the Tax Cuts and Jobs Act which would raise taxes on businesses and Americans at every income level.

Photo Credit: Gage Skidmore


REMINDER: 80 Groups Oppose Most Favored Nation Drug Pricing Executive Order

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Posted by Alex Hendrie on Monday, September 14th, 2020, 12:00 PM PERMALINK

80 free market, conservative, and libertarian organizations and activists oppose President Trump’s recently signed “most favored nation” (MFN) executive order to impose foreign price controls on the medicines used by American seniors. 

Trump's executive order will tie the prices we pay for medicines in Medicare Part B and Part D to the prices in foreign countries, most of which have government-set prices.

Signatories of the coalition letter include representatives from prominent national organizations as well as almost 30 states.

President Trump has repeatedly stood strong against the left’s calls for socialized medicine, even promising in the 2020 State of the Union Address that “we will never let socialism destroy American healthcare.” 

Unfortunately, an MFN policy would adopt these same socialist healthcare policies and threaten American medical innovation. As the letter notes: 

"Adopting these price controls will slow medical innovation, threaten American jobs, and undermine criticism of single-payer systems. In addition, a United States embrace of price controls will make it immeasurably more difficult to get foreign countries to pay their own way in the development of new medicines."

An MFN policy would also threaten our COVID-19 response and exacerbate foreign freeloading off of American innovation. As the letter notes: 

"The U.S. is the best in the world when it comes to developing innovative, lifesaving and life preserving medicines. Because of this, the U.S. is leading the way when it comes to developing COVID-19 vaccines, with several promising candidates entering the final stages of testing and clinical trials."

Rather than adopting price controls, the signatories urge President Trump to continue pushing policies that encourage American innovation like tax cuts and renegotiated trade deals:  

“As President, you have championed vital changes in tax and regulatory policies that have allowed free market innovation to flourish. We believe a market-based approach like those that your administration has consistently supported in other policy areas will lead to economic growth and promising new treatments but adopting price controls through the MFN plan would undermine rather than build on those successes.”

Click here to read the full letter.

Signatories of the coalition letter:

Grover Norquist
President, Americans for Tax Reform

Brent Wm. Gardner
Chief Government Affairs Officer, Americans for Prosperity

Joel White
President, Council for Affordable Health Coverage

Grace Marie-Turner      
President, Galen Institute (organization listed for affiliation purposes only)

Daniel Schneider
Executive Director, American Conservative Union

Lisa B. Nelson
CEO, ALEC

Adam Brandon
President, FreedomWorks

Pete Sepp
President, National Taxpayers Union

Phil Kerpen
President, American Commitment

Thomas Schatz
President, Citizens Against Government Waste

Karen Kerrigan
President & CEO, Small Business & Entrepreneurship Council

David Williams
President, Taxpayers Protection Alliance

Saulius “Saul” Anuzis & Jim Martin
President, 60 Plus Association
Founder/Chairman, 60 Plus Association

Marty Connors
Leader, Alabama Center-Right Coalition 

Bethany Marcum
Executive Director, Alaska Policy Forum

Dee Stewart
President, Americans for a Balanced Budget

Richard Manning
President, Americans for Limited Government

Michael Bowman
President, ALEC Action

Kevin Waterman
Chair, Annapolis Center-Right Coalition Meeting (Maryland)

