Alex Hendrie

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


Senate Finance Conservation Easement Report Should Not Be An Excuse for Retroactive Tax Increases

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Posted by Alex Hendrie on Tuesday, August 25th, 2020, 2:23 PM PERMALINK

The Senate Finance Committee today released a report examining the conservation easement tax deduction. The report, released by Chairman Chuck Grassley (R-Iowa) and Ranking Member Ron Wyden (D-Ore.), explores potential taxpayer abuse related to the deduction.

While it is Congress’s prerogative to investigate waste, fraud, and abuse in the tax code, lawmakers should reject efforts to retroactively raise taxes on taxpayers claiming the conservation easement deduction. 

If Congress determines that the deduction (or any statutory provision) is being used by taxpayers in a way that is inconsistent with its original intent, Congress should disallow or modify the provision on a prospective basis. 

The appropriate way to hold taxpayers accountable that are alleged to be using the deduction improperly is through the courts, not Congress. While the IRS is currently doing that, it is also important that this process affords taxpayers fairness and due process.

Efforts to Investigate the Conservation Easement Deduction Must be Fair

The conservation easement deduction was first enacted in 1976 with the goal of incentivizing property owners to conserve land and historic sites through a charitable deduction. In order to claim the deduction, the taxpayer must agree to restrict their right to develop or alter the property. Organizations known as land trusts agree to monitor the restrictions placed on the property. 

In exchange for foregoing the opportunity to develop the land, the taxpayer is allowed to deduct the “fair market value” of the property, limited to 50 percent of adjusted gross income (AGI) in any given year with the ability to carry forward any unused deductions for up to 15 years.  

The Senate Finance Committee report focuses its investigation on so-called “syndicated conservation easement transactions,” which is when the deduction is claimed by taxpayers through a partnership.

Critics of the deduction have claimed that some taxpayers are abusing the tax benefits by overvaluing property and increasing their tax deduction.

While there may be bad actors taking advantage of the provision, the possibility of tax avoidance occurring is not unique to the conservation easement deduction.

If taxpayers are abusing the provision, it is incumbent on the IRS to take these taxpayers to court and challenge them based on the letter of the law.

In many cases, the IRS has done that. However, the agency has repeatedly lost these cases. According to an analysis of lawsuits by Tax Notes, of the $92.7 million in conservation easement deductions claimed by taxpayers, over 80 percent – or $74.7 million of those deductions were upheld by the courts.

Increasingly, the IRS is putting pressure on taxpayers through heavy enforcement actions and burdensome compliance requirements. For instance, taxpayers wishing to claim an easement deduction covered by the Notice must now fill out Form 8886, a “Reportable Transaction Disclosure Statement.” This form takes approximately 20 hours to complete and has a top penalty of $100,000 for failing to properly complete it.

In addition, the IRS is routinely alleging that conservation easement donations have little or no value and that taxpayer easement appraisals are inflated. While it can be expected that there are disputes over valuation, it is difficult to believe that donations have no value.

Ultimately, in cases where a taxpayer may have abused the conservation easement deduction, it is incumbent on the IRS to resolve the case through the legal process in a fair and balanced way.

Congress Should Reject Retroactive Tax Increases

The increased scrutiny of the conservation easement deduction has not been limited to the IRS. Some in Congress have proposed S. 170, the “Charitable Conservation Easement Program Integrity Act of 2019,” legislation that would make changes to the conservation easement deduction effective to “contributions made in taxable years ending after December 23, 2016.”

This legislation should be rejected.

S. 170 would restrict or disallow deductions from donations made as far back as January 2016 – imposing tax increases on taxpayers retroactively for tax years 2016, 2017, 2018, and 2019 and imposing tax increases prospectively.

Not only would this significantly increase taxes, it would undermine the legal agreement that taxpayers enter into with a land trust to forgo developing the land. Under S.170, the taxpayer would still be bound by this agreement, even though their ability to claim the tax deduction would be reduced or eliminated.

The December 23, 2016 date coincides with the release of IRS Notice 2017-10, a notice released without prior stakeholder input that subjected taxpayers to burdensome new filing requirements and onerous compliance costs. While this notice signaled the intent of the IRS to scrutinize transactions, there is no basis for it to be used as justification to narrow the deduction.

