Alex Hendrie

ATR Releases Letter Urging Congressional Action on Healthcare Tax Provisions

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Posted by Alex Hendrie on Monday, June 24th, 2019, 9:43 AM PERMALINK

ATR President Grover Norquist has released a letter to members of the Senate Finance Committee urging Congressional action on a number of healthcare tax provisions.

The letter urges the repeal or delay or certain healthcare taxes, like the Health Insurance Tax (HIT), the Medical Device Tax, and the Cadillac Tax, while calling for other provisions to be extended or made permanent, such as the Medical Expense Deduction and the Paid Family and Medical Leave Tax Credit.

Health Insurance Tax

The Obamacare health insurance tax is a tax on insurance premiums that disproportionately harms workers and small businesses. The letter cites analysis that estimates that implementation of the HIT will raise healthcare costs by $16 billion for families and Medicare advantage seniors in 2020 alone. Half of the HIT revenue is paid by workers making less than $50,000 a year and the tax will hurt up to 1.7 million small businesses. ATR urges the repeal of the Health Insurance Tax.

Medical Device Tax

The Medical Device Tax was a key funding mechanism of Obamacare and imposes a 2.3% excise tax on the sale of commonly used medical devices like X-Ray machines, MRI machines, hospital beds, and more. The tax was in effect from 2013 - 2015, before being suspended by Congress in 2016. When it was in effect, the tax reduced R&D spending by $34 million in 2013 alone, and led to the loss of 28,000 jobs. ATR urges the repeal of the Medical Device Tax.

Cadillac Tax

Another provision of Obamacare, the Cadillac Tax is a 40% excise tax on employer-based coverage plans which exceed $10,200 for individuals and $27,500 for families. This incredibly unpopular provision reduces quality and raises costs for health insurance. This tax applies to nearly every employer-provided plan in the country and will increase deductibles and co-pays for workers. The tax is set to go into effect in 2022. ATR urges the repeal of the Cadillac tax.

Medical Expense Deduction

This long-standing provision of the tax code allows for middle class families to deduct healthcare expenses that exceed a certain percentage of their adjusted gross income (AGI). Before Obamacare, this threshold was 7.5% of AGI and was claimed by more than 10 million families, whose average income was around $53,000 a year.

In 2010, Obamacare raised the threshold to 10% of AGI, and the letter estimates that this cost families $200-$400 per year. The TCJA restored the threshold to 7.5% of AGI for two years, but the 10% threshold was brought back at the start of 2019. ATR urges for a permanent threshold of 7.5% of AGI.

Paid Family and Medical Leave Tax Credit

The Republican Tax Cuts and Jobs Act established an employer tax credit for paid family and medical leave for 2018 and 2019. The credit applies if a company pays their employees at least 50% of wages through the leave. The credit starts at 12.5% of the paid wage and increases up to 25% of the wage if the employer pays full compensation during the leave. ATR urges and extension of the Paid Family and Medical Leave tax credit.

Photo Credit: Pictures of Money


ATR Opposes Retroactive Changes to the Alternative Fuels Mixture Credit

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Posted by Alex Hendrie on Monday, June 24th, 2019, 9:00 AM PERMALINK

ATR President Grover Norquist wrote in opposition to retroactive changes to the Alternative Fuels Mixture Credit in a letter to members of the Senate Finance Committee. 

ATR supports efforts to repeal or make all extenders permanent as part of a broader goal to lower tax rates across the board. When extenders are repealed or made permanent, it creates certainty for taxpayers and businesses.

ATR also believes that extenders should be dealt with prospectively instead of retroactively, because law-abiding taxpayers should not be penalized for following the law based on reasonable statutory interpretations.

[Read the Full Letter Here]

Based on these two principles, ATR opposes retroactively changing the Alternative Fuels Mixture Credit as proposed in The Tax Extender and Disaster Relief Act of 2019 (S. 617). As the letter notes:

“…this legislation retroactively disallows taxpayers blending butane with gasoline from claiming the AFMC. This is bad policy that interferes with ongoing litigation, denies taxpayers due process, and creates potentially arbitrary and unfair outcomes. ATR opposes this change and urges Congress to instead consider changes to the AFMC prospectively.”

