Alex Hendrie

Senate Should Reject Drug Price Control Legislation

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Posted by Alex Hendrie on Wednesday, February 12th, 2020, 8:00 AM PERMALINK

Recent reports indicate that the Senate may consider the Prescription Drug Pricing Reduction Act (PDPRA) in the coming months. This legislation that would impose another price-setting mechanism on the U.S. healthcare system. 

While supporters continue to call for full Senate consideration of this proposal, lawmakers should reject the PDPRA. The bill disrupts the existing structure of Medicare Part D and does nothing to directly help seniors.

The PDPRA imposes an inflationary rebate penalty on Medicare Part D drugs. This provision would force manufacturers to pay the government a 100 percent fee when the list price of a drug increases faster than inflation.

This provision is problematic because Part D is a system that relies on competition between several stakeholders, namely pharmacy benefit managers (PBMs), insurers, and drug manufacturers. The penalty is imposed on one Part D stakeholder, the drug manufacturer, after the price has been negotiated between several stakeholders. Essentially, the government is handcuffing the ability of manufacturers to negotiate on a level playing field with insurers and PBMs.

The Proposal Undermines Part D Competition

Some PDPRA supporters claim that this policy is nothing more than the government placing a cap on the subsidies that manufacturers receive. This is misguided –– the federal government does not pay subsidies to drug manufacturers.

The government makes payments to insurers based on the negotiated price of a drug which includes substantial discounts off the list price. In actuality, this policy will disrupt existing negotiation in Part D. In fact, as noted by Doug Badger, this policy is “at odds with the Part D program’s reliance on private entities to negotiate discounts on behalf of seniors.”

Instead of having the government directly provide care, Medicare Part D leverages competition between pharmacy benefit managers (PBMs), pharmaceutical manufacturers, plans, and pharmacies to provide coverage to seniors. This lowers costs and maximizes access for seniors.

At the core of this program is the non-interference clause which prevents the Secretary of Health and Human Services (HHS) from interfering with the robust private-sector negotiations. The Congressional Budget Office has even said that there would be a “negligible effect” on Medicare drug spending from ending non- interference.

This structure has been successful in driving down costs. Since it was first created, federal spending has come in 45 percent below projections - the CBO estimated in 2005 that Part D would cost $172 billion in 2015, but it has cost less than half that – just $75 billion. Monthly premiums are also just half the originally projected amount, while 9 in 10 seniors are satisfied with the Part D drug coverage.

Existing Part D Negotiation Already Protects Against Price Increases

“Price protection rebates” negotiated between PBMs and manufacturers are an example of existing Part D negotiation. Today, almost 100 percent of medicines are subject to these rebates.

Under these agreements, any price increase past a predetermined threshold results in increased rebates from the manufacturers to the PBM.

In effect, this establishes a private sector ceiling or cap on the amount by which the price of a medication can increase.

On the other hand, the inflationary rebate penalty could create a perverse incentive for manufacturers to automatically increase the list price of their drugs each year to keep pace with inflation. 