There is significant legislative history affirming the intent of Congress to preserve and expand the deduction:

  • 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.  This enhancement was made permanent in 2015, a year before Notice 2017-10.
  • Since the 2016 notice, Congress has passed several substantive pieces of tax legislation including the Tax Cuts and Jobs Act and tax extenders legislation. In each case, Congress declined to impose limitations on the deduction.
     

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

Retroactively changing the tax code undermines these principles by changing the rules after the fact. This can have significant financial consequences for taxpayers in the form of thousands or millions of dollars in additional tax liability from past years’ individuals or businesses.

It can also increase costs prospectively given that financial decisions would have been made based on the prior interpretation of the law.

This undermines 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.

Moving forward, lawmakers should reject any effort to impose retroactive tax increases on taxpayers claiming the conservation easement deduction. The proper way to hold taxpayers accountable is through the courts, a process that must be conducted fairly and with the guarantee of due process. If lawmakers decide they wish to modify the deduction, they should do so prospectively.

Photo Credit: Matt Wade


ATR Leads Coalition of 80 Groups Opposing “Most Favored Nation” Executive Order

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Posted by Alex Hendrie on Tuesday, August 11th, 2020, 4:00 AM PERMALINK

Americans for Tax Reform today released a coalition letter signed by 80 free market, conservative, and libertarian groups and activists in opposition to President Donald Trump’s recent “Most Favored Nation” executive order. 

If implemented, the order would impose an “International Pricing Index” on Medicare Part B drugs, tying American drug prices to the prices in foreign countries with government-run healthcare systems. 

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.

In contrast, foreign countries have been free riding off this American medical innovation for decades through crushing price controls and other market-distorting government rules and regulations.

The MFN order would also harm our economy through a decrease in research and development. Medical innovation directly or indirectly supports 4 million jobs and $1.1 trillion in total economic impact, which will be threatened by importing price controls from foreign countries. 

Finally, the letter 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.

Click here to read the full letter.

Photo Credit: Tom Lohdan


Biden and Pelosi have Repeatedly Praised Payroll Tax Cuts

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Posted by Alex Hendrie on Monday, August 10th, 2020, 3:14 PM PERMALINK

President Trump has signed an Executive Order deferring the collection of the 6.2 percent social security employee payroll tax through the end of the year. While this will provide much needed liquidity for American families, Democrats like House Speaker Nancy Pelosi (D-Calif.) and Joe Biden have criticized this proposal as doing little to help Americans and undermining social security.

This is a sharp reversal from a decade ago when Pelosi and Biden vocally supported payroll tax cuts pushed by the Obama administration.

Throughout this period, President Barack Obama, Vice President Joe Biden, and House Speaker Nancy Pelosi repeatedly highlighted payroll tax cuts as way to give middle class families more money and help grow the economy.

For instance, in a blog post, the Obama administration highlighted that payroll tax cuts would give the typical family $40 per two-week pay cycle. As the document noted

 “$40 is real money for working families, as people all over the country told us. That money buys things like school lunches, the gas needed to get to work or visit ailing relatives, and co-pays for doctor visits and essential prescription medicines.”

It is important to note that Trump’s payroll tax deferral applies to the entire 6.2 percent tax while Obama’s payroll tax cut reduced the tax from 6.2 percent to 4.2 percent for two years. As a result, the same working family highlighted by Obama would be seeing three times the benefit under Trump, or roughly $130 per pay cycle.

Democrats also repeatedly highlighted how a payroll tax cut will help workers. For instance, in a speech given on December 17, 2010, President Obama noted that the payroll tax cut would reduce taxes for 155 million workers:

“Over the course of 2011, 155 million workers will receive tax relief from the new payroll tax cut included in this bill -– about $1,000 for the average family. This is real money that’s going to make a real difference in people’s lives.”

Similarly, in a speech given 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.”

Joe Biden’s biography on the Obama White House website even specifically highlighted his effort to cut payroll taxes for American workers:

“Fought for payroll tax cuts during the economic recovery -- ensuring a tax cut for every single worker in America.”

