Alex Hendrie

ATR Urges the IRS to Return Transition Tax Overpayments to Taxpayers

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Posted by Alex Hendrie on Wednesday, December 5th, 2018, 5:59 PM PERMALINK

In a letter to Treasury Secretary Steve Mnuchin, ATR President Grover Norquist urged the IRS to change its guidance in regards to transition tax overpayments under IRC Section 965. 

Under the Transition tax, companies must pay tax on foreign earnings and profits that have been deferred and not yet paid in the United States. However, the IRS has taken the position that any overpayment of deferred foreign income tax liability must be applied to the Transition tax instead of refunded to the company, depriving companies of much-needed cash flow. 

Read the letter here or below: 

The Honorable Steven Mnuchin
Secretary
U.S. Treasury Department
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Secretary Mnuchin:

I write regarding the IRS guidance issued for overpayments made when paying the transition tax under IRC Section 965. The current interpretation by the IRS is harming taxpayers and economic growth and should be reversed in a way that promotes flexibility and matches Congressional intent.

Under the Transition tax, foreign earnings and profits that have been deferred and not yet taxed in the US must be repatriated and tax paid. Taxpayers have an option to pay the Transition tax over eight years with the following installments – 8 percent of total liability for years one through five, 15 percent of total liability in year six, 20 percent in year seven, and 25 percent in year eight.

However, the IRS has taken the position that then any overpayment of deferred foreign income tax liability must be applied to the Transition tax rather than refunded to the company. This position directly contradicts the provisions and intent of the bill to allow companies to pay their Transition tax liability over eight years.

The IRS position is depriving taxpayers of badly needed cash flow which in many cases was the basis for businesses to invest in factories, on new equipment, or pay their employees bonuses or increase their wages.

The IRS position is also stifling the economic growth the Administration and Congress promised and that the tax bill was designed to deliver. 

I urge you to immediately intervene and direct the IRS to change its policy and return any overpayments to taxpayers so that they can continue to create good paying jobs for Americans.

Thank you for your consideration. If you have any questions, please do not hesitate to contact me or ATR’s Director of Tax Policy Alex Hendrie at ahendrie@atr.org or at 202-785-0266.

Onward,

Grover Norquist
President, Americans for Tax Reform

 

 

Photo Credit: David Boeke


Sherrod Brown is Wrong: The GOP Tax Cuts Have Not Given Companies An Outsourcing Coupon

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Posted by Alex Hendrie on Monday, December 3rd, 2018, 9:47 AM PERMALINK

Senator Sherrod Brown (D-OH) has claimed that the Tax Cuts and Jobs Act passed by Congressional Republicans has led to companies outsourcing jobs and factories overseas. He has seized on the recent announcement that GM will shutter several plants and lay off workers as proof of this claim. 

Senator Brown is wrong – there is no outsourcing “coupon” or similar tax break in the TCJA.

The provision cited by Senator Brown actually makes it more difficult for companies to outsource jobs and wages.

Instead of harming American workers and families, the tax bill has grown the economy and made America a more competitive place to do business. Thanks to tax reform, wages are up, job openings are at a high, unemployment is low, business optimism is strong, and workers are seeing increased employee benefits.

The Tax Cuts and Jobs Act Discourages Outsourcing

Senator Brown has repeatedly claimed that the TCJA gives companies a 50 percent coupon off their 21 percent corporate rate when they relocate overseas. He cites the new GILTI (Global Intangible Low-Tax Income) and FDII (Foreign-Derived Intangible Income) provisions under Section 250 of the tax code.

These provisions actually make it more difficult for companies to outsource jobs and factories because they target erosion of the U.S. tax base by going after new types of income that were previously not taxed  by the U.S. system.

GILTI and FDII apply a “carrot and stick” approach to the taxation of intangible income (income derived from rents, royalties etc.) that is easily allocated to low-tax jurisdictions.

GILTI is the stick – it is designed to impose taxation on low-tax IP-derived income of foreign subsidiaries. Any GILTI income is included in a company’s taxable income but with a 50 percent deduction, resulting in an effective rate of 10.5 percent.

This approach aims to incentivize companies to locate capital and profits within America, while clamping down on companies that relocate their assets overseas. 

Post-TCJA, if a company chooses to relocate assets overseas, they receive a higher tax rate on their income than they would have before tax reform (10.5 percent versus zero) because of GILTI.

In fact, this so-called “outsourcing tax break” is a $112.4 billion tax increase over the ten-year window (as a whole the bill is a $1.45 trillion tax cut).

Senator Brown has stated that he wants President Trump to step in and remove the 50 percent outsourcing coupon. In reality, there is nothing to fix - GILTI is not a coupon or outsourcing benefit and actually makes it harder for companies to relocate overseas.

