Alex Hendrie

Economy Grew at 3.1% Following GOP Tax Cuts

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Posted by Alex Hendrie on Thursday, February 28th, 2019, 9:22 AM PERMALINK

The economy grew by 3.1 percent in 2018 (between the fourth quarter of 2017 to the fourth quarter of 2018) and 2.6 percent in Q4 of 2018 according to data released by the Bureau of Economic Analysis.

This release shows the success of the Tax Cuts and Jobs Act in growing the economy and stands in stark contrast with the 1.9 percent average growth experienced under President Obama.

Since President Trump took office, 5.3 million jobs have been created with 304,000 jobs created in January.

Wages are increasing at 3.2 percent – a ten-year high.  Labor force participation is improving after hitting 40-year lows under President Obama.

In the months following passage of the TCJA, the U.S. was named the most competitive economy in the world.

In the past year, the unemployment rate for key demographics including women, African-Americans and Hispanics have hit record lows.

This strong economic growth is also improving the nation's fiscal health. CBO has found that 0.1 percent in revenue equals 1.4 percent in GDP growth and over $400 billion in revenue over a decade, and in the past they have stated that 0.1 percent in GDP equals $300 billion.

This means that economic growth of higher than the 1.7 percent predicted by CBO will net the federal government trillions of dollars in higher revenues over 10 years.

While the Democrats continue to claim the GOP tax cuts are not working, the latest economic growth figures prove otherwise. GDP growth is up, new jobs are being created, and wages are rising.

Photo Credit: Gage Skidmore

Despite Dem Claims, Post-TCJA Still Steeply Progressive

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Posted by Alex Hendrie on Monday, February 25th, 2019, 4:09 PM PERMALINK

Democrats have claimed that the GOP Tax Cuts and Jobs Act benefits the wealthy and does little for middle class families.

This claim is false. After passage of TCJA, the tax code is steeply progressive as noted in an analysis by the Treasury Department:

  • In 2018, the top 10 percent of wage earners (with annual income of $123,716) pay 82.6 percent of federal income taxes and 61.2 percent of all federal taxes.
  • The top 10 percent of wage earners pay an average federal tax rate of 25.2 percent and an average individual income tax rate of 16.5 percent.
  • The top 1 percent pay 29.8 percent of federal taxes and 45.9 percent of federal income taxes.
  • The top 30 percent of wage earners pay 87 percent of federal taxes and 104.1 percent of federal income taxes.
  • The median quintile of wage earners (wage earners between 40 and 60 percent of earners) pay 6.3 percent of federal taxes and 0.6 percent of individual income taxes.
  • The median quintile of wage earners pay an average federal tax rate of 9.9 percent.

Photo Credit: House Democrats - Flickr

Rep. Clyburn Corporate Tax Hike Bill Would Undermine Success of Tax Reform

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Posted by Alex Hendrie on Monday, February 25th, 2019, 2:30 PM PERMALINK

The cornerstone of the Republican-passed Tax Cuts and Jobs Act is the 21 percent corporate rate. 

Prior to passage of the TCJA, the U.S. had the highest rate in the developed world at 35 percent. Now, the U.S. has a rate that is competitive with other countries.

In addition to making the U.S. more competitive in the global economy, the 21 percent rate has benefited the economy, workers and consumers. The reduced corporate rate has increased employee wages and benefits and made America a more competitive place to do business.

Unfortunately, Democrats are taking aim at the tax bill in an effort to raise the corporate rate.

House Budget Chairman John Yarmuth (D-Ky.) has proposed increasing the rate to 28 percent, an effective corporate rate of 34 percent after factoring in state taxes, which average approximately 6 percent.

More recently, House Majority Whip Jim Clyburn (D-SC) has introduced legislation that would raise the corporate rate in order to restore non-profit deductibility of fringe transportation benefits.

While the bill proposes a modest rate hike to 21.03 percent, it would undermine the success of the GOP tax cuts and open the door to additional corporate rate hikes to pay for leftist spending priorities.

Following the GOP tax cuts, the U.S. was named the most competitive economy in the world. By several metrics, the tax cuts have worked: wages grew by 3.2 percent in 2018, unemployment recently hit a 50 year low, labor force participation is improving, and business investment is up by almost 10 percent.