Prior to the AFMC’s expiration on December 31, 2017, several taxpayers claimed the credit for blending butane with alternative fuels, and the IRS has denied these claims. Retroactively changing the AFMC to disallow these claims is bad tax policy. As the letter explains:

“Tax policy is based 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.

Retroactively changing the tax code punishes taxpayers based on activity that has already occurred.

Legislation that retroactively changes the AFMC would violate this principle by affecting claims from past tax years.

This would also set the precedent that Congress can disallow taxpayers from claiming other provisions in the future and undermines confidence in the tax system.”

AFMC claims by taxpayers that blended butane with traditional fuels are currently being adjudicated in court. By retroactively disqualifying taxpayer AFMC claims, Congress would interfere with ongoing litigation. If Congress disagrees with the outcome of the litigation, it should change the law on a prospective basis.

Instead of interfering with ongoing litigation and retroactively disallowing tax credits to law-abiding taxpayers, Congress should modify the credit prospectively if lawmakers take issue with butane qualifying for the AFMC. Read the full letter here.

Photo Credit: Robert Geiger


Conservative Groups Oppose Any Effort To Roll Back Tax Cuts and Jobs Act

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Posted by Alex Hendrie on Wednesday, June 19th, 2019, 4:00 PM PERMALINK

Americans for Tax Reform has led a coalition of conservative groups in opposition to Democrat efforts to roll back the Republican-passed Tax Cuts and Jobs Act.

The Democrat-controlled House Ways and Means Committee will soon markup legislation that accelerates a scheduled death tax increase by three years. 

Increasing the death tax would be disastrous for small businesses and family farms and small businesses all over the country. 

The Trump tax cuts have had a positive effect on American families and businesses alike. A family of four earning the median income of $73,000 is seeing a federal tax cut of $2,000, and the corporate tax cut has made America competitive on the world stage.

Any effort to roll back the TCJA would undermine these hard-earned gains. Read the full letter here or below:

Dear Chairman Neal and Ranking Member Brady:

We write in opposition to any effort to roll back the Tax Cuts and Jobs Act (TCJA).

The Ways and Means Committee will soon markup legislation that accelerates a scheduled death tax increase by three years.

This would be a mistake – increasing the death tax will disproportionately harm small businesses and family owned farms.

The Tax Cuts and Jobs Act reduced taxes on American families at every income level and for businesses large and small.

A family of four earning the median income of $73,000 is seeing a federal tax cut of $2,000, while overall tax liability has dropped by almost 25 percent, according to a report from H&R Block.

Family businesses are benefiting from the doubled death tax exemption and the creation of the 20 percent small business deduction for businesses organized as passthrough entities.

The TCJA also reduced the federal corporate rate from 35 percent (the highest in the developed world) to 21 percent. This rate reduction has made the U.S. competitive with other countries and has allowed businesses to invest in the economy and in American workers.

The TCJA’s corporate rate cut has directly lowered utility rates in all 50 states. This means lower water, gas, and electric bills for American households. Any increase in the corporate rate would directly raise the cost of utility bills.

The tax cuts have also grown the economy. The unemployment rate is at 3.6 percent --- the lowest rate since 1969 – and has been below 4 percent for 15 consecutive months. Similarly, nominal average wages have grown by at or above 3 percent for the past 10 months. An average of 196,000 jobs have been created each month over the past year.

Rolling back any part of the TCJA undermines these gains. As such, we urge you to reject any proposal to undo the TCJA including a death tax increase.