The U.S. Economy is Strong Because of Tax Reform

Although Senator Brown claims the GOP tax cuts are a negative for America, nothing could be further from truth.

Tax reform has made the U.S. system competitive again – the bill lowered the federal corporate tax from 35 percent (where it was the highest in the developed world) to 21 percent, a rate that puts the U.S. close to foreign competitors.

Tax reform also modernized the U.S. international tax system so that businesses will now be able compete globally and can reinvest trillions of dollars in foreign earnings into America.

Because of these policies, the U.S. was named the most competitive economy in the world earlier this year, according to the IMD World Competitiveness Center.

The economy grew by 3.5 percent in Q3 of 2018 and we are on track for the strongest annual growth in 13 years. The unemployment rate is at a near-50 year low

Small business optimism is at the highest level in 45 years, with owners reporting more investment and spending. Similarly, manufacturer optimism is at a record high over the past year, with capital investment, employment, and sales all increasing.

At least 90 percent of wage earners are seeing higher take home pay because of tax reform. Consumers are seeing lower utility bills in all 50 states and workers are seeing bonuses, 401(k) match increases, and new employee benefits.

Photo Credit: Flickr


Conservatives Oppose HHS International Pricing Index for Medicare Part B Drugs


Posted by Alex Hendrie on Tuesday, November 27th, 2018, 3:00 PM PERMALINK

In a letter to the Department of Health and Human Services, ATR and 56 other conservative groups and activists expressed opposition to HHS’s “International Pricing Index” (IPI) payment model for drugs administered under Medicare Part B.

Click here to read the full letter. 

The United States is a world leader in research and development because our system of healthcare rejects price controls and encourages innovation. As a result, a majority of new medicines are developed and launched in America.

America’s innovative environment for medicines is enormously beneficial to the U.S. healthcare system. Investment in the research and development of medicines is critical to the growth of high-paying jobs and a stronger economy.

In sharp contrast, socialized foreign healthcare systems put price controls on their medicine, eschewing America’s free market approach. Time and time again, price controls has been proven to suppress innovation. Price controls utilize government power to forcefully lower costs in a way that distorts free-market incentives to lower costs through efficiency and innovation.

As the letter notes, the proposed HHS rule simply imports foreign price controls into the US: 

“Foreign countries frequently utilize a range of arbitrary and market-distorting policies to determine the cost of medicines – by definition such approaches are price controls. There is no negotiation and foreign governments often force innovators to accept lower prices in a “take-it-or-leave it” proposition. This results in reduced or restricted access to new medicines and higher prices for those medicines that enter the market.”

The letter also notes that Medicare Part B is currently based on market prices, and explains how that system led to a price decrease in the cost of top 50 Part B drugs: 

“Instead of relying on government price setting, Medicare Part B is currently calculated based on market prices. The formula, which is based on the “Average Sales Price” (ASP) in the U.S. market, includes the discounts negotiated between payers, hospitals and health plans. Recently this system led to a 0.8 percent decrease in the cost of the top 50 Part B drugs.”

Finally, the letter notes that the IPI is being proposed through the Obamacare Center for Medicare and Medicaid Innovation (CMMI), an agency that is funded outside of the Congressional appropriations process in violation of Article I of the constitution.

The Trump administration has repeatedly identified price controls as being harmful to innovation. If implemented, the proposed IPI model for Medicare Part B drugs will stifle innovation and harm American competitiveness and investment.

Click here to read the full letter. Which can also be found below.

The Honorable Alex Azar
Secretary
Department of Health and Human Services
200 Independence Avenue SW
Washington, DC 20201

Dear Secretary Azar:

We write in opposition to the administration’s Advanced Notice of Proposed Rule Making (ANPRM) to create an “International Pricing Index” (IPI) payment model for drugs administered under Medicare Part B.

The proposed payment model imports foreign price controls into the U.S. by modifying the Part B reimbursement rate so that it is calculated based off the prices set by 14 countries.

Instead of relying on government price setting, Medicare Part B is currently calculated based on market prices. The formula, which is based on the “Average Sales Price” (ASP) in the U.S. market, includes the discounts negotiated between payers, hospitals and health plans. Recently this system led to a 0.8 percent decrease in the cost of the top 50 Part B drugs.

In contrast, foreign countries frequently utilize a range of arbitrary and market-distorting policies to determine the cost of medicines – by definition such approaches are price controls. There is no negotiation and foreign governments often force innovators to accept lower prices in a “take-it-or-leave it” proposition. This results in reduced or restricted access to new medicines and higher prices for those medicines that enter the market.

Conservatives have long opposed price controls because they utilize government power to forcefully lower costs in a way that distorts the economically-efficient behavior and natural incentives created by the free market.