Robert Alt
President and CEO, The Buckeye Institute

Rabbi Aryeh Spero
President, Caucus for America

Ryan Ellis
President, Center for a Free Economy 

Andrew F. Quinlan
President, Center for Freedom and Prosperity 

Jeffrey Mazzella
President, Center for Individual Freedom

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

Peter Pitts
President, Center for Medicine in the Public Interest

John Hinderaker
President, Center of the American Experiment

Leo Knepper
CEO, Citizens Alliance of Pennsylvania

Donald Bryson 
President & CEO, Civitas Institute

Regina Thomson
President, Colorado Issues Coalition

Gregory Conko
Senior Fellow, Competitive Enterprise Institute

James Edwards
Executive Director, Conservatives for Property Rights 

Matthew Kandrach
President, Consumer Action for a Strong Economy 

Fred Roeder
Health Economist/Managing Director, Consumer Choice Center

Yaël Ossowski
Deputy Director, Consumer Choice Center

Katie McAuliffe
Executive Director, Digital Liberty

Robert Roper
President, Ethan Allen Institute

Annette Meeks
CEO, Freedom Foundation of Minnesota           

George Landrith
President, Frontiers of Freedom

Ray Chadwick
Chairman, Granite State Taxpayers

Naomi Lopez
Director of Healthcare Policy, Goldwater Institute

Mario H. Lopez 
President, Hispanic Leadership Fund

Carrie Lukas
President, Independent Women's Forum

Heather R. Higgins
CEO, Independent Women's Voice

Andrew Langer
President, Institute for Liberty

Tom Giovanetti
President, Institute for Policy Innovation

Sal Nuzzo
Vice President of Policy, James Madison Institute

Amy Oliver Cooke
CEO, John Locke Foundation

Drew Cline
President, Josiah Bartlett Center for Public Policy

Seton Motley
President, Less Government

Jay Fisher
Immediate Past Chairman, Lisle Township Republican Organization

Doug McCullough
Director, Lone Star Policy Institute

Lindsay Killen 
Vice President for Strategic Outreach, Mackinac Center for Public Policy

Brett Healy
President, The John K. MacIver Institute for Public Policy 

Matt Gagnon
President, Maine Policy Institute

Charles Sauer
President, Market Institute

Dee Hodges
President, Maryland Taxpayers Association, Inc

Gene Clem
Spokesman, Michigan Tea Party Alliance

Jameson Taylor, Ph.D.
Vice President for Policy, Mississippi Center for Public Policy

Tim Jones
Chair, Missouri Center-Right Coalition
Fmr. Speaker, Missouri House

David A. Ridenour 
President, National Center for Public Policy Research

Everett Wilkinson
Chairman, National Liberty Federation

John Tsarpalas
President, Nevada Policy Research Institute

Scott Pullins
Founder, Ohio Taxpayers Association

Doug Kellogg
Executive Director, Ohioans for Tax Reform

Sally Pipes
President and CEO, Pacific Research Institute

Ellen Weaver
President & CEO, Palmetto Promise Institute

Daniel Erspamer
Chief Executive Officer, Pelican Institute for Public Policy

Ed Martin
President, Phyllis Schlafly Eagles

Lorenzo Montanari 
Executive Director, Property Rights Alliance

Stone Washington
Member, Project 21

Paul J. Gessing
President, Rio Grande Foundation

Bette Grande
President & CEO, Roughrider Policy Center

James L. Setterlund
Executive Director, Shareholder Advocacy Forum

Paul E. Vallely, Major General, US Army (ret)
Chairman, Stand Up America US Foundation 

Richard Watson 
Chair, Tallahassee Center-Right Coalition

Sara Croom
Executive Director, Trade Alliance to Promote Prosperity

C. Preston Noell III
President, Tradition, Family, Property, Inc. 

Lynn Taylor
President, Virginia Institute for Public Policy

Photo Credit: Matt Wade


Norquist Statement in Opposition to Most Favored Nation EO

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Posted by Alex Hendrie on Sunday, September 13th, 2020, 8:00 PM PERMALINK

ATR President Grover Norquist released the below statement in opposition to President Trump signing a "most favored nation" drug pricing policy:

"Imposing a 'most favored nation' drug pricing proposal into Medicare part B and Part D will adopt the same foreign price controls that President Trump has repeatedly opposed and that Democrats are campaigning on with their Medicare for All plan.

As recently as his 2020 State of the Union Address, the President promised 'We will never let socialism destroy American health care.'

An MFN would adopt these socialist policies, slowing medical innovation and threatening American jobs at a time that the economy is recovering and medical innovators are making unprecedented progress toward developing a COVID-19 vaccine."

There is strong conservative opposition to a MFN price control proposal. Last month, 80 free market, conservative, and libertarian groups and activists released a coalition letter urging President Trump to withdraw this proposal. 

The letter instead urges President Trump to apply the same successful, deregulatory, market-based approach that he has championed in other policy areas to health care:

"As President, you have championed vital changes in tax and regulatory policies that have allowed free market innovation to flourish. We believe a market-based approach like those that your administration has consistently supported in other policy areas will lead to economic growth and promising new treatments, but adopting price controls through the MFN plan would undermine rather than build on those successes."

