Alex Hendrie

Lawmakers Should Protect R&D By Passing the American Innovation and Competitiveness Act

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Posted by Alex Hendrie on Tuesday, July 28th, 2020, 11:39 AM PERMALINK

As the U.S. continues to recover from the economic damage caused by the Coronavirus pandemic, we need policies that encourage investment and job growth.

In addition to short term measures to stabilize the economy, the pandemic has exposed the need to rethink US supply chains over the medium and long-term so that we are not overly dependent on any one country.  One of the best ways to achieve this is to ensure that we have appropriate policies to encourage research and development (R&D) in America. 

Representatives Ron Estes (R-KS) and John Larson (D-Conn) have introduced H.R. 4549, the American Innovation and Competitiveness Act, which would make R&D expensing permanent to encourage more U.S. investment. This proposal should be included in future legislation to help the economy recover from the Coronavirus.

The Tax Cuts and Jobs Act passed by Congressional Republicans and signed by President Trump contained numerous pro-growth provisions including allowing businesses to immediately deduct the cost of new investments.

However, because of arcane Senate procedure and the refusal of Democrats to support the tax cuts, many provisions were given an expiration date, including immediate R&D expensing which expires at the end of 2021.

Starting 2022, businesses will be required to amortize domestic R&D spending over 5 years and amortize foreign R&D over 15 years. This is the wrong tax policy, will harm workers and businesses, and will make America even more uncompetitive. 

Immediate expensing is the right tax policy

Allowing businesses to immediately deduct the cost of all new investments – including R&D -- is the right tax policy.

It gives businesses the equivalent of a zero percent rate on new investments, which means more money for businesses to create jobs and increase pay. It also creates an incentive to increase capital investment, which leads to stronger economic growth, more jobs, and higher wages.

Expensing for all types of assets simplifies the tax code by equalizing the tax treatment of new investments with other business expenses such as wages, rent, and healthcare costs.

However, if amortization of R&D goes into effect in 2022, R&D spending will be disadvantaged relative to other types of business spending, creating a disincentive to make these investments.

R&D amortization will harm American workers

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. 

However, allowing R&D amortization to take effect will threaten these jobs, according to a study by Ernst and Young. The study estimates that annual US R&D spending will decline by $4.1 billion in the first five-year window and $10.1 billion annually thereafter.

This reduction in 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. After accounting for indirect economic effects, amortization would cost 67,700 jobs every year for the first five years and 169,400 jobs every year thereafter. This would reduce incomes by $5.8 billion every year in the first five years and $14.4 billion every year thereafter.

The U.S. already lags many foreign competitors in promoting R&D

While allowing R&D amortization to take effect will harm American competitiveness, we are already lagging behind when it comes to promoting R&D. According to a Manufacturing Leadership Council study, the U.S. ranks 26thin R&D tax incentives when ranking the 36 developed countries in the Organisation for Economic Co-operation and Development (OECD).

While this low ranking is alarming, it is based on current U.S. policies, not what will happen if R&D amortization goes into effect. This ranking will almost certainly decline if R&D expensing is allowed to expire at the end of 2021.

Moving forward, we should be looking to policies to further incentivize R&D. We should pass further tax incentives to encourage R&D in the U.S. 

In the short term, as lawmakers continue debating measures to re-grow the economy, they should support the American Innovation and Competitiveness Act and ensure American businesses have the incentives they need to invest in the economy.

Photo Credit: KidTruant


Now is Not the Time for New Tariffs and Trade Wars

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Posted by Alex Hendrie on Monday, July 27th, 2020, 3:43 PM PERMALINK

Recent reports indicate that the United States is considering launching a trade investigation related to phosphate fertilizer imports. 

If this investigation proceeds, it could lead to new tariffs on farmers at a time that the U.S. economy is already weak because of the Coronavirus pandemic. Instead, the Department of Commerce and U.S. International Trade Commission should reject any effort to impose new tariffs and duties on phosphate fertilizers. 