When imposed on medicines, price controls suppress innovation and access to new medicines. This deters the development and supply of new life saving and life improving medicines to the determent of consumers, patients, and doctors.

The U.S. is a world leader in research & development because the system of healthcare rejects price controls and encourages innovation. As a result, a majority of new medicines are developed and launched in America.

This innovative environment is enormously beneficial to the long-term well-being of Americans and the efficiency of the U.S. healthcare system. In addition, the investment required for research and development of medicines leads to more high-paying jobs and a stronger economy.

Importing price controls will undermine this system by basing U.S. prices on the prices of socialized foreign healthcare systems. This will inevitably suppress innovation and harm American competitiveness.

Ironically, the administration recognized the damage that adopting foreign pricing would have on American innovation in a report released in February 2018 by the president’s Council of Economic Advisors:

 “If the United States had adopted the centralized drug pricing policy in other developed nations twenty years ago, then the world may not have highly valuable treatments for diseases that required significant investment.”

We are also concerned that the IPI is being proposed through the Obamacare Center for Medicare and Medicaid Innovation (CMMI). There is long standing conservative opposition to CMMI based on the concern that it bypasses Congress’ power over the purse as enshrined in Article I of the Constitution.

CMMI is completely exempt from the Congressional appropriations process and is prone to being misused in ways that result in the executive branch of government usurping Congress’ role in setting policy.

The administration has repeatedly acknowledged that foreign price controls have damaged medical innovation.

Instead of fighting these price controls, we are concerned that the proposed International Pricing Index adopts them. This proposal will suppress competition and innovation and harm American competitiveness and investment.

We respectfully request that your department withdraw this proposal.

Sincerely,

Grover Norquist
President, Americans for Tax Reform

James L. Martin
Founder/Chairman, 60 Plus Association

Saulius “Saul” Anuzis
President, 60 Plus Association

Dick Patten
President, American Business Defense Council

Phil Kerpen
President, American Commitment

Dan Schneider
Executive Director, American Conservative Union

Steve Pociask
President, American Consumer Institute

Lisa B. Nelson
CEO, American Legislative Exchange Council

Dee Stewart
President, Americans for a Balanced Budget

Rick Manning
President, Americans for Limited Government

Andrew F. Quinlan
President, Center for Freedom and Prosperity

Ryan Ellis
President, Center for a Free Economy

Jeffrey Mazzella
President, Center for Individual Freedom

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

Peter J. Pitts
President and Co-founder, Center for Medicine in the Public Interest

Thomas Schatz
President, Citizens Against Government Waste

Chip Faulkner
Chair, Citizens for Limited Taxation

Iain Murray
Vice President for Strategy, Competitive Enterprise Institute

Matthew Kandrach
President, Consumer Action for a Strong Economy (CASE)

Fred Roder
Health Economist/Managing Director, Consumer Choice Center

Yaël Ossowski
Deputy Director, Consumer Choice Center

James Edwards
Executive Director, Conservatives for Property Rights

Joel White
President, Council for Affordable Health Coverage

Katie McAuliffe
Executive Director, Digital Liberty

Robert Roper
President, Ethan Allen Institute

Palmer Schoening
President, Family Business Coalition

Richard Watson
Co-Chair, Florida Center-right Coalition

Adam Brandon
President, FreedomWorks

George Landrith
President, Frontiers of Freedom

Grace-Marie Turner
President, Galen Institute

Naomi Lopez Bauman
Director of Healthcare Policy, Goldwater Institute

Mario H. Lopez
President, Hispanic Leadership Fund

Linda Gorman
Health Care Policy Center Director, Independence Institute

Carrie Lukas
President, Independent Women’s Forum

Heather R Higgins
CEO, Independent Women’s Voice

Andrew Langer
President, Institute for Liberty

Tom Giovanetti
President, Institute for Policy Innovation

Colin Hanna
President, Let Freedom Ring

Seton Motley
President, Less Government

Mary Adams
Chair, Maine Center-right Coalition

Charles Sauer
Founder/President, Market Institute

Kevin Waterman
Co-Chair, Maryland Center-right Coalition

Ted Tripp
Chair, Massachusetts Center-right Coalition

Tim Jones
Chair, Missouri Center-right Coalition
Former Speaker, Missouri House of Representatives

Pete Sepp
President, National Taxpayers Union

Stephen Stepanek
Co-Chair, New Hampshire Center-right Coalition

Jack Boyle
Executive Director, Ohioans for Tax Reform

Jeff Kropf
President, Oregon Capitol Watch Foundation

Sally Pipes
President, Pacific Research Institute

Ed Martin
President, Phyllis Schlafly Eagles

Lorenzo Montanari
Executive Director, Property Rights Alliance

Paul Gessing
President, Rio Grande Foundation

Karen Kerrigan
President/CEO, Small Business & Entrepreneurship Council

David Williams
President, Taxpayers Protection Alliance

Jenny Beth Martin
Chairman, Tea Party Patriots Citizens Fund

Sara Croom
Executive Director, Trade Alliance to Promote Prosperity

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


ATR Urges Broader High-tax Exception to GILTI

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Posted by Alex Hendrie on Wednesday, November 21st, 2018, 8:00 AM PERMALINK

In a letter to Treasury Secretary Steven Mnuchin, ATR urged the department to broaden the high-tax exception that exists under Section 951A Global Intangible Low-Tax Income (GILTI) in order to prevent an unintended consequence to the tax law that may harm American competitiveness and increase taxes on businesses.