Photo Credit: Gage Skidmore


ATR Supports Rep. Brady's "Support for Workers, Families, and Social Security Act"

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Posted by Alex Hendrie on Friday, September 11th, 2020, 2:41 PM PERMALINK

Ways and Means Republican Leader Kevin Brady (R-Texas) today introduced the “Support for Workers, Families, and Social Security Act,” legislation that provides a tax cut for low- and middle-income workers through the end of the year.

"Congressman Brady should be applauded for his legislation cutting payroll taxes. This will increase take-home pay and increase the value of work for Americans across the country and builds on the Trump-GOP effort to enact tax relief and deregulation so that the economy can continue recovering and Americans can go continue going back to work,” said Grover Norquist, President of Americans for Tax Reform.

This legislation builds on President Trump’s payroll tax executive order which deferred social security payroll taxes from September 1 to December 31, 2020.  This proposal makes the moratorium permanent so that taxpayers do not have to pay back payroll tax relief next year.

The social security tax is a 12.4 percent tax split between employees and employers. Americans pay a 6.2 percent payroll tax on wages out of every paycheck, while employers pay the other 6.2 percent. This legislation suspends the 6.4 percent paid by workers through the end of the year.

This will lead to significant tax reduction. For instance, a family earning $120,000 per year could see a tax cut of $2,500 while an individual making $55,000 could see a tax cut of over $1,100.

The legislation also ensures self-employed Americans received the same tax relief. Self-employed Americans pay the full 12.4 percent tax so there was some uncertainty whether they would receive relief under President Trump’s deferral.

In addition, the proposal protects seniors by ensuring the social security trust fund is not depleted by this tax cut.

This legislation should be supported by Congress and signed into law.

Importantly, Democrats supported payroll tax cuts a decade ago under when they were enacted in 2011 and 2012 under President Obama.

In fact, House Speaker Nancy Pelosi (D-Calif.) and Democrat Vice Presidential Candidate Joe Biden repeatedly praised payroll tax cuts noting that they would put more money in the pockets of American families. 

For instance, on December 13, 2011, Speaker Pelosi called on Congress to enact a payroll tax cut as it would benefit middle class families:

“This is about a thriving middle class.  It's about a payroll tax cut that does what it sets out to do, puts $1,500 in the pockets of Americas families who need it, who spend it and in doing so inject, inject demand--demand, demand--into our economy which further creates jobs.”

Similarly, on May 22, 2012, Biden highlighted the administration’s efforts to cut the payroll tax, noting that it would reduce taxes for 98 percent of Americans:

“In December of 2010 we passed the payroll tax that gave each and every American an average of $1,000 tax cut. One thousand dollars less was taken out of their pay in payroll taxes. We repassed that not long ago, allowing another $1,500 to go into people's pockets instead of going into taxes. Ninety-eight percent of the American people -- they get a pay stub.  They pay payroll taxes. So when you cut taxes for people with a -- with a payroll tax, 98 percent of the American people are getting a tax cut.”

Given this past support for payroll taxes, Democrats should have no problem supporting and voting for Congressman Brady’s Support for Workers, Families, and Social Security Act.

Photo Credit: Gage Skidmore


Transparency Rule Should Be Improved To Better Benefit Consumers

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Posted by Alex Hendrie, Tom Hebert on Thursday, September 10th, 2020, 10:45 AM PERMALINK

The Trump Administration has pushed for healthcare transparency that benefits American patients and curbs the opacity of the health system.

To that end, the administration has proposed a rule on “Transparency in Coverage” that is designed to encourage healthcare insurers to be more transparent with patients regarding healthcare costs. 

While this push for healthcare transparency is laudable, components of this proposed rule could undermine efforts to lower healthcare costs for patients all across the country. Although transparency measures are often popular with the American people, it is important that they are not used to force businesses and individuals to give up sensitive information that does nothing to properly inform the public.

There are two central problems with this rule. First, the rule forces insurers to disclose negotiated rates to consumers, proprietary financial information that is integral to their business operations. This would do nothing to better inform consumers and could actually drive up costs by allowing third parties to leverage the proprietary information. Second, the rule mandates the creation of internet portals for consumer use, subjecting insurers to stringent government mandates and onerous regulations. A better approach would be to work with the private sector on increasing utilization of existing portals.