On June 26, 2020, a countervailing duty (CVD) petition was filed against the import of phosphate fertilizers from Morocco and Russia. If this petition is successful, taxes on phosphate fertilizers could increase through a tariff of between 30 and 70 percent. In turn, this would result in significant new costs to farmers and increase the price of several commonly used crops. 

Farmers depend on phosphate fertilizers to produce several crops including corn, soybeans, cotton, wheat, and sugar beets. The cost of these fertilizers represents a significant portion of the costs of producing these crops.      

Imposing tariffs is the equivalent of increasing taxes on American consumers and American producers who use imported products. They fall particularly hard on industries that rely on imported products as an input, resulting in higher prices, leading to increased costs for consumers, lowering wages and leading to fewer jobs for American industry. They also lead to retaliatory actions from trading partners, resulting in fewer American products being exported to foreign markets which cost jobs and wages in the U.S. 

This damage is not hypothetical – over the past few years, trade wars have led to billions of dollars in losses for the agriculture industry, which has slowed revenues and led to bankruptcies and job losses. 

It has also forced the U.S. government to spend an unprecedented amount of federal dollars assisting agriculture. In fact, the U.S. government has already spent $32 billion this year in economic aid to farmers due to the damage caused by trade wars and COVID-19. 

Instead of launching trade wars and subsidizing farmers, we should look to promote fair and free trade that allows American exporters access to foreign markets.     

Ultimately, new phosphate fertilizer tariffs should be rejected as they will harm American farmers, reduce supply, increase prices, and endanger our economic recovery.

Photo Credit: United Soybean Board

More from Americans for Tax Reform


ATR Statement on Drug Pricing Executive Orders

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Posted by Alex Hendrie on Friday, July 24th, 2020, 6:26 PM PERMALINK

The Trump Administration today announced several executive orders on drug pricing including a “most favored nation” (MFN) proposal to impose an international pricing index (IPI) on Medicare Part B drugs. This proposal will tie the prices we pay for drugs to the prices in foreign, socialist countries.

ATR President Grover Norquist released the following statement in opposition to this proposal:

“A most favored nation proposal would slow medical innovation, threaten American jobs, and undermine conservative opposition to Medicare-for-All.

“President Trump has consistently opposed efforts that would lead to a government takeover of America’s health care—such as the “Medicare-for-All” scheme pushed by Democrats in Congress and on the campaign trial. As recently as his 2020 State of the Union Address, the President promised 'We will never let socialism destroy American health care.'

“Rather than fighting these socialist policies, a MFN would adopt them. This will have disastrous consequences to the economy and health care system and to the broader effort to fight against the government takeover of health care.

“The order is not set to be effective until August 24.  Between now and then we urge the President to explore ways to shift to a market-based approach like those the Trump Administration has consistently supported in other areas of healthcare.”

See also: Norquist op-ed in RealClearHealth – “Now Is the Time to Fight the Government Takeover of Health Care, Not Surrender to It”

Photo Credit: Gage Skidmore


ATR Opposes Section 303 of the “Affordable Housing Credit Act”

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Posted by Alex Hendrie on Thursday, July 23rd, 2020, 10:00 AM PERMALINK

ATR today released a letter in opposition to Section 303 of S. 1703/H.R.3077, the “Affordable Housing Credit Improvement Act”, legislation introduced by Senator Maria Cantwell (D-Wash) and Congresswoman Susan DelBene (D-Wash).

If implemented, Section 303 would upend the low-income housing tax credit (LIHTC) by retroactively substituting a general partner’s defensive right of first refusal (ROFR) to purchase property from a limited partner who wishes to sell the property with an affirmative option to force the limited partner to sell the property at a below market price. 

Section 303 violates the longstanding principle that tax legislation should be imposed prospectively, not retroactively. Taxpayers routinely make decisions based on their reasonable interpretation of the law as it exists at the time, with the expectation that the law will be applied consistently and in a way that promotes certainty.