Speaker Pelosi also vocally supported payroll tax cuts. For instance, On December 13, 2011, Speaker Pelosi said that a payroll tax cut will give more money to Americans and help create more jobs:

“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.”

Pelosi even supported extending the payroll tax cut without offsetting lost revenue, as her February 13, 2012 press release noted

“Democrats have always demanded that we extend the payroll tax cut for 160 million Americans without paying for it.”

In addition, following a jobs report released on December 2, 2011, Pelosi called for expanding the payroll tax cut:

“Today's jobs report sends a clear message: we've made some progress but we have work to do. The American people's top priority remains job creation. Democrats want to put more money in the pockets of all Americans and strengthen small businesses by expanding the payroll tax cut.”

President Trump has called on Congress to make the tax deferral a permanent tax cut. Given their past support for payroll tax cuts, Biden and Pelosi should join Trump in calling for permanent payroll tax relief.

Photo Credit: Pete Souza


Next COVID-19 Package Should Include Ways and Means GOP Proposals

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Posted by Alex Hendrie, Tom Hebert on Wednesday, July 29th, 2020, 2:35 PM PERMALINK

House Republicans on the Ways and Means Committee have released a package of legislation that will help American workers and businesses as we recover from the Coronavirus pandemic.

Within this package is several bills that will help incentivize new investment which will help the American economy recover and create jobs for American workers. As lawmakers continue negotiating the next Coronavirus relief package, they should include these proposals. 

Proposals include:

The Accelerate Long-Term Investment Growth Now (ALIGN) Act, introduced by Rep. Jodey Arrington (R-Texas). This legislation would make full business expensing permanent, simplifying the tax code and giving businesses the equivalent of a zero percent rate on new investments.

Full business expensing reduces taxes by allowing businesses to deduct the cost of new investments (machinery, equipment etc.) in the year they are made. Full expensing incentivizes growth, increases productivity, creates jobs, and raises wages. In a post COVID-19 world, expensing will help businesses make vital investments as they seek to bring workers back, onshore manufacturing capabilities, and ramp up production.

The American Innovation and Competitiveness Act, introduced by Rep. Ron Estes (R-KS). This legislation would make R&D expensing permanent to encourage more U.S. investment.  If Congress fails to act, this provision will expire at the end of 2021.

Much like full business expensing of new investments, full R&D expensing creates an incentive to increase capital investment, which leads to stronger economic growth, more jobs, and higher wages. If Congress fails to extend this provision, the resulting reduction of R&D spending will directly lead to 23,400 fewer jobs each year in the first five years and almost 60,000 jobs each year thereafter.

The Pushing Research & Development Into Hyperdrive by Doubling the R&D Tax Credit, introduced by Rep. Jackie Walorksi (R-IN). Currently, taxpayers can take a credit for qualifying research and development. Generally, the credit varies between 20 percent, 14 percent, or 6 percent, depending on alternative calculations and on the size of the company.

This legislation doubles each credit, which will encourage more American investment, to help grow the economy. Jobs tied to R&D are quality, high paying jobs. In 2017, the average wage for R&D related jobs was $134,978 – 2.4 times higher than the average wage, according to the Bureau of Labor Statistics. Doubling the R&D tax credit will help create more of these quality jobs.

The Coronavirus Relief for Working Seniors Act, H.R. 6554, introduced by Rep. Jackie Walorski (R-Ind.). Currently, American seniors who qualify for Old Age and Survivors Insurance (OASI) benefits are not entitled to full benefits if they earn income from outside work over the Retirement Earnings Test (RET) threshold. This penalizes seniors who wish to remain in the workforce after they have reached retirement age. 

This legislation would temporarily eliminate the penalty on working seniors that earn at or below the taxable maximum ($137,700) in 2020. This would allow beneficiaries who have lost retirement savings as a result of the pandemic to offset those losses by re-entering the workforce without penalty. As the focus remains on safely reopening the economy, this legislation also empowers retirees that wish to help their communities by re-entering the workforce.