Sincerely,

Grover Norquist
President, Americans for Tax Reform

James L. Martin
Founder/Chairman, 60 Plus Association

Saulius “Saul” Anuzis
President, 60 Plus Association

Phil Kerpen ​​​​​​​
President, American Commitment

Lisa B. Nelson
CEO, ALEC Action

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

Dan Weber
Founder and President, Association of Mature American Citizens

Ryan Ellis
President, Center for a Free Economy

Andrew F. Quinlan ​​​​​​​
President, Center for Freedom and Prosperity

Jeffrey Mazzella​​​​​​​
President, Center for Individual Freedom

David McIntosh
President, Club for Growth

Matthew Kandrach​​​​​​​
President, Consumer Action for a Strong Economy

Tom Schatz​​​​​​​
President, Council for Citizens Against Government Waste

Katie McAuliffe​​​​​​​
Executive Director, Digital Liberty

Palmer Schoening​​​​​​​
President, Family Business Coalition

Adam Brandon
President, FreedomWorks​​​​​​​

Tim Chapman
Executive Director, Heritage Action

Heather R. Higgins
CEO, Independent Women's Voice

Tom Giovanetti​​​​​​​
President, Institute for Policy Innovation

Seton Motley
President, Less Government

Pete Sepp​​​​​​​
President, National Taxpayers Union

Lorenzo Montanari ​​​​​​​
Executive Director, Property Rights Alliance

Karen Kerrigan
President & CEO, Small Business & Entrepreneurship Council

Tim Andrews
Executive Director, Taxpayer Protection Alliance

Photo Credit: kidTruant - Flickr


Trump Admin Finalizes Health Reimbursement Arrangement Rule

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Posted by Alex Hendrie on Friday, June 14th, 2019, 11:49 AM PERMALINK

Earlier this week, the Trump administration finalized a rule to expand the use of Health Reimbursement Arrangements (HRAs). This proposal, which was released jointly by the Treasury Department, Labor Department, and Department of Health and Human Services (HHS), will promote employer flexibility and choice in the healthcare system.

This rule will allow employers to offer HRAs to their employers to purchase insurance as an alternative to employer provided care. HRA funds are tax free to both the employer and employee and funds roll over year to year. 

More than 80 percent of employers currently offer their workers just one choice, and this rule will allow businesses more flexibility to offer their workers’ health insurance coverage. In fact, it is estimated that this new rule will help 11 million workers and 800,000 businesses.

By giving employees more control over their healthcare dollars, the HRA proposal should make healthcare costs more transparent and put downward pressure on wasteful healthcare spending. 

HRAs will also compliment existing tools to expand healthcare choice as they can be used in conjunction with a Health Savings Account-qualified plan to pay for premiums, dental care and other expenses.

This new rule is just one of many positive proposals from the Trump administration to expand choice and access, a stark reversal to the top-down government control model of healthcare pushed under the Obama administration.

Last year, the administration released a rule that gave workers important flexibility to use short-term, limited-duration health insurance plans by allowing families and individuals to purchase plans for 12 months with a total of 36 months of renewability.

These plans are exempt from Obamacare’s costly mandates and regulations, meaning more Americans will have access to affordable and flexible healthcare. As a result, these plans are expected to be 50 to 80 percent cheaper and will offer millions of Americans flexible care after several years of increasing premiums and narrowing choices in the Obamacare marketplace.

The administration has also allowed small businesses to band together and form association health plans (AHP). AHPs are similarly exempt from many Obamacare regulations and give workers and employers increased flexibility to offer care.

While the left claims that the Trump administration is taking health care away from Americans, the reverse is true. The administration has a record of increasing choice and access, and the latest HRA proposal will only build on this record.

 

Photo Credit: Gage Skidmore


ATR Releases Coalition Letter Opposed to Interference in Venezuela Property Rights Litigation


Posted by Alex Hendrie on Wednesday, June 12th, 2019, 9:00 AM PERMALINK

Americans for Tax Reform today released a coalition letter in opposition to executive action that would shield the nation of Venezuela against debts that it owes for property that was stolen by previous regimes.

Recent media reports suggest that the interim Venezuelan government is pressuring the Trump administration to interfere in litigation between the country and US investors that had their property seized by the nation’s former socialist leaders.

Any such interference would violate the constitution, would deny American investors hundreds of millions of dollars that they are owed, and could discourage private investment moving forward as Venezuela attempts to rebuild.

Instead of interfering in litigation, the new Venezuela government should follow existing processes to restructure its debt and to deal with its legitimate creditors within the framework set out by existing legal regimes and court processes.