Click here to view the full letter. 

The Tax Cuts and Jobs Act passed last year dramatically overhauled the U.S. international tax system. The law added the new GILTI provision, which was designed to counteract base erosion from moving to a territorial system. At the same time, TCJA left the existing subpart F base erosion rules untouched.

These changes have resulted in some unintended consequences. For instance, the law could be currently interpreted as including high-tax, foreign source income in the new GILTI regime. This income would otherwise be subpart F income but for an exception to Subpart F such as the active finance exception or active insurance exception. 

This is poor policy that is not required by the statute and should be fixed – high-tax foreign income has historically been exempted from U.S. taxation under the Subpart F rules because it was already taxed in the country of origin.

In effect, this creates a situation where high-tax active CFC income from foreign jurisdictions is now being treated worse than easily-shifted passive CFC income. 

This is problematic as the rationale for base erosion provisions is to counteract the possible shifting of intangible income to low tax jurisdictions.  As the letter notes, this will create perverse incentives for businesses to restructure and will harm American competitiveness:

This discrepancy could create significant adverse consequences for businesses and result in a net tax increase relative to pre-TCJA law. Businesses will now have perverse incentives to restructure business operations in a way that is costly, that creates future complexity, or that may not be practical in foreign jurisdictions.

This absence of a broadened exception will also harm American competitiveness given U.S. businesses face additional tax on high-tax CFC income, while foreign competitors face no additional tax on their high-tax income.

Treasury should address this issue by interpreting the current high-tax exception in GILTI so that it applies not only to passive Subpart F income, but also to active high-tax non-Subpart F income.

As the letter states, Congress intended for high-tax foreign income to be exempt from GILTI because this type of income is already exempted from U.S. tax based on the conference report to TCJA released by the Senate Finance Committee:

“The Committee believes that certain items of income earned by CFCs should be excluded from the GILTI, either because they should be exempt from U.S. tax – as they are generally not the type of income that is the source of base erosion concerns – or are already taxed currently by the United States. Items of income excluded from GILTI because they are exempt from U.S. tax under the bill include foreign oil and gas extraction income (which is generally immobile) and income subject to high levels of foreign tax.”

Click here to view the full letter. 

Photo Credit: Cliff - Flickr


Congress Should Use the Lame Duck Session to Repeal the Obamacare Health Insurance Tax, Medical Device Tax, and Expand HSAs

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Posted by Alex Hendrie on Tuesday, November 20th, 2018, 9:12 AM PERMALINK

Lawmakers should use the remaining six weeks of the year to pass much needed relief from the Obamacare health insurance tax and medical device tax and expand health savings accounts.

When it was signed into law, Obamacare imposed a trillion dollars in new or higher taxes on the American people. These taxes included a tax on Americans facing high medical bills, taxes on health savings accounts, a tax on innovative medicines, and a tax for failing to buy health insurance. They have all caused significant harm to middle-class and low-income families across the country.

In the long term, lawmakers must continue working to repeal all one trillion in Obamacare taxes and passing reforms to get the government out of healthcare so that Americans can have better access to lower cost, higher-quality health care.

More immediately, the lame duck period is a prime opportunity to repeal or delay the health insurance tax and continue to delay the medical device tax. Lawmakers can also strengthen healthcare freedom and choice by expanding HSAs for American families across the country.

The Obamacare health insurance tax is scheduled to go into effect in 2020. Insurers plan their premiums months in advance, so if Congress fails to act soon, the tax will harm more than 141 million consumers, including those in the individual market, large and small group plans, Medicare Advantage and Medicare Part D plans. In total, the tax hits 11 million households that purchase through the individual insurance market, and 23 million households covered through their jobs.

If the HIT does go into effect, it is estimated that the tax will increase premiums by 2.2 percent per year and by almost $6,000 over the next decade for a typical family of four with small or large group insurance. This tax is also highly regressive – half of the HIT is paid by those earning less than $50,000 a year.

The tax would also exact an enormous burden on small businesses and our economy. It is estimated to directly impact as many as 1.7 million small businesses. The National Federation of Independent Business estimates the tax could cost up to 286,000 in new jobs and cost small businesses $33 billion in lost sales by 2023.