Overview of the Proposed Rule

In June 2019, President Trump issued Executive Order (EO) 13877 with the goal of empowering patients to choose the healthcare that is best for them. The EO directed several Departments to issue Advanced Notices of Proposed Rulemaking (ANPRM) to solicit comments from stakeholders on a proposal to require healthcare providers, health insurance issuers, and self-insured group health plans to provide patients with information about expected out-of-pocket costs before they receive care. 

In November, the Departments of Health and Human Services (HHS), Treasury, and Labor instead issued a Notice of Proposed Rulemaking (NPRM) on “Transparency in Coverage.” 

If implemented, the proposed rule would mandate commercial health plans to create an internet-based tool to supply patients with a cost estimate of their out-of-pocket expenses before they receive care from a provider. These internet portals would be subject to strict regulation by the Departments that issued the rule, and would likely impose hundreds of millions of dollars in regulatory costs on the healthcare system. 

The rule details seven elements that plans must disclose to healthcare consumers:

  1. Estimated cost-sharing liability: an estimate of the total out-of-pocket cost a patient is responsible for paying for a covered item or service under the terms of their healthcare plan or coverage.
     
  2. Accumulated amounts: the amount of financial responsibility the consumer has incurred up to the date of request for cost-sharing information.
     
  3. Negotiated rate: the contractually-agreed upon amount of money that providers accept as full payment for covered items or services.
     
  4. Out-of-network allowed amount: the maximum amount a provider would pay for an out-of-network item or service, including the consumer’s cost-sharing liability. 
     
  5. Items and services content list: for a service that is subject to a bundled payment arrangement, the issuer must display a list of covered items and services and the consumer’s cost-sharing liability for those services.
     
  6. Notice of prerequisite to coverage: if applicable, the issuer would indicate if a covered item or service is subject to a prerequisite for coverage, like concurrent review or prior authorization. 
     
  7. Disclosure notice: issuers must provide several disclosure notices, including ––
  • A statement indicating that consumers may be balance billed by out-of-network providers. 
  • A statement indicating that actual charges may be different than the cost-sharing estimate. 
  • A statement indicating other necessary disclaimers, like when the estimate expires or whether rebates or discounts impact prescription drug estimates.
     

While much of this information should be disclosed to consumers, a significant amount of it already is disclosed through existing tools developed by insurers. However, the disclosure of negotiated rates should not be disclosed as it forces businesses to release proprietary financial information that is of little use to patients but is akin to the intellectual property of insurers.

Disclosure of Negotiated Rates Is Meaningless to Consumers and Could Drive Up Costs for Patients and Families

Accessing negotiated rates is essentially meaningless for consumers because they do not reflect the out-of-pocket costs consumers pay. This requirement distracts from what is really important –– the direct cost to patients and overall quality of care. 

Deciphering negotiated rates would be difficult for even the most sophisticated healthcare consumer. Consumers would have to enter billing codes and other complex data into the government-mandated internet portals to access the negotiated rates that are useless to them in the first place. Patients and families have enough to deal with in trying times without having to decipher files that can only be read by machines. 

Instead of reducing costs, the proposed rule could have the opposite effect of driving healthcare costs up for consumers all across the country by forcing insurers to disclose negotiated rates for in-network services.

Negotiated rates are the proprietary financial information of the parties to the contract -- healthcare providers and insurers, so this proposed rule is akin to using government power to force companies to release their intellectual property to competitors. The biggest beneficiary of disclosing negotiated rates would be third parties and consultants, who could stand to receive a windfall using the proprietary financial information of healthcare plans to game the system and make profit.

This is not hypothetical -- in 2015, the Federal Trade Commission (FTC) looked at the impact that negotiated rate disclosure would have on patients and concluded that transparency can drive up prices. As the report notes:  

Too much transparency can harm competition in any industry, including health care. Typically, health care providers (hospitals, outpatient facilities, physician groups, or solo practitioners) compete against each other to be included on a health plan’s list of preferred providers. When networks are selective, providers are more likely to bid aggressively, offering lower prices to ensure their inclusion in the network. But when providers know who the other bidders are and what they have bid in the past, they may bid less aggressively, leading to higher overall prices.