To view the full letter, click here or see below:

Dear Secretary Mnuchin, 

We write to express concerns about reports that leaders within Venezuela’s newly-recognized interim government are pressuring the Trump Administration to take executive action that would devalue or altogether eliminate legitimate property rights, including vested rights that have been upheld in U.S. courts. Instead of taking executive action that could chill private investment in Venezuela, the Trump Administration should seek to help rebuild the country without violating property rights and the rule of law protected by the United States Constitution. 

For decades, tyrannical socialist leaders in Venezuela have wreaked havoc on the country’s economy, abasing its currency, raising taxes, and pursuing countless other job-killing policies that inflict suffering on the Venezuelan people. In many cases, Venezuelan tyrants stole private property owned by international investors in its efforts to nationalize of broad swaths of the economy. 

Fortunately, investors harmed by illegal practices (including theft of property) can pursue arbitration backed by the International Centre for Settlement of Investment Disputes (ICSID), a multilateral framework established by the World Bank that provides a forum for neutral dispute settlements. ICSID and the Investor-State Dispute Settlement (ISDS) provisions contained in many U.S. investment and free trade agreements help protect investment between nations and are critical to uphold the rule of law. 

According to recent press reports, the interim government of Venezuela has been pressuring the Trump Administration to take executive action to shield the nation against debts that it owes for property that was stolen by previous regimes. This would deny American investors hundreds of millions of dollars that they are owed. 

While it is understandable that the government wants to be held harmless for debts it did not incur, executive action, or any other unilateral or multilateral asset protection regime endorsed or implemented by the Trump Administration, would likely be unconstitutional (at least with respect to vested property rights), and could discourage private investment moving forward. For the Venezuelan economy to rebuild and prosper, the country – with the United States’ support – must embrace free-market solutions and private sector investment, especially given its extensive oil reserves. 

If the United States takes action that hurts legitimate creditor claims, especially those claims that are already before the U.S. Courts, investors will have no reason to believe that future investment would be protected from theft. Further, executive action would circumvent proven multilateral and U.S. legal processes which have helped resolve international disputes for decades. 

As the Trump Administration continues to support democracy and the end of tyrannical socialist regimes in Venezuela, we urge you to reject any requests for executive action to devalue or eliminate longstanding private property rights that are protected by the U.S. Constitution and the rule of law, which even multilateral actions cannot supersede. Instead, the Administration should urge the interim Venezuela government to follow existing processes to restructure its debt and to deal with its legitimate creditors within the framework set out by existing legal regimes and court processes. 

Doing so would send a clear signal that Venezuela is committed to charting a course that protects property rights, the rule of law, and that will encourage much-needed investment in the nation. 

Sincerely, 

Grover Norquist 
President, Americans for Tax Reform 

Adam Brandon 
President, FreedomWorks 

Jessica Anderson 
Vice President, Heritage Action 

Pete Sepp 
President, National Taxpayers Union 

James L. Martin 
Founder/Chairman, 60 Plus Association 

Saulius “Saul” Anuzis 
President, 60 Plus Association 

David Williams 
President, Taxpayers Protection Alliance 

CC: 

Vice President Mike Pence 
Secretary of State Mike Pompeo 
Secretary of Commerce Wilbur Ross 
Acting Chief of Staff Mick Mulvaney 
Assistant to the President for National Security Affairs John Bolton


Dems Hold Third Hearing on Medicare for All

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Posted by Spencer Peck, Alex Hendrie on Tuesday, June 11th, 2019, 9:15 AM PERMALINK

The Democrat led House Ways & Means Committee will this week hold a hearing on Medicare for All.

Under this plan, workers, families, and businesses both small and large will see higher taxes and less control over their lives. A single payer system eliminates choice, raises costs, and reduces access by allowing the government to control and ration care. The millions of Americans who currently enjoy their doctors and coverage won’t have a say in this radical overhaul of the system.

According to the Mercatus Center, the plan would cost $32 trillion over the next decade. This would increase federal spending by a staggering 60% in that time frame. That money has to come from somewhere, and unsurprisingly, it will be American taxpayers footing the bill.