This change would undermine the certainty understood at the time of the LIHTC investment, particularly because a below market option flies in the face of longstanding tax principles relating to property ownership.

This provision also raises alarming constitutional questions. An analysis by the Federalist Society review concluded that the retroactive nature Section 303 would directly impact vested rights and contractual obligations, a blatant violation of the Due Process Clause. The below market option created by Section 303 could also violate the Takings Clause, exposing taxpayers and government to liability for monetary damages.

Moving forward, lawmakers should reject this proposal – regardless of whether it is considered as stand-alone legislation, within the Affordable Housing Credit Improvement Act, or as part of a broader package of legislation. 

You can view the full letter here.

Photo Credit: Kelli


Congress Should Include Business Tax Cuts in Next COVID Legislation

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Posted by Alex Hendrie on Wednesday, July 22nd, 2020, 10:25 AM PERMALINK

Congress is debating the contents and timing of the next COVID-19 relief package. As these discussions continue, lawmakers should include tax cuts for struggling businesses, so they have the liquidity to keep their doors open and continue paying workers.

Specifically, lawmakers should extend several tax cuts that were enacted on a bipartisan basis earlier this year through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Provisions that should be extended include a tax cut allowing businesses to carry back losses incurred in 2018, 2019, and 2020 back five years, and a provision that expands the ability of businesses to deduct net interest expenses from 30 percent of EBITDA (earnings before interest, tax, depreciation, and amortization) to 50 percent of EBITDA for 2019 and 2020. 

Extending both provisions into 2021 will provide certainty and targeted cash flow for businesses to invest as we look to regrow the economy.

The expanded interest deductibility provision is important because without action, businesses may begin to hit the existing cap due to a drop in earnings. This would subject them to additional tax on debt accrued from investments made in past years.

Smaller businesses have no limitation on their ability to deduct debt payments, so extending the 50 percent EBITA threshold will help bring parity to larger businesses during the economic downturn.

The NOL provision is similarly important and will help businesses that have seen significant losses due to COVID-19. This tax change is relatively modest as businesses are already able to deduct operating losses in the year the losses are incurred and can carryforward losses indefinitely to future years.

Because of this, expanding NOL carrybacks is largely a timing change and costs little revenue. In fact, the Joint Committee on Taxation finds that a majority of the revenue loss incurred to the government is felt in the first couple of years that this provision is enacted, and is offset because companies will eventually deduct fewer losses throughout the 10-year window.

Both provisions are bipartisan, so there should be no hesitation including them in the next Coronavirus bill. The CARES Act was adopted by a vote of 97-0 in the Senate and unanimously in the House of Representatives.

In addition, NOL expansions have been enacted into law repeatedly over the past 20 years by Republican and Democrat presidents during economic downturns. For instance:

 

In fact, when NOL expansion was passed in 2009, House Speaker Nancy Pelosi specifically highlighted this provision when speaking on the House Floor in support of the legislation.  She stated, “the bill also has the net operating loss carryback, which businesses tell us is necessary for them to succeed and to hire new people, and also to mitigate some of the damage that has been done to the economy from past policies.”

While the economy has begun to recover from the worst of the Coronavirus, millions of Americans are still out of work and the unemployment rate is at 11 percent.

Moving forward, we need policies that help regrow the economy and ensure businesses can continue investing and paying their workers. Extending CARES Act-enacted tax cuts will help achieve these goals and should be included in a future COVID relief bill.

Photo Credit: 401(K) 2012


ATR Releases Scorecard on Pandemic Healthcare Access Act Tax Cut


Posted by Alex Hendrie on Tuesday, July 21st, 2020, 8:00 AM PERMALINK

Senator Ted Cruz (R-Texas) and Representative Ted Budd (R-NC) have introduced the S.3546/H.R. 6338, the “Pandemic Healthcare Access Act,” legislation that expands Health Savings Accounts (HSA) to allow Americans to pay for their healthcare tax free for the duration of the Coronavirus pandemic.