The Advanced Medical Manufacturing Equipment Credit, introduced by Rep. Brad Wenstrup (R-Ohio). This legislation establishes a 30 percent tax credit for new investment in advanced manufacturing or machinery used in the U.S. to manufacture drugs, medical devices, or biological products. The credit phases down to 20 percent in 2028, 10 percent in 2029, and phases out in 2030. 

If implemented, this legislation will build on the success of the Tax Cuts and Jobs Act by supporting domestic innovation and encouraging American manufacturing. Investment in advanced manufacturing will also create high-paying jobs for American workers. 

The Domestic Medical and Drug Manufacturing Tax Credit, introduced by Rep. Brad Wenstrup (R-Ohio). This legislation creates a 10.5 percent tax credit on the net income from the domestic manufacturing and sales of active pharmaceutical ingredients (API) and medical countermeasures.

By lowering the tax burden, this legislation incentivizes increased domestic production of these important medical products and greater preparedness for a future public health emergency. This credit is also limited to the wages allocable to domestic production, which supports good, high-paying American jobs. 

Bringing Back American Jobs Through IP Repatriation, introduced by Rep. Darin LaHood (R-Ill.). Currently, American companies with significant overseas operations face a huge tax burden if they want to repatriate and bring their intellectual property (IP) back home.

This legislation would allow American companies that wish to come back to the United States to bring home any IP developed offshore without any immediate tax cost. Since this only applies to IP held on the date of enactment, it encourages companies to bring their IP home in the near future and discourages further migration of high-tech jobs outside the U.S. If implemented, this bill would build on the Tax Cuts and Jobs Act’s promise to restore competitiveness and grow our economy.

See also: 

ATR Supports Rep Schweikert’s "Invest Now Act"

ATR Supports The “Small Business Tax Fairness and Compliance Simplification Act”

Ways and Means Republicans Release Healthy Workplace Tax Credit Act

Ways and Means Republicans Release Legislation to Encourage Startup Medical Development

Photo Credit: Paulo O


Congress Should Reject Efforts to Undermine Contact Lens Rule

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Posted by Alex Hendrie on Wednesday, July 29th, 2020, 9:00 AM PERMALINK

After a process that lasted almost five years, the Federal Trade Commission (FTC) released its updated contact lens rule on June 23, 2020. The rule was issued on a unanimous, bipartisan basis to ensure that consumers have the freedom to purchase contact lenses from wherever they want whether that is from their optometrists or from a third party.

Moving forward, any efforts to undermine the proposal should be rejected including possible efforts by Members of Congress to block the contact lens rule in broader legislation.

Back in 2003, President George W. Bush signed the Fairness to Contact Lens Consumers Act (FCLCA) into law, legislation that ensured optometrists provide patients with a copy of their prescription. This provision was enacted to ensure consumers had the freedom to purchase contact lenses from wherever they choose without interference.

Optometrists differ from other healthcare professionals in that they both prescribe and sell the product to patients. While there should be no restriction on an optometrist selling contact lens, there should also be no barriers or restrictions placed on the ability of consumers to purchase from a third party.

Unfortunately, there was a clear need for FCLCA due to numerous well documented cases of some optometrists acting as bad actors by implicitly or directly blocking the free choice of consumers.

FCLCA was successful in addressing this and ensuring patients had more options on where to fill their prescriptions. The legislation allowed consumers the right to “passive verification” over contact lens prescriptions, a change that meant patients would have access to a written prescription so they could shop where they wanted.

The updated FTC contact lens rule builds upon the success of FCLCA in protecting consumers and free commerce.

Under the rule, optometrists are required to maintain documentation from patients that affirmatively acknowledge in writing that they have received a copy of their prescription. The FTC gives optometrists four different options for patients to acknowledge prescription receipts, including printing the acknowledgment on the receipt where they pay for their exam.  

This reasonable requirement aims to ensure that patients receive their prescription and have the freedom to shop where they choose. Any suggestion that it is overly burdensome to optometrists is exaggerated given they already would need to keep detailed records of their patients.

Moving forward, we should ensure the free market is protected and that consumers have the freedom to purchase contact lenses from optometrists or from a third party. The updated FTC contact lens rule achieves this in a balanced way that promotes competition and access. Any effort to delay or block the rule should be rejected.

Photo Credit: Lee Hayward

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