Transparency in private markets isn’t just a problem that affects healthcare. In the 1990s, the Danish government forced manufacturers of ready-mix concrete to disclose their negotiated rates to consumers. The result? Concrete prices rose 15 to 20 percent. As companies realized what other bidders were charging for their product, they colluded to raise prices.

Ultimately, disclosure of negotiated rates undermines the ability of insurers and providers to deliver the best quality care to consumers at the lowest possible price. When negotiated rates are disclosed, the absence of selective networks discourages vigorous competition.

If the impetus for competition is gone, negotiated rate disclosure could even create a perverse incentive for collusion, which would drive up prices for patients. Any transparency proposal should not force disclosure of negotiated rates.

Internet-based tools fail to drive down costs 

The second issue with the proposed rule is that it forces insurers to create new internet portals subject to stringent government mandates and regulations. While consumers should be able to view data in a readily available way, insurers have already created similar internet portals, so this mandate is unnecessary and could force the creation of duplicative portals. 

In addition, this mandate could centralize control within the federal government and impose hundreds of millions of dollars in additional regulatory costs on the private sector.

If the administration wants to give consumers access to data, agencies could partner with the private sector to increase utilization of already created tools. However, private stakeholders should have the flexibility to design these tools free of government mandates.

Existing tools have done little to directly reduce healthcare costs for consumers, as noted by several studies. For instance, a 2016 JAMA study shows no correlation between online price transparency tools and reduced consumer healthcare spending. The study focused on two large U.S. employers representative of multiple market areas that offered employees an internet-based transparency tool. 

After adjusting for demographic effects and health characteristics, being offered the tool was associated with a $59 increase in mean out-of-pocket spending for patients. The study also found that employees were largely uninterested in using the tool, with only 10 percent using it at least once. 

A recent report from the Massachusetts Attorney General’s office backs up the JAMA study. The report advises policymakers to “temper expectations that consumer-driven health care price transparency tools will reduce overall health care cost growth.” The report also found that consumers use these tools relatively infrequently, and that consumers generally do not seek to hold plans to the estimates they receive. 

Clearly, the problem with online pricing tools is that they are not widely used, not whether they are widely available. Policymakers should focus on expanding utilization of price disclosure tools rather than creating new, duplicative government portals.

Conclusion

The Trump Administration’s focus on putting patients first is admirable. On the surface, encouraging more transparency in healthcare is a commonsense way to lower prices for patients. 

However, two concerning parts of the proposal could drive up healthcare costs for patients and impose massive burdens on insurers.  

Forcing insurers to disclose negotiated rates would make public proprietary information that is meaningless to patients, but very meaningful to consultants who could see significant financial benefit from being able to game the system.

In addition, stringent government requirements mandating creation of internet-based tools would place onerous burdens on insurers. Resources could be better spent ensuring that utilization of existing tools increase. 

While the intent of the proposed rule is laudable, changes should be made to the rule before proceeding with implementation. Moving forward, the administration should ensure transparency measures are targeted toward helping patients and reducing costs. 

Photo Credit: American Life League


Biden's Like-kind Exchange Tax Hike Will Harm Jobs and Growth

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Posted by Alex Hendrie on Wednesday, September 9th, 2020, 2:43 PM PERMALINK

As part of his plan to raise taxes by an estimated $4 trillion, Democrat Presidential candidate Joe Biden is proposing to repeal Section 1031 “like-kind exchanges".

1031s promote investment in residential and non-residential property by allowing a taxpayer to defer taxes on their capital gains if they use their gains to reinvest in new property. 

Biden has proposed repealing 1031s to finance $775 billion in new spending on child care and elder care over the next decade. However, he is selling a false promise – this tax increase would finance a small fraction of the cost of his new spending plan. 

In addition, repealing 1031s would harm economic growth, threatening jobs and new investment in housing and other real estate.

Like-kind exchanges are a mainstay of the tax code

Section 1031 has existed in the tax code for 100 years and allows investors to defer paying taxes on the sale of real property if they reinvest the earnings into a substantially similar asset. This can be done again and again, provided the transaction involves a similar type of property.