ATR has released a scorecard that will be continually updated to reflect support for S.3546/H.R. 6338, which you can view here.

This is a simple, one-page bill that suspends the mandate that HSAs can only be offered with high-deductible health plans (HDHP) for the duration of the COVID-19 emergency declaration.

If implemented, the Pandemic Healthcare Access Act will cut taxes for millions of Americans, as any money contributed to HSAs is tax deductible, can grow tax free, and money spent on qualified healthcare expenses is tax free. The legislation will also expand access to HSAs for Americans on Medicare, Medicaid, those that receive care through the VA, Indian health plans, Obamacare, and any employer plan.

All members of Congress should support this legislation, and President Trump should sign it into law.

Here is a list of members who already support the Pandemic Healthcare Access Act:

  • Senator Ted Cruz (Texas)
  • Congressman Ted Budd (North Carolina - 13th district)
  • Senator Ben Sasse (Nebraska)
  • Congressman Dan Bishop (North Carolina - 9th district)
  • Congressman Brian Babin (Texas - 36th district)
  • Congressman Mike Bost (Illinois - 12th district)
  • Congressman Ben Cline (Virginia - 6th district)
  • Congressman Michael Cloud (Texas – 27th district)
  • Congressman Bill Flores (Texas - 17th district)
  • Congressman Louie Gohmert (Texas - 1st district)
  • Congressman Paul A. Gosar (Arizona - 4th district)
  • Congressman Andy Harris (Maryland - 1st district)
  • Congressman Jody Hice (Georgia - 10th district)
  • Congressman Fred Keller (Pennsylvania - 12th district)
  • Congressman Steve King (Iowa - 4th district)
  • Congressman Alex Mooney (West Virginia - 2nd district)
  • Congressman Ralph Norman (South Carolina - 5th district)
  • Congressman Bill Posey (Florida - 8th district)
  • Congressman Denver Riggleman (Virginia - 5th district)
  • Congressman Phil Roe (Tennessee - 1st district)
  • Congressman Chip Roy (Texas - 21st district)
  • Congressman Randy Weber (Texas - 14th district)
  • Congressman Roger Williams (Texas - 25th district)
  • Congressman Ted Yoho (Florida - 3rd district)
  • Congressman Lance Gooden (Texas - 5th district)
  • Congressman Scott DesJarlais (Tennessee - 4th district)
     

Click here to view the full scorecard.


Ways and Means Republicans Release Healthy Workplace Tax Credit Act

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Posted by Alex Hendrie on Thursday, July 16th, 2020, 12:00 PM PERMALINK

Ways and Means Republicans are introducing a bill to help businesses reopen by encouraging them to provide testing, personal protection equipment (PPE), and cleaning to workspaces. 

The Coronavirus pandemic has created substantial economic damage, as governments across the country have shut down businesses and forced Americans into self-isolation to mitigate the spread of the virus.  

While some businesses are beginning to gradually and safely reopen, many businesses including those in the hospitality, airline, and retail industries are still facing a slowdown in commerce that restricts cashflow and threatens their ability to retain jobs.

In order to keep customers and employees safe, businesses must also now grapple with new challenges. For instance, they must ensure employees have regular COVID-19 testing, provide an adequate supply of PPE, conduct extra cleaning, and reconfigure workspaces.

In normal times, this would be time consuming and expensive. Today, these costs can be the difference between a business being able to reopen and being forced to stay closed.

To address this problem, Ways and Means Republicans, led by Ranking Member Kevin Brady (R-Texas) and Rep. Tom Rice (R-SC) are releasing the Healthy Workplace Tax Credit Act.

The legislation provides a tax credit that can be taken against payroll taxes for up to 50 percent of the costs incurred for COVID-19 testing, purchasing PPE, and reconfiguring, disinfecting, and cleaning the workspace. 

The credit is limited to $1,000 per employee for a business’s first 1000 employees, $750 per employee for the next 500 employees, and $500 for each additional employee.