The plan has faced two previous congressional hearings in the past month or so, but this will be a heightened level of scrutiny for the proposed government takeover. However, this latest hearing is notable as the Ways & Means Committee has policy making jurisdiction over healthcare and taxation. The hearing should be a chance for Americans to understand the real costs of Medicare for All, seeing as they haven’t gotten many answers thus far.

Democrat supporters in the House have refused to explain how they’ll pay for their plan, let alone tell the American people what kind of tax hikes they can expect. However, self-avowed socialist Senator Bernie Sanders (I-Vt.) has released a list of tax increase “options.”

In all, Sanders’ proposals would lead to $14.3 trillion dollars in higher taxes over the next decade, according to an Americans for Tax Reform analysis. It should be noted that this tax hike wouldn’t even cover half of the overall cost of Medicare for All. However, this would still mean drastically higher taxes on American families and businesses:

A new 4% payroll tax on workers would raise taxes by $3.9 trillion over the next ten years.

The proposal also includes a 7.5% payroll tax on employers, which would cost businesses $3.5 trillion over the decade.

  • The law would eliminate employer-based health insurance, which currently covers about 158 million Americans. This would raise taxes on businesses by $3 trillion by getting rid of the healthcare deduction utilized by employers.

  • The proposal would eliminate Health Savings Accounts (HSA’s), utilized by 25 million American families. “Cafeteria plans” and the medical expenses deduction would also be repealed. In all, these tax increases are a $4.2 trillion tax hike.

  • Increase the top marginal tax rate for individuals and the tax rate for capital gains above $10 million to 70%. The Tax Foundation estimates that increasing these rates would raise $51 billion over the decade. However, due to how much these rates would discourage investment and slow economic growth, it would actually be a net loss of $63.5 billion to the federal budget.

  • The proposal raises the top death tax rate to a whopping 77%. Currently, the tax kicks in at inheritances over $11 million with a rate of 40%. Sanders’ plan would drop the threshold to any inheritance worth $3.5 million with a starting rate of 45%. This would raise taxes on families by $315 billion over the next ten years.

  • The plan also implements an annual “wealth tax” on American taxpayers. This would force Americans to pay an annual 1% tax on assets worth at least $21 million, and would increase taxes by $1.3 trillion.

  • An additional $800 billion in new taxes is proposed by setting a “bank tax” on financial institutions throughout the country.

  • The self-employment tax would be broadened, hitting small businesses with an additional $247 billion over the decade.

Medicare for All would have drastic consequences for American families. The proposal would outlaw private health insurance, thus removing the competition and innovation of the free market. It would eliminate choice for Americans, especially for those who want to keep their doctors. Like the single payer systems of Canada and the UK, it would lengthen wait times and reduce access to care.

Most of all, Medicare for All would immediately raise taxes on the American people by unprecedented rates.

Americans are entitled to answers from the people who want to raise taxes and hand over complete control of their healthcare to the government. This hearing ought to deliver those answers.

Photo Credit: Molly Adams


The Rise of IRS Injunction Suits Threatens Taxpayer Rights

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Posted by Alex Hendrie, Tom Hebert on Monday, June 10th, 2019, 9:34 AM PERMALINK

The Internal Revenue Service (IRS) has a history of harassing law-abiding taxpayers. Congress sought to address this through legislation in 1998, but problems have persisted.

More recently, the IRS, working with the Department of Justice, has increasingly turned to “injunction actions,” as a tool to go after taxpayers as noted in a recent report by Tax Notes.

The IRS has authority to launch an injunction action against a taxpayer under U.S. Code Section 7402(a). They are typically launched under one of two circumstances: cases involving tax preparers and cases involving suspected tax shelters. In recent years, the IRS has also used Section 7402 to seek disgorgement against taxpayers, which requires the defendant to turn over all money that they have made in conduct associated with the injunction claim.

Instances of disgorgement (and of Section 7402 in general) have skyrocketed in recent years – since 2015 there have been over 40 cases involving disgorgement, while there were just five between 1954 and 2014.

The agency’s increasingly aggressive use of Section 7402 lawsuits violates the pro-taxpayer reforms passed two decades ago. Section 7402 was little used until passage of the IRS Restructuring and Reform Act of 1998 (RRA), a landmark law which created important protections for taxpayers.