Because investors don’t have to pay tax until they cash out, Section 1031 eliminates a potential barrier to investment, which in turn promotes the more efficient allocation of capital resources.

For many years, 1031s were widely used for assets including real estate, machinery for farming and mining, and equipment such as trucks and cars.  

As of the 2017 Tax Cuts and Jobs Act, like-kind exchanges can only be used for real property. Other assets are no longer eligible because they instead qualify for “full business expensing,” which incentivizes capital expenditure by allowing businesses to immediately deduct the cost of new investments.

However, Congress affirmatively retained like-kind exchanges for real estate, in an acknowledgement of the importance of Section 1031 as a provision to incentivize capital formation and investment in property.

Section 1031 helps grow the economy

Critics of like-kind exchanges argue that the provision is a loophole that allows taxpayers to avoid taxes. This is not true because the provision defers, rather than eliminates tax liability. A taxpayer that utilizes Section 1031 will eventually pay taxes on the asset when they cash-out.

In many cases, the tax deferral period is shorter than many assume because taxpayers do not utilize 1031s indefinitely. As noted in a study conducted by David C. Ling and Milena Petrova, the vast majority of 1031 acquired assets are later disposed of in a taxable sale:

“In contrast to the common view that replacement properties in an exchange are frequently disposed of in a subsequent exchange to potentially avoid capital gain and depreciation tax liability indefinitely, we find that in 88 percent of the cases in our dataset investors dispose of properties acquired in a 1031 exchange through a taxable sale.”

There are also significant benefits to the tax deferral offered by 1031s.

Recent studies have found that 1031s help provide taxpayers with liquidity that they can use to invest and create jobs. For instance, a study conducted by EY found that 1031s support $9.3 billion in annual economic output in residential and non-residential real estate.

This additional liquidity allows investors to avoid taking on debt and becoming overleveraged. By assisting the financing of new real estate projects, 1031s also help ensure a competitive and affordable housing market.

In contrast, repealing 1031s would harm investment in property. They would increase holding periods as taxpayers would be encouraged to retain assets longer to avoid paying capital gains taxes.

In fact, due to the added complexities of financing projects and taking on debt, an estimated 40 percent of real estate transactions would not have occurred without 1031s.

Repealing 1031 doesn’t raise revenue that Biden claims

Biden calls for using revenue raised from repealing 1031s to finance $775 billion in new spending on child care and elder care over the next decade.

However, repeal of 1031s does not come close to paying for the total cost of this new spending.

According to the Joint Committee on Taxation’s tax expenditure report, like-kind exchanges reduce revenue by $51 billion over five years.

However, this number is not the amount of revenue that would be gained from repealing the provision. As the JCT notes, tax expenditure calculations should not be confused for revenue estimates, in part because they fail to account for behavioral changes:

“A tax expenditure calculation is not the same as a revenue estimate for the repeal of the tax expenditure provision…unlike revenue estimates, tax expenditure calculations do not incorporate the effects of the behavioral changes that are anticipated to occur in response to the repeal of a tax expenditure provision.”

Before the TCJA narrowed 1031s to real estate, the JCT estimated that this tax expenditure was $98.6 billion over five years. In contrast, revenue raised from repealing 1031s was just $9.3 billion over five years, just 10 percent of tax expenditure value.

This significant difference is due to the fact that repealing like-kind exchanges would  significantly alter the behavior of taxpayers leading them to forego new investments, which would reduce future taxes paid when the asset is sold, and reduce revenues from higher wages and more jobs created by 1031s.

Extrapolating this number based on today’s tax expenditure estimate would suggest that the score of repealing 1031s currently would be just $5 to $6 billion over five years.

Extending this estimate further to the ten-year window would suggest revenue raised of just $10 to $12 billion – a fraction of the of Biden’s $775 billion in new spending.

Biden’s plan to repeal 1031s fails to finance his proposed spending and could curb the efficient formation of capital. Moving forward, we need to preserve tax policies like 1031s in order to promote new investment in the economy and help create jobs.