While the economy has posted strong job gains over the past two months with millions of Americans going back to work, millions more are still out of a job and the unemployment rate remains in the double digits at 11 percent. Clearly, more needs to be done.

The Healthy Workplace Tax Credit Act will help address the vitally important issue of workplace testing and safety, removing a barrier for businesses to reopen and workers to go back to their jobs. 

The legislation is also a more targeted, timely, and realistic proposal than the proposals put forth by Democrats, which call for trillions of dollars in new spending at a time when the deficit is higher than it has ever been.

Leaders in the House, Senate, and Administration are debating the contents and timing of a forthcoming COVID-19 relief package. As these discussions continue, lawmakers should be sure to include the Healthy Workplace Tax Credit Act in any broader proposal.

Photo Credit: Gage Skidmore


Joe Biden’s Tax Day Promise - $4 Trillion In Tax Hikes

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Posted by Alex Hendrie on Wednesday, July 15th, 2020, 11:31 AM PERMALINK

Due to the Coronavirus pandemic, the Trump administration delayed Tax Day for three months – moving the deadline to file taxes from April 15 to July 15. 

Now that it is Tax Day, it is worth noting that a President Joe Biden will raise taxes across the board on American families and businesses.

In total, Biden has called for at least $4 trillion in new or higher taxes including income tax increases, business tax increases, and capital gains tax increases.

Biden has repeatedly called for repealing the Tax Cuts and Jobs Act (TCJA), which will increase taxes on Americans at every income level.

While the Biden and others on the left falsely claim that the Trump tax cuts only benefited “the rich,” the TCJA led to strong tax reduction for American families. 

By repealing the TCJA, Biden will increase taxes on American families earning the median annual income of $73,000 by over $2,000. A single parent with one child making $41,000 would see a $1,300 tax increase each year.

The twenty-two million American families that take the child tax credit will see it cut in half from $2,000 to $1,000. 4.5 million households that have seen relief from the Alternative Minimum Tax will once again face this onerous burden.

Biden also says he will bring back the Obamacare individual mandate tax penalty, which was zeroed out in the TCJA.

Before it was repealed, the individual mandate was one of the most regressive taxes in the code and forced individuals to purchase government approved health insurance or pay a tax totaling almost $700 for an individual and $2,000 for a family. In 2017, the Obamacare individual mandate tax hit 4,654,990 households and 75 percent of those paying the mandate had annual income of less than $50,000.

Biden also wants to increase taxes on businesses – his plan calls for raising the corporate rate back up to 28 percent or 35 percent – which would make the U.S. rate higher than China.

He also proposes several new taxes on businesses including a 15 percent minimum tax and repealing the 20 percent “small business” deduction enacted by the TCJA.

Increasing taxes on small and large businesses will harm American workers and make the U.S. a less competitive place to do business.

Biden also proposes doubling the capital gains tax to over 40 percent, a tax increase that would further harm economic growth, reduce investment, and threaten the creation of new jobs and wage growth.

As the pandemic runs its course, Biden’s tax hikes will threaten our economy’s ability to recover from the nationwide lockdown.

Coronavirus took a sledgehammer to one of the strongest economies in American history. The February 2020 jobs report recorded 19 months of consecutive annual average wage growth of 3 percent or more. The unemployment rate was 3.5 percent – a 50-year low, and labor force participation rate was 63.4 percent, a 7 year high. 

Prior to the pandemic, the tax cuts and other economic policies had led to strong economic growth and wage growth. This economic growth was not limited to any one demographic – unemployment for African-Americans, Asians, Hispanics, and other key groups was at or near record lows.

While the pandemic cut these economic gains short, Job Biden is proposing to increase taxes on American businesses and families at a time that the economy is struggling.

Moving forward, we need policies that will help businesses and workers get back on their feet, not stifling tax increases that will inhibit growth and keep wages down.