In addition to broad macroeconomic effects, the corporate rate reduction has benefited everyday Americans in the form of pay raises, new employee benefits and lower utility bills.

Companies have created new employee benefit programs. For example: 

  • Walmart and Lowes now provide $5,000 to help cover the cost of adopting a child.
  • Express Scripts in Missouri has created a $30 million education fund for their employees’ children.
  • Boeing provided $100 million in workforce development programs
  • McDonald’s employees who work just 15 hours a week, receive $1,500 worth of tuition assistance every year per year.

Companies have reduced utility bills for Americans across the country. Utility companies in all 50 states are passing on the tax savings in the form of lower rates for customers. This means lower electric bills, lower gas bills, and lower water bills for Americans than if the corporate rate cut had not occurred. For example: 

Companies have provided increased wages and bonuses to their employees. For example: 

  • Wells Fargo raised base wages from $13.50 to $15.00 per hour.
  • AT&T provided $1,000 bonuses to 200,000 employees. 
  • Cigna raised base wages to $16 per hour.
  • Apple provided $2,500 employee bonuses in the form of restricted stock.

While Rep. Clyburn's corporate tax hike proposal is relatively minor, it undermines the success of the GOP tax cuts and opens the door to further Democrat tax hike proposals that would threaten economic growth and worker benefits that GOP tax reform helped to flourish. 

Photo Credit: House Democrats - Flickr

Cutting the Capital Gains Tax Increases Investment and Federal Revenue

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Posted by Alex Hendrie on Monday, February 25th, 2019, 1:15 PM PERMALINK

Reducing the capital gains tax leads to higher revenues over the short term, based on data released by the Treasury Department.

Indexing capital gains taxes to inflation – as has been proposed by Members of Congress led by Senator Ted Cruz (R-Texas) and Congressman Devin Nunes (R-Calif.), conservative groups, and economists – would give the Trump administration stronger growth and higher revenues to buy down the deficit.

When the capital gains tax was cut by President Clinton from 28% to 20% in 1997, revenue as a % of GDP rose from 2.89% in 1996 to 3.84% in 1997, 4.67% in 1998 and 4.99% in 1999.

Similarly, President George W. Bush’s capital gains tax cut from 20% to 15% resulted in revenue rising from 2.56% of GDP in 2003 to 3.8% in 2004, 4.95% in 2005, and 5.42% in 2006.

Increasing the capital gains tax also distorts economic decision making. The top capital gains rate increased from 20% to 28% effective Jan 1, 1987. In anticipation of this rate hike, revenues as a % of GDP increased from 3.83% in 1985 to 6.95% in 1986 before dropping to 2.88% in 1987 and 2.92% in 1988.

Click here to access ATR's analysis as pictured above. 

This data should not be surprising. Cutting the capital gains tax creates an "unlocking effect," where pent-up gains they had built up over time are realized at greater rates than they otherwise would be.

The capital gains tax is a tax on investment and economic productivity, which negatively impacts wages and jobs.

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

Lower capital gains taxes also result in higher federal revenues because the government collects additional revenue from taxes on the higher levels of economic activity. In fact, the government could collect higher income and payroll taxes on wages, higher income taxes on corporate and non-corporate business profits, and additional excise taxes and tariffs because of increased economic activity.

Amazon's Federal Income Tax Liability is a Non-Story

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Posted by Alex Hendrie on Monday, February 25th, 2019, 9:18 AM PERMALINK

Recent media reports have highlighted the fact that Amazon owed the federal government no income taxes during the past year. However, this should not be cause for concern.

There is nothing sinister here – Amazon utilized no loopholes and fully followed the law. The company owed no taxes in 2018 because they utilized several credits and deductions for research-and-development costs, investment costs, losses from previous years, and employee compensation.

Corporations pay taxes on net profit, not income, and the deductions taken exceeded the company’s profits.

These tax provisions are all good policy. For example, the research & development credit allows companies to quickly recover the cost of expenditures for research and experimentation. This credit has bipartisan support – it was first created under President Reagan and was routinely extended and then made permanent by Congress.  President Obama even proposed expanding the credit in several budget proposals.