Photo Credit: Gage Skidmore


Lawmakers Introduce Resolution Expressing Opposition to Foreign Digital Services Taxes

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Posted by Alex Hendrie on Wednesday, September 9th, 2020, 1:58 PM PERMALINK

Congressmen Ron Estes (R-KS) and Dan Kildee (D-Mich.) recently introduced a resolution expressing congressional opposition to efforts by foreign countries to impose digital services taxes (DSTs) on American businesses. 

This resolution urges foreign countries to abandon efforts to impose DSTs and calls for fair and free trade between the U.S. and other countries.

Members of Congress should co-sponsor and support this resolution.

DSTs overwhelmingly target innovative American businesses and their implementation threatens jobs and the U.S. tax base. In many cases, this represents a cash grab by foreign governments seeking to cover their budget shortfalls or increase spending.

These taxes have been adopted or are being considered by the European Union, India, Indonesia, the United Kingdom, the Czech Republic, Spain, Austria, Turkey, Italy, and Brazil. They are clearly discriminatory as there is no comparable domestic digital industry in any of these countries. As a result, the tax burden is almost exclusively on American businesses.

Businesses are typically taxed on their income, not sales. This is done to ensure that taxes are paid on actual profit and allows for deducting ordinary, necessary expenses like wages, employee benefits, capital expenditures, and cost of goods sold. 

However, DSTs differ in that they are imposed on the revenue produced by search energies, social media services, and online marketplaces. They hit companies regardless of how much income they have and are also imposed in addition to existing income taxes, leading to double taxation on businesses.

DSTs will ultimately hurt consumers and workers as the costs are passed down in the form of higher costs. This will fall particularly on third party suppliers and sellers that do business with large tech companies.

DSTs could also lead to a trade war where countries impose escalating tariffs and other trade barriers on each other, threatening jobs and businesses in both countries.

Fortunately, the Trump administration has already taken action to hold foreign countries accountable. Earlier this year, United States Trade Representative Robert Lighthizer initiated Section 301 investigations into proposed DSTs in order to protect American businesses and workers against foreign taxation.

In addition, Lighthizer last year launched an investigation into France’s DST finding that it unfairly discriminates against U.S. companies.

These steps should be applauded, but the administration and Congress should also continue efforts to protect American businesses and jobs.

The resolution introduced by Reps. Estes and Kildee builds on this work by urging foreign countries to reject the effort to impose DSTs that disproportionately impact American businesses, threatening jobs and innovation. Lawmakers can assist this effort by cosponsoring and supporting the resolution.

Photo Credit: CafeCredit.com


Senate Republicans Propose Expansion of 529 Education Savings Accounts

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Posted by Alex Hendrie on Tuesday, September 8th, 2020, 3:15 PM PERMALINK

Senate Republicans led by Majority Leader Mitch McConnell (R-Ky.) are proposing to expand 529 education savings accounts in their recently released “Delivering Immediate Relief to America’s Families, Schools and Small Businesses Act.”

The proposal allows Americans to use 529s for K-12 expenses for students engaged in home learning including students enrolled in public, private, or religious school and students that are homeschooled through the end of 2022. 

Qualified expenses include curriculum materials, books, online educational materials, tutoring costs, fees for standardized testing, and expenses for students with disabilities.

The coronavirus pandemic has resulted in additional costs for American families stemming from the need to ensure schools open safely and the implementation of online and distance learning. These new costs are exacerbated by the financial hardships that Americans are experiencing across the country due to a lost job, or reduction in work hours.

529s will help Americans mitigate these expenses. They are already a proven way for families to meet education expenses. These tax advantaged savings accounts allow parents to save and invest after-tax income for education costs. They can currently be used to cover the cost of college and K-12 expenses including tuition, fees, books, supplies, equipment, and computers.

In addition, these accounts offer significant tax reduction. Any money earned in an account can be invested tax free and funds can be withdrawn for qualified expenses tax free. Although contributions are not federally deductible, over 30 states offer a full or partial tax deduction for 529 contributions.

Because of these benefits, 529s are extremely popular amongst middle class American families. Today, there are over 14 million 529 accounts.

Expanding 529s will help Americans get through the pandemic by providing assistance to students and families across the country. This provision should be supported by the Senate and signed into law as part of the next COVID-19 relief package.

Photo Credit: Gage Skidmore


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