77 percent of registered voters support delay or full repeal of the Health Insurance Tax, according to polling released by Morning Consult. Congress should act as soon as possible to repeal or delay the health insurance tax. Fortunately, the House has already put forward proposals to repeal and delay this tax. Congress should swiftly move forward on this legislation.

Lawmakers should also expand access to tax-advantaged Health Savings Accounts. Not only will this offer Americans important tax relief, it will also expand healthcare freedom. Today, 25 million American families and individuals save and spend their own money tax free on a variety of healthcare expenses, more than two times the amount of individuals that use Obamacare exchanges. 

The Republican-controlled House has already passed legislation that would double the contribution limit for an HSA, as well as allow individuals with a bronze or catastrophic health care plan to be eligible for an HSA. The proposal also expands access to HSAs by allowing working seniors enrolled in Medicare Part A to contribute to an HSA and allows HSAs to be used to purchase over-the-counter medications and fitness expenses.

These HSA reforms are in stark contrast with Obamacare’s top-down, command and control model and will empower individuals, lower health care costs, strengthen retirement security, and cut taxes for hardworking middle class Americans.

Finally, Congress should further roll back the Obamacare medical device tax, which is scheduled to go back into effect in 2020. The medical device tax is imposed as a 2.3 percent excise tax on all manufacturers including the thousands of small businesses. Ultimately, this tax suppresses investment and costs jobs.

The medical device tax was disastrous when it was in effect under President Obama. Research indicates that the tax reduced medical device investment by $34 billion in 2013 and cost almost 22,000 jobs when it was in effect between 2013 and 2015.

In the past two years, Republicans have made significant progress towards reforming the health care system. Most notably, Republicans repealed the individual mandate tax that was crushing middle and lower-class families that couldn’t afford health care. Obamacare’s most famous tax was a blatant war on the middle class, with 79% of individuals affected by the tax making $50,000 or less, and 37% of people affected by the tax making $25,000 or less.

The Trump Administration also recently issued a slew of new rules through the Department of Labor and the Department of Health and Human Services that strengthened health care choice and access to care for employees and employers. The new rules expanded health reimbursement accounts so that small- and medium-sized employers can easily offer their workers an HRA to pay $1,800 of medical expenses per year. The new rules also allowed small businesses to band together and form association health plans.

While these are significant wins, the GOP should not let the lame duck session pass without building on their success. The Health insurance tax should be delayed or repealed outright, HSAs should be expanded, and the medical device tax should be rolled back.

Photo Credit: Matt Wade - Flickr

More from Americans for Tax Reform


Congress Should Reject Proposals to Expand and Extend the Electric Vehicle Tax Credit


Posted by Alex Hendrie on Thursday, November 8th, 2018, 8:00 AM PERMALINK

With the Congressional lame duck session soon to begin, it is expected lawmakers will act on a number of tax provisions before the end of the year. 

Congress may pass parts of the Tax Reform 2.0 legislation including the provisions that strengthen retirement, education, and family savings. It is also possible that lawmakers may pass technical fixes to the Tax Cuts and Jobs Act including allowing qualified retail improvement property to benefit from immediate, 100 percent expensing.

One proposal lawmakers should reject is legislation to extend and lift the cap on the Electric Vehicle Tax Credit as has been proposed in S. 3582/H. R. 7065, legislation introduced by Congressman Diane Black (R-TN) and Senator Dean Heller (R-NV).

Under current law, the federal EV tax credit grants a taxpayer purchasing a qualifying vehicle a credit of between $2,500 and $7,500 depending on the vehicle sold. The credit is capped at 200,000 vehicles per manufacturer at which point it begins to phase out.

This tax credit should not be extended, nor should the cap be lifted. Instead, the EV credit should be repealed or phased out as part of revenue-neutral tax reform.

The EV tax credit is bad policy. Ideal tax policy promotes the most economically efficient decisions by limiting the number of distortionary provisions. The EV tax credit undermines this goal as it arbitrarily benefits one type of car over others.

The credit is also regressive – almost 80 percent of the benefits go to those making $100,000 or more per year.  This type of tax subsidy is also unpopular with the American people -- 67 percent of voters oppose subsidizing electric vehicles.

The EV credit was originally created with the 200,000 vehicle cap as it was designed to help an emerging industry. Extending the credit and lifting the cap would enshrine a handout for electric vehicle manufacturers in the tax code.

Extending the EV credit also undermines the progress made by Republicans in making the tax code simpler and fairer. Over the past several years, GOP lawmakers have been successful in reducing the number of distortionary credits and deduction in favor of broader lower tax rates:

  • In 2015, Congress passed tax extender legislation that made many conservative tax provisions permanent like small-business expensing, research and development credits, and provisions to prevent double taxation on international income. Importantly, many other, distortionary credits were phased out.
     