Amazon also utilized full business expensing, which allows companies to deduct the cost of new equipment purchased. This important policy encourages investment and helps grow the economy – even the Organization for Economic Co-operation and Development (OECD) has recognized that expensing increases GDP.  

The company also took net operating loss carryforwards because of losses in previous years.

Finally, Amazon deducted stock compensation granted to employees. This should not be cause for concern. As noted in a Bloomberg article, stock benefits are eventually taxed:

“The U.S. government is better off because Amazon employees end up paying more in tax than the company can write off. Companies take that deduction off their profits taxed at a 21 percent rate. Employees must pay tax on the income they receive from those shares at rates that top out at 37 percent.”

In addition, this deduction is based off the share price of stock and Amazon’s stock has surged in recent years, significantly increasing the value of the deduction. 

It is also important to note that Amazon is still paying taxes -- the company owes $322 million in state taxes and paid the government employer payroll taxes for its more than 200,000 employees.

Regardless, Amazon's zero federal income tax liability is a non-story. The truth is the company utilized several common, yet important business credits and deductions which exist to encourage investment and promote economic development.


Photo Credit: GotCredit - Flickr

Senator Toomey is Right When it Comes to Stock Buybacks

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Posted by Alex Hendrie on Thursday, February 14th, 2019, 12:34 PM PERMALINK

In a recent floor speech, Senator Pat Toomey (R-Pa.) pushed back on the left’s misrepresentation of stock buybacks. Restricting buybacks, as proposed by Senate Minority Leader Chuck Schumer (D-NY) and Senator Bernie Sanders (I-Vt.), would harm savers and investors and undermine the free economy in favor of government control and, ultimately, socialism.

Functionally, buybacks occur when a company is reinvesting in itself by returning funds to shareholders and the economy. Contrary to the left’s narrative, stock buybacks do not come at the expense of productive investment, instead occurring after a company has no better or higher use for cash.

Restricting buybacks would have several consequences. First, as noted in Sen. Toomey’s remarks, it would harm the economy:

“It would do great harm to an economy that is, right now, doing quite well. And the main way that it would be so damaging is it would scare away capital. You just stop and think about it, our economy thrives when people are willing to invest in existing businesses, in new business, in startup businesses but that investment is an absolutely essential part of a thriving economy.”

Today, the economy is strong. GDP is projected to grow at 3.1 percent in 2018 while wage growth is at a nine-year high. Job openings have now hit a record high of 7.3 million and over 300,000 jobs were created last month. Restricting buybacks would undermine this success.

Restricting buybacks would also harm the 55 million workers that own a 401k and the 54 percent of Americans that own stocks, as noted by Sen. Toomey:

“This idea would be very harmful to the people that it's presumably meant to help. You know about 40% of all equities in the U.S. are held in pension and retirement accounts. These are the accounts of teachers and cab drivers and truck drivers and folks who work at factories and do every other job that our economy depends on who put a little money away. It's in a 401k plan or it's in an IRA or it's in an employer-sponsored pension plan.”

Finally, restricting buybacks are an attack on economic freedom, as Sen. Toomey noted in his remarks:

"I will say it seems exactly equivalent to me to confiscating the property of somebody, in this case their ownership in a business, and redistributing that confiscated asset to whoever they choose. That strikes me is pretty close to the definition of socialism, Mr. President. So it’s clearly an attack on the economic freedom that underpins our entire economy, an entire market economy."

The economy is at record strength by many metrics. Proposals that take aim at share buybacks take direct aim at economic freedom in a way that will harm workers and stifle economic growth. 

Photo Credit: Gage Skidmore

Rubio is Wrong to Propose Higher Taxes on Capital Gains

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Posted by Alex Hendrie on Tuesday, February 12th, 2019, 5:00 PM PERMALINK

Senator Marco Rubio (R-Fla.) has released a document outlining the challenges posed by China’s growth and proposing solutions to promote American prosperity and economic productivity.

Surprisingly, Rubio calls for higher capital gains taxes by increasing taxes on share repurchases (or stock buybacks). While the plan does not detail what kind of increase, it calls for equalizing the treatment of buybacks to dividends, which could subject them to a top rate of 37 percent.