RRA was enacted with several pro-taxpayer provisions and curbed the IRS’ enforcement authority, created the Treasury Inspector General for Tax Administration, an independent watchdog office, and codified the Taxpayer Bill of Rights, a document that the IRS must send every taxpayer who faces an enforcement action.

The Taxpayer Bill of Rights guarantees a basic level of service to American taxpayers. For instance, taxpayers are guaranteed the right to be informed, the right to privacy, the right to challenge the IRS, and the right to not pay more money in taxes than you owe.

Section 7402 injunction lawsuits effectively allow the agency to disregard many of these rights. For instance, these lawsuits are searchable on the Justice Department’s website, subjecting taxpayers to public shaming and damaging their reputation   

The IRS has used its broad authority to file injunction suits in complex cases where it is unclear whether taxpayers are at fault. This was the case in United States v. Zak, where the government filed a complaint asking the court to block six defendants from promoting use of the conservation easement deduction. Without alleging any specific facts, the agency made a blanket claim that defendants impermissibly inflated the value of the deduction by overstating the value of donated easements. The government also seeks to confiscate via disgorgement any income the defendants made from facilitating conservation easement donations.  

To be clear, Section 7402 has legitimate uses. For instance, injunctions have been used against tax preparers that have committed clear fraud by claiming false deductions for unwitting taxpayers in an attempt to defraud the Treasury. However, its use should be limited in scope.

Alarmingly, the IRS has been using Section 7402 as an end run around enshrined taxpayer protections and using this provision to subject taxpayers to extensive litigation. Given the increasing use of this provision, it may be necessary for Congress to step in and reaffirm the congressional intent of RRA by updating the law to stop IRS abuse over taxpayers. 

Photo Credit: Martin Haesemeyer


Wyden Carried Interest Capital Gains Tax Hike Bill is Misguided

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Posted by Alex Hendrie on Thursday, May 30th, 2019, 12:05 PM PERMALINK

Finance Committee Ranking Member Ron Wyden (D-Ore.) has introduced legislation that would increase taxes on carried interest capital gains by taxing it as annual compensation and at ordinary income tax rates. 

This is problematic in two ways. First, it undermines the tax treatment of capital gains by discriminatorily taxing carried interest as ordinary income.

Second, it imposes taxes on carried interest income each year, rather than when income is realized from the sale of an investment.

The fact is, carried is structured based on longstanding norms of the tax code. The Wyden bill is terrible tax policy that should be rejected by Congress.

Taxing Unrealized Gains is Bad Tax Policy

Currently, the capital gains tax is imposed only when a taxpayer sells an asset. This makes sense because an investor does not receive any returns on the investment until they cash out.

The Wyden bill would undo this commonsense approach and force taxpayers to pay tax on unrealized gains every year.

This represents a dramatic departure from the norms of the tax code and could create needless complexity, arbitrary tax treatment, and perverse incentives.

Wyden has already introduced legislation that would require taxpayers to pay annual capital gains tax on all investments, so it is clear that Democrats are taking aim at increasing taxes on all capital gains, not just carried interest.

Carried interest capital gains drives significant investment across the country and in every Congressional District, so increasing taxes would harm economic growth. 

More broadly, increasing taxes on capital gains – including taxes on carried interest capital gains – suppresses growth and economic productivity, harms the creation of jobs and wages, and reduces other government revenue sources.

Carried Interest Should Be Preserved As A Capital Gain

Taxing carried interest as ordinary income is bad policy that violates two long-standing tax principles.

Carried interest is rightly treated as partnership income, meaning taxation flows through to individual taxpayers. In this case, carried interest is the investor’s share of partnership income they receive for providing expertise on investment decisions. All taxpayers involved in the partnership – those providing expertise and those providing capital – are taxed the same.

It is also treated as capital gains income as it is earned through long-term investment, not as ordinary income. There is no justification for treating it as ordinary income – 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 other types of investment.

Undermining either of these two principles undermines the existing tax code as a whole by opening the door to arbitrarily higher taxes.