  • Lawmakers built on this success by passing the Tax Cuts and Jobs Act in 2017. This legislation reduced tax rates for small businesses and corporations across the board, while again repealing numerous distortionary or preferential credits and deductions.            
     
  • Since passage of TCJA, Ways and Means Chairman Kevin Brady (R-Texas) has spent the year examining the merits of the remaining temporary tax provisions with a goal of either repealing or making permanent any remaining tax extenders.

 

Lawmakers have made admirably progress in recent years toward making the tax code simpler and fairer. Pushing policies like an extension and expansion of the regressive Electric Vehicle Tax Credit directly undermines this progress.


Democrats Threaten Corporate Tax Hike if Elected to Congress

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Posted by Alex Hendrie on Tuesday, October 30th, 2018, 11:24 AM PERMALINK

If they win control of the House in November, Democrats will raise the corporate rate, according to Congressman John Yarmuth (D-KY), the top Democrat on the House Budget Committee.

As reported by Politico Morning Tax, Rep. Yarmuth floated a corporate rate as high as 27 percent, which would raise the U.S. rate above the average rate in the developed world.

Prior to passage of the Tax Cuts and Jobs Act, the U.S. had the highest corporate rate at 35 percent (plus state corporate rates averaging over 4 percent). This was nearly 15 points higher than the average rate of 25 percent across the 35-member Organisation for Economic Co-operation and Development (OECD).

The GOP tax cuts addressed this problem by reducing the rate to 21 percent. Now, the U.S. is competitive with foreign countries.

Raising the corporate rate, will harm the economy, slow job creation, and reduce wage growth. Following tax reform, the U.S. has been named the most competitive economy in the world, according to the World Economic Forum.

The economy grew at a rate of 3.5 percent in the third quarter of 2018 and is on track for the strongest growth in 13 years. Job openings are at a record high and the unemployment rate is at the lowest levels since 1969,

The competitive corporate rate is a big part of this economic success. In fact, recent studies have found that workers bear a significant portion of the corporate tax — 50 percent70 percent, or even higher.

A high corporate tax rate will also make America a less competitive place to do business, which will result in and investment fleeing overseas. This is not a hypothetical.

Before the corporate rate was reduced, almost 50 American businesses left the country through inversions over a decade, according to data compiled by Democrats on the House Ways and Means Committee. American companies also suffered a net loss of almost $510 billion in assets between 2004 and 2017, according to a study released by EY.

Senate Democrats have already proposed raising the corporate rate as part of a $1 trillion tax hike which also includes a $600 billion income tax increase.

Others Democrats want to go further and have proposed extensive tax hikes paired with massive new government programs such as single-payer healthcare.

When Bernie Sanders (I-VT) unveiled his single payer plan in 2016, he proposed a 6.2 percent payroll tax on businesses that would increase taxes by $10 trillion over a decade and a 2.2 percent payroll tax on families and individuals totaling $2 trillion. Sanders also proposed a $1 trillion income tax increase, an increase in the death tax, and a nearly $1 trillion capital gains tax increase.

This is likely just the tip of the iceberg because the program would cost at least $32.6 trillion over a decade according to the Mercatus Center.

Clearly, Democrats want higher taxes if elected to Congress. As Rep. Yarmuth’s comments make clear, it is a matter of when, not if, the left pushes tax hikes on American businesses and individuals.

Photo Credit: AFGE


After Promising to Fight Foreign Price Controls, New HHS Rule Adopts Them


Posted by Alex Hendrie on Tuesday, October 30th, 2018, 9:00 AM PERMALINK

When releasing his plan to reduce drug prices earlier this year, President Trump promised his administration would get tough on foreign price controls. Instead, the administration is proposing a rule that will adopt them.

Last week, Trump and Health and Human Services Secretary (HHS) Alex Azar announced the proposed creation of an “International Pricing Index.” This index injects foreign price controls into the payment system for Medicare Part B physician administered medicines.

Under the plan, a price control will be imposed on Part B medicines based on the price-controlled medicines in 16 other countries: Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden and the United Kingdom.

Ironically, the administration identified the damage that foreign price controls have had over medical innovation in their “American Patients First” Blueprint:

“…foreign, developed nations, that can afford to pay for novel drugs, free-ride by setting drug prices at unfairly low levels, leaving American patients to pay for the innovation that foreign patients enjoy…. If the United States had adopted the centralized drug pricing policy in other developed nations twenty years ago, then the world may not have highly valuable treatments for diseases that required significant investment.”

Undoubtedly, this policy will harm U.S. competitiveness. The U.S. is currently a world leader in research & development with a majority of new medicines developed and launched in America. In addition to health benefits, this innovative environment also means more high-paying jobs and a stronger economy.