This plan aims to curb share repurchases – which many wrongly claim comes at the expense of investment in the economy. In reality, buybacks occur because a company is reinvesting in itself and returning funds to shareholders, as Senator Toomey (R-Pa.) pointed out in a recent floor speech. Buybacks occur when there is no more productive investment left to make and are returned into the economy.

While Rubio’s plan is to increase investment, higher taxes on capital gains would have the opposite effect. Dividends are subject to two layers of taxation – at the business level and at the individual level either in the form of capital gains taxes (taxes on investment) or as ordinary income.

The better approach would be limiting the double taxation on dividends and capital gains in general. Specifically, dividends received should be taxed as capital gains or ideally not be taxed at all because they have already been taxed at the business level. 

Senator Rubio deserves credit for proposing to make full business expensing permanent. This would promote continued investment in the economy.

However, this should not be done at the expense of higher capital gains taxes and restrictions on stock buybacks.

Photo Credit: Matt Johnson - Flickr

Lawmakers Should Reject the CREATES Act

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Posted by Alex Hendrie on Monday, February 11th, 2019, 2:00 PM PERMALINK

There is broad consensus among Democrats and Republicans that lowering drug prices should be a top priority of the 116th Congress.

One way to lower drug prices is to promote competition among manufacturers. However, any effort to promote competition must be done in a way that safeguards intellectual property rights, minimizes frivolous litigation, protects patients, and encourages innovation.

Unfortunately, the recently released CREATES Act (The Creating and Restoring Equal Access to Equivalent Samples) fails on all counts. The legislation, introduced in the House as H.R. 965 by Congressman David Cicilline (D-RI) and in the Senate as S. 340 by Senator Patrick Leahy (D-Vt.), undermines innovation and a system that ensures the safe development of medicines. Instead, the CREATES Act creates a system that promotes reckless litigation and grants generic manufacturers the right over an innovators’ creation under threat of lawsuit.

The CREATES Act is flawed and should be rejected by members of the House and Senate regardless of whether it is considered as a standalone bill or as part of a broader package of proposals.

CREATES Upends a Carefully Balanced, Working Regulatory System
The CREATES Act modifies the FDA’s Risk Evaluation and Mitigation Strategies (REMS), a regulatory structure that applies to roughly 40 highly advanced yet potentially dangerous drugs. REMS has been carefully enshrined in law to balance safety, innovation, and access to medicines.

The CREATES Act would modify this regulatory system by allowing generics to bypass FDA procedures that exist to ensure REMS medicines are safely developed. Under the proposal, a generic manufacturer is not required to include adequate safeguards for patients and researchers as a condition of authorization. This reform also limits the ability of the FDA to deny or modify an authorization request.

These changes restrict the safeguards within the REMS structure in a way that undermines the safe, efficient development of medicines.

CREATES Encourages Unnecessary Litigation
The main way that the CREATES Act modifies REMS is by creating a new litigation system that grants generic competitors seeking samples from an innovator the ability to launch litigation just 30 days after negotiation has begun. 

This will create incentives to launch litigation rather than go through existing process of approval for generic product.

Under this proposal, bad actors in the industry would be empowered to launch frivolous litigation. In turn, this would be a handout to trial lawyers at the expense of innovators, consumers, and the healthcare system. The legislation’s legal protections are so vague that innovators may even be responsible for actions taken by a reckless generic competitor.

CREATES Undermines Intellectual Property Rights
In addition to opening the door to a wave of unnecessary lawsuits, the new litigation system threatens intellectual property rights of innovators. The system may force innovators to hand over their IP through the threat of litigation, a precedent that could result gives generics a right over an innovators IP and will result in more resources being devoted to fighting legal action and fewer resources to research and development.

Patent exclusivity for medicines has been carefully legislated to ensure that creativity, innovation, and medical growth are protected. However, exclusivity is limited to prevent against a monopoly and ensure that consumers have access to medicine at reasonable prices. The CREATES Act upends this important system.

CREATES Will Not Lower Costs
While the CREATES Act is described by supporters as an attempt to increase efficiency and lower costs, it may have the opposite effect. Rather than reducing the cost of medicines, this bill may create a more burdensome, litigious system that undermines innovation.

Costs associated with medical development are already significant. On average it costs $2.6 billion and more than a decade of research time for each new medicine that hits the market.