Photo Credit: Oregon State University - Flickr


RSC Budget Ends Capital Gains Inflation Tax

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Posted by Alex Hendrie on Wednesday, May 1st, 2019, 2:57 PM PERMALINK

The Republican Study Committee Budget, “Preserving American Freedom,” proposes ending the inflation tax on savings and investment by indexing the calculation of capital gains taxes to inflation.

The budget, proposed by RSC Chairman Mike Johnson (R-La.) and RSC Budget and Spending Task Force Chairman Jim Banks (R-IN), also reduces the top two capital gains tax rates from 20 percent to 18 percent and from 15 percent to 13 percent.

For decades, Americans have paid capital gains taxes on phantom, inflationary gains which unfairly expose taxpayers to additional taxation. According to a 2013 analysis by the Tax Foundation, the average effective inflation indexed rate on capital gains between 1950 and 2012 was 42.5 percent, nearly twice today’s 23.8 percent top capital gains tax rate.

For example, an investor that makes a capital investment of $1,000 in 2000 and sells that investment for $2,000 in 2017 will be taxed for a $1,000 gain at a top capital gains tax rate of 23.8 percent. After adjusting for inflation, the “true gain” is much lower – just $579. (1,000 in 2000 - $1,421 in 2017). 

Ending the taxation of inflationary gains will have clear, immediate economic benefits.

Lowering the capital gains rate would encourage the formation of more capital and would result in the creation of more jobs. In turn, worker productivity and wages would be higher. 

Indexation would free up “sticky capital”—buildings, land, stocks—that are held by individuals or businesses rather than sold and put to higher and better use because much of the “capital gain” is inflation and the high capital gains tax discourages mobility of capital. The value of all property in America would increase.

In addition, recent history shows that reducing the tax on capital gains increases short-term federal revenues by creating an unlocking effect, where pent-up gains they had built up over time are realized at greater rates than they would be if the tax was not changed.

Treasury has the legal authority to index the calculation of capital gains taxes to inflation.

While it is unlikely that Congress will pass indexing legislation, the Treasury department also has the authority to re-define cost basis in an investment in such a way that the inflation tax on savings can be eliminated, based on legal scholarship going back decades.

Under the precedent set by the Supreme Court in Chevron U.S.A. v. National Resources Defense Council (1984), the ability of Treasury to add an inflation adjustment hinges on whether a new definition of “cost” is plausible. Currently, the capital gains tax is calculated as the difference between the cost of the asset and the sale price of the asset.

While in this context, “cost” is commonly understood to mean historical cost, this definition is not explicitly enshrined in law and Treasury has utilized regulatory discretion in the past. For instance, in 1918, Treasury decided that an asset’s cost was not strictly purchase price but was purchase price less depreciation and depletion taken by the taxpayer prior to sale.

Recent legal precedent proves that there is precedent for the term “cost” to include inflation. For instance, in Verizon v. FCC (2002) the Supreme Court affirmed that the term “cost” was ambiguous and the use of historical cost was not required by law.  National Cable & Telecommunications Ass’n v. Brand X Internet Services (2005), affirmed the right of an agency to interpret an ambiguous provision of the law, while in Mayo Foundation for Medical Education & Research v. United States (2011), the Supreme Court affirmed that the Chevron doctrine applies to Treasury regulations.

There is strong support for ending the inflation tax.

  • President Trump stated last year that he was "very strongly" considering a decision to index capital gains to inflation. 
  • Larry Kudlow, the President’s Chief Economic Advisor, has urged the President to end the inflation Tax in a CNBC column, describing the policy as a way to “spark a wave of prosperity.”
  • Treasury Secretary Steven Mnuchin also said that the administration is considering the policy.
  • Current and former members of Congress, including Vice President Mike Pence support indexing capital gains taxes to inflation. Pence introduced legislation in 2007 with 88 co-sponsors including now-Office of Management and Budget Director Mick Mulvaney, House Speaker Paul Ryan (R-Wis.), and House Ways and Means Chairman Kevin Brady (R-Texas).
  • Senator Ted Cruz (R-Texas) and Congressman Devin Nunes (R-Calif.) introduced legislation last year to index capital gains taxes to inflation. This legislation is supported by Senator Pat Toomey (R-Pa.) and Freedom Caucus Chairman Mark Meadows (R-N.C.)
 