This advantage does not come from nowhere. It exists because the U.S. (usually) opts for free market policies that stand in stark contrast to the socialist policies utilized by most trading partners. 

Typically, foreign developed countries impose extensive foreign price controls on medicines. While these policies lower the short term cost for drugs, they have the long-term cost of suppresing innovation, the creation of high-paying jobs, and the development of life-saving and life-improving medicines which make the healthcare system more efficient.

This disparity means that the America ends up paying a high price for these medicines -- currently the U.S. pays as much as 70 percent of the costs of medicines, even though America is only one-third of the market.  

Rather than having the U.S. adopt distortive price controls, as the administration’s International Pricing Index proposes, the solution should be having foreign countries pay their fair share. 

If the U.S. adopts the same innovation destroying policies that exist in other countries, there will be fewer medicines developed in the U.S. and fewer medicines entering the market. This will result in worse health outcomes and will harm American jobs and investment. The Trump administration should reconsider this rule in place of policies that promote innovation and American competitiveness.


Ending the Inflation Tax Should be Part of The Next Trump Tax Cut

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Posted by Alex Hendrie on Monday, October 22nd, 2018, 4:38 PM PERMALINK

President Trump can build on the success of the administration’s tax cuts and regulatory reform  by ending the job-killing inflation tax on capital gains.

This can be done immediatedly by having the Treasury department issue a rule adjusting the capital gains tax rate for inflation.

Ending the taxation of inflationary gains will have clear, immediate economic benefits and will increase the wealth of Americans across the country.  This 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.

For decades, Americans have been stuck paying capital gains taxes on phantom, inflation-based gains which unfairly exposes taxpayers to additional taxation.

For example, an investor 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).

There is strong support for ending the inflation tax: 

  • Several months ago President Trump acknowledged 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.) have introduced legislation that is supported by Senator Pat Toomey (R-Pa.) and Freedom Caucus Chairman Mark Meadows (R-N.C.)
     

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

See Also:

The tax law Chuck Schumer hates - but used to praise (The article by authors James Carter and Peter Roff that brought this vote to ATR's attention.)

The Case for Ending the Inflation Tax on Capital Gains

Indexing Capital Gains Taxes to Inflation Resources

 

 

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Democrats Raised Taxes By $1 Trillion the Last Time They Controlled Congress

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Posted by Alex Hendrie on Thursday, October 18th, 2018, 5:27 PM PERMALINK

The last time Democrats held Congress they imposed more than $1 trillion in higher taxes over ten years when they passed Obamacare. The law imposes a taxes on health savings accounts and flex spending accounts, employer provided care, a tax on innovative medicines and other treatments, a tax for failing to buy government-mandated insurance, a new tax on health insurance, a tax on medical devices, and even a tax hike on Americans facing high medical bills.

In total, these taxes exceed one trillion dollars ($1,000,000,000,000) over a decade. The full list is below:

Individual Mandate Non-Compliance Tax: Anyone not buying “qualifying” health insurance – as defined by the Obama-era Department of Health and Human Services – was forced to pay an income surtax to the IRS. The Obama administration used the Orwellian phrase “shared responsibility payment” to describe this tax. The individual mandate tax penalty was paid by 4,953,490 in 2016, according to recently released IRS data compiled by the office of Senator Steve Daines (R-Mont.).

These 4,953,490 households paid a total of $3,628,017,000 in individual mandate tax penalties in 2016. 77 percent of those paying the mandate had annual income of less than $50,000 and 34 percent have annual income of less than $25,000.

The tax was a minimum of $695 for individuals, while families of four have to pay a minimum of $2,085.

Households w/ 1 Adult       Households w/ 2 Adults           Households w/ 2 Adults & 2 children 2.5% AGI/$695                  2.5% AGI/$1390                       2.5% AGI/$2085

Medicine Cabinet Tax on HSAs and FSAs: Under Obamacare, the 20.2 million Americans with a Health Savings Account and the 30 - 35 million covered by a Flexible Spending Account are no longer able to purchase over-the-counter medicines using these pre-tax account funds. Examples include cold, cough, and flu medicine, menstrual cramp relief medication, allergy medicines, and dozens of other common medicine cabinet health items. This tax costs FSA and HSA users $6.7 billion over ten years.

Flexible Spending Account Tax: The 30 - 35 million Americans who use a pre-tax Flexible Spending Account (FSA) at work to pay for their family’s basic medical needs face an Obamacare-imposed cap of $2,500. This tax hits Americans $32 billion over a decade.

Before Obamacare, the accounts were unlimited under federal law, though employers were allowed to set a cap. Now, parents looking to sock away extra money to pay for braces find themselves quickly hitting this new cap, meaning they have to pony up some or all of the cost with after-tax dollars. Needless to say, this tax especially impacts middle class families.