Photo Credit: Gage Skidmore


Ways and Means Republicans Release Legislation to Encourage Startup Medical Development

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Posted by Alex Hendrie on Thursday, July 9th, 2020, 3:20 PM PERMALINK

Republican Members of the House Ways and Means Committee have released several pieces of legislation designed to incentivize startup businesses engaged in the development of new therapies and cures.

The legislation especially focuses on developing cures for infectious diseases, such as antibiotics, antivirals, and vaccines. This is a complex, costly, time consuming, and risky process, especially given that many companies engaged in this R&D are startup enterprises that can struggle to attract the investment needed.

The legislation released today by Ways and Means Republicans led by Ranking Member Kevin Brady (R-Texas) attempts to incentivize the development of new cures for infectious diseases by creating tax incentives that will help encourage investment, including through the expansion of the R&D credit, giving innovators additional liquidity, and encouraging further outside investment in startup innovators.

This approach also draws a stark contrast with the policies of Congressional Democrats that would crush medical innovation. Speaker Nancy Pelosi (D-Calif.) and House Democrats have passed legislation that would force medical innovators to accept government set prices or be hit with a 95 percent excise tax on their medicines.

This proposal undermines the development of new medicines at a time when manufacturers are racing to find COVID-19 cures.  According to the Council of Economic Advisers, Pelosi’s proposal could prevent 100 lifesaving and life-preserving medicines from being created over the next decade.

The proposals released today by Ways and Means Republicans include:

The More Cures Act, introduced by Rep. Devin Nunes (R-Calif.). This proposal provides a “bonus R&D credit” of 14 percent of any qualified research costs associated with the development of certain cures like infectious disease therapies. This applies on top of the normal R&D credit that is already available to taxpayers.

Start-ups for Cures Act, introduced by Rep. Devin Nunes (R-Calif.). This proposal allows medical research startup businesses (with less than $1mil of gross receipts) to monetize unused credits. Startup businesses seeking to develop a cure usually have no revenue so see no benefit from R&D credits. This legislation fixes this and provides additional liquidity to continue research and development.

The Countermeasures Investment Act, introduced by Rep. Mike Kelly (R-Pa.). This legislation encourages outside investment in startup medical research firms by giving additional tax benefits to investors in certain infectious disease drug development firms. This will help encourage investment in medical research startups so they are able to invest as needed.

The American Innovation Act, sponsored by Rep. Vern Buchanan bill (R-Fla.). This legislation allows medical research startups that change ownership the ability to utilize net operating loss carrybacks. This will help provide liquidity for businesses as they seek to develop cures.

Photo Credit: Colleen Pence


Trump Economy Adds 4.8 Million Jobs as COVID-19 Recovery Continues

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Posted by Alex Hendrie on Thursday, July 2nd, 2020, 10:08 AM PERMALINK

The economy is continuing to recover strongly from the Coronavirus pandemic, with 4.8 million jobs created in June, an all-time record. The unemployment rate dropped more than two percentage points from 13.3 percent to 11.1 percent, according to the June jobs data released by the Bureau of Labor Statistics. 

The June jobs numbers again beat estimates, which ranged from 2.4 million to 2.9 million jobs gained. Job gains in May were also revised upward by almost 200,000, bringing the total May jobs gains to 2.7 million.

The labor force participation rate increased by 0.7 percent to 61.5 percent. The number of Americans employed part-time due to the economic slowdown dropped 1.6 million.

The job gains include almost 740,000 retail jobs and 2.1 million leisure and hospitality jobs. Over 350,000 manufacturing jobs were also added.

While more work remains to be done and the recovery is not yet complete, these job gains vindicate the tax cut and deregulatory policies pushed by President Trump and Congressional Republicans.

Instead of expanding government, the Trump administration has responded to the pandemic by repealing regulations. All told, over 700 regulations have been suspended or waived at the federal, state, and local level.

Moving forward, if Congress decides further COVID-19 relief legislation is necessary, it should be narrow and targeted in scope. Efforts by Democrats House Speaker Nancy Pelosi to pass trillions of dollars in further legislation should be rejected.

Photo Credit: Gage Skidmore


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