Photo Credit: GotCredit


RSC Budget Builds on the Success of GOP Tax Cuts

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Posted by Alex Hendrie on Wednesday, May 1st, 2019, 2:55 PM PERMALINK

Despite controlling the House of Representatives, Democrats have failed to vote on or even release a budget for Fiscal Year 2020.

In contrast, conservatives led by Republican Study Committee Chairman Mike Johnson (R-La.) and RSC Budget and Spending Task Force Chairman Jim Banks (R-IN) have a vision to restore the nation’s fiscal health and build on the success of the GOP tax cuts.

This budget, entitled “Preserving American Freedom,” reduces taxes by $1.88 trillion, equating to almost $15,000 in tax reduction per family. Most notably, the budget calls for further individual tax reduction, enacts pro-growth policies, indexes capital gains taxes to inflation, and repeals distorting tax provisions.

Strengthens Individual Tax Cuts

The TCJA dramatically reduced taxes for American families with 90 percent of Americans seeing increased take-home pay. For instance, a family of four with annual income of $73,000 (median family income) will see a tax cut of more than $2,058, a 58 percent reduction in federal taxes. 

However, arcane Senate procedure and the refusal of Democrats to support tax cuts meant that the individual provisions in the Tax Cuts and Jobs Act could not be made permanent. If Congress does nothing, these important tax cuts will sunset in 2026. 

The budget addresses this by making individual tax cuts from the TCJA permanent:

  • The doubling of the standard deduction to $12,000 and $24,000 for a family. 
  • The reduction of nearly every individual income tax bracket.
  • The doubling of the child tax credit to $2,000 Child Tax Credit.
  • A 20% deduction for pass-through businesses (LLCs, partnerships, S-corporations etc.)
  • An increase in the threshold that the Alternative Minimum Tax hits individuals so that it kicks in at $1 million of annual income.


The budget also fully repeals the death tax and reduces the bottom two tax brackets from 10 percent to 9.5 percent and from 12 percent to 11 percent.

Indexes Capital Gains Taxes to Inflation and Strengthens Family Savings

The RSC budget proposes ending the inflation tax on savings and investment by indexing the calculation of capital gains taxes to inflation.

For decades, Americans have paid capital gains taxes on phantom, inflationary gains which unfairly expose taxpayers to additional taxation. According to a 2013 analysis by the Tax Foundation, the average effective inflation indexed rate on capital gains between 1950 and 2012 was 42.5 percent, nearly twice today’s 23.8 percent top capital gains tax rate.

Lowering the capital gains rate would encourage the formation of more capital and would result in the creation of more jobs. In turn, worker productivity and wages would be higher. 

The budget also reduces the top two capital gains tax rates from 20 percent to 18 percent and from 15 percent to 13 percent, and creates Universal Savings Accounts, allowing taxpayers to save $10,000 a year tax free that can be withdraw tax free any time, for any reason.

Builds on the Success of Pro-Growth Tax Reform

In addition to individual tax reduction, the RSC budget also promotes strong economic growth. The budget makes 100 percent expensing permanent, which gives businesses a zero percent rate on new investments. 

Under the pre-TCJA system, businesses were forced to deduct, or “depreciate” the cost of new investments over multiple years as depending on the asset they purchase, as dictated by complex and arbitrary IRS rules. 

Full business expensing is the right tax treatment – it encourages investment and increases productivity, leading to stronger economic growth and the creation of new jobs.

The budget also makes current law restrictions on interest deductibility permanent. Businesses can currently deduct interest to the extent it is below 30 percent of EBITDA (earnings before interest, tax, depreciation and amortization.) Starting in 2022, the deduction for net interest expense is narrowed so that it is based on a corporation’s earnings before interest and tax (EBIT).

The existing EBITDA interest limitation is consistent with the limitations imposed by foreign competitors and should be made permanent.

Finally, the RSC budget repeals a number of distortionary tax provisions. For instance, the state and local tax deduction is fully repealed under the budget ending the federal tax subsidization of high state taxes.

Photo Credit: GotCredit


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