There is one group of FSA owners for whom this new cap is particularly cruel and onerous: parents of special needs children. Families with special needs children often use FSAs to pay for special needs education. Tuition rates at special needs schools can run thousands of dollars per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. This Obamacare tax increase limits the options available to these families.

Chronic Care Tax: This income tax increase directly targets middle class Americans with high medical bills. The tax hits 10 million households every year. Before Obamacare, Americans facing high medical expenses were allowed an income tax deduction to the extent that those expenses exceeded 7.5 percent of adjusted gross income (AGI). Obamacare now imposes a threshold of 10 percent of AGI. Therefore, Obamacare not only makes it more difficult to claim this deduction, it widens the net of taxable income. This income tax increase cost Americans $40 billion over a decade.

According to the IRS, approximately 10 million families took advantage of this tax deduction each year before Obamacare. Almost all were middle class: The average taxpayer claiming this deduction earned just over $53,000 annually in 2010. ATR estimates that the average income tax increase for the average family claiming this tax benefit is about $200 - $400 per year.

HSA Withdrawal Tax Hike: This provision increases the tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Ten Percent Excise Tax on Indoor Tanning: The Obamacare 10 percent tanning tax has wiped out an estimated 10,000 tanning salons, many owned by women. This $800 million Obamacare tax increase was the first to go into effect (July 2010). This petty, burdensome, nanny-state tax affects both the business owner and the end user. Industry estimates show that 30 million Americans visit an indoor tanning facility in a given year, and over 50 percent of salon owners are women. There is no exception granted for those making less than $250,000 meaning it is yet another tax that violates Obama’s “firm pledge” not to raise “any form” of tax on Americans making less than this amount.

“Cadillac Tax” -- Excise Tax on Comprehensive Health Insurance Plans: Obamacare passed a new 40 percent excise tax on employer provided health insurance plans is scheduled to kick in, on plans exceeding $10,200 for individuals and $27,500 for families. When it was passed, research by the Kaiser Family Foundation found that the Cadillac tax would hit 26 percent of employer provided plans by 2020 and 42 percent of employer provided plans by 2028. Over time, this will decrease care and increase costs for millions of American families across the country.

Health Insurance Tax: In addition to mandating the purchase of health insurance through the individual mandate tax, Obamacare directly increases the cost of insurance through the health insurance tax. The tax is projected to cost taxpayers – including those in the middle class – $130 billion over the next decade.

The total revenue this tax collects is set annually by Treasury and is then divided amongst insurers relative to the premiums they collect each year. While it is directly levied on the industry, the costs of the health insurance tax are inevitably passed on to small businesses that provide healthcare to their employees, middle class families through higher premiums, seniors who purchase Medicare advantage coverage, and the poor who rely on Medicaid managed care.

According to the American Action Forum, the Obamacare health insurance tax increased premiums by up to $5,000 over a decade and directly impacts 1.7 million small businesses, 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs.

Employer Mandate Tax: This provision forces employers to pay a $2,000 tax per full time employee if they do not offer “qualifying” – as defined by the government -- health coverage, and at least one employee qualifies for a health tax credit. According to the Congressional Budget Office, the Employer Mandate Tax raises taxes on businesses by $166.9 billion over ten years.

Surtax on Investment Income: Obamacare created a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 for singles). This created a new top capital gains tax rate of 23.8% and increased taxes by $222.8 billion over ten years. The capital gains tax hits income that has already been subjected to individual income taxes and is then reinvested in assets that spur new jobs, higher wages, and increased economic growth. Much of the “gains” associated with the capital gains tax is due to inflation and studies have shown that even supposedly modest increases in the capital gains tax have strong negative economic effects.

Payroll Tax Hike: Obamacare imposes an additional 0.9 percent payroll tax on individuals making $200,000 or couples making more than $250,000. This tax increase costs Americans $123 billion over ten years.

Tax on Medical Device Manufacturers: This law imposes a new 2.3% excise tax on all sales of medical devices. The tax applies even if the company has no profits in a given year. The tax is set to go into effect in 2020. 

Tax on Prescription Medicine: Obamacare imposed a tax on the producers of prescription medicine based on relative share of sales. This is a $29.6 billion tax hike over the next ten years. Codification of the “economic substance doctrine”: This provision allows the IRS to disallow completely legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks “substance” and is merely intended to reduce taxes owed. This costs taxpayers $5.8 billion over ten years.

Elimination of Deduction for Retiree Prescription Drug Coverage: The elimination of this deduction is a $1.8 billion tax hike over ten years. $500,000 Annual Executive Compensation Limit for Health Insurance Executives: This deduction limitation is a $600 million tax hike over ten years.

Photo Credit: FGA.org

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