Lower health care costs will not be achieved through empowering reckless litigation or through changes to the regulatory process that fail to protect innovation or safety.

Serious proposals to reduce costs should focus on increasing competition in a way that encourages innovation, limits meritless litigation, and protects safety.

Photo Credit: Becci Sheptock

ATR Supports FTC Transition Rule

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Posted by Alex Hendrie on Friday, February 8th, 2019, 2:12 PM PERMALINK

In a letter to Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig, ATR President Grover Norquist expressed support for guidance related to the foreign tax credit and guidance implementing changes made by the Tax Cuts and Jobs Act.

Click here to read the full letter.

As the letter notes:

“The transition rule for FTC carryforwards in Prop. Regs. 1.904-2(j)(1)(ii) creates an efficient transition and follows the precedent set following by the Tax Reform Act of 1986 (TRA) and other laws. As the rulemaking process continues, this provision should be maintained in a final rule.

This rule automatically allocates pre-2018 general income FTC carryforwards into the post 2017 general category basket and allows unused carryforwards to be reallocated into the foreign branch basket. This rule promotes investment and economic growth and allows a streamlined transition to the new tax code.”

The Tax Cuts and Jobs Act was a comprehensive overhaul of the U.S. international tax system. The TCJA also modified foreign tax credits, making it necessary for REG-105600-18 to assist with a seamless transition to the new tax code. As the letter states:

“Prior to TCJA, FTCs were divided into two baskets – a general category income basket and passive category income basket. While the passive income basket was unchanged, the general category income basket was split into three baskets.

Under the new system, credits that would have previously been allocable to the general branch are now allocable to either general income, foreign branch, or GILTI baskets. The TCJA did not address the treatment of pre-2018 general limitation FTC carryforwards; this issue was left to be determined through rulemaking.”

ATR strongly supports this FTC transition rule and the administration should maintain the transition rule provision in the final FTC rule.

Click here to read the full letter.

Photo Credit: Francisco Artunes

Congress Should Pass the Hatch-Waxman Integrity Act

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Posted by Alex Hendrie on Friday, February 8th, 2019, 11:47 AM PERMALINK

Lawmakers across the political spectrum agree that the convoluted healthcare system needs reform.

One way, they should look to achieve reform is through passing S.344/H.R. 990, the Hatch-Waxman Integrity Act introduced by Senator Thom Tillis (R-NC) and Congressman Bill Flores (R-Texas). This proposal contains a modest, commonsense reform to the system of pharmaceutical patent review in order to curb repetitive, frivolous litigation.

ATR supports this legislation and urged Senators & Congressman to support and co-sponsor the proposal in a recent letter.

Click here to read the full letter.

Under this legislation, a generic manufacturer wishing to challenge a patent must choose between the Hatch-Waxman framework and the inter party review system. Neither pathway will be eliminated, however a generic challenger may only use one.

Currently, generic manufacturers have two pathways to challenge branded drug parents, which exposes innovators to a system of “double jeopardy” where an innovator can be exposed to litigation costs twice. Medical innovation is already a time consuming & expensive process – on average it costs $2.6 billion and more than a decade of research time for each new medicine that hits the market.

First, generic manufacturers can challenge the patent under the Hatch-Waxman framework, which is exclusive to pharmaceutical patents. Under this system, a generic manufacturer can challenge a patent in federal district court with the burden of proof resting on the challenger. This system has proven successful in balancing the competing interests of protecting IP rights and the costs expended by innovators with the need to promote competition and access to medicines.

In addition to Hatch-Waxman, generic manufacturers can challenge patents through the inter parties review process (IPR) created in 2012 through the America Invents Act. Unlike Hatch-Waxman, which is available only to pharmaceutical patents, IPR is available to all patents.

As a result, IPR challenges in the pharmaceutical sector have become an unintended consequence of this law as it was intended to curb patent trolls that largely existed in the tech industry.

Importantly, this proposal does not restrict the ability of generic manufacturers to initiate a patent challenge. Instead, this proposal eliminates frivolous repetitive challenges in order to restore certainty to the system.

The Hatch-Waxman Integrity Act is a modest, yet commonsense reform to the healthcare system and should be supported by all members of Congress and Senators.

Photo Credit: Becci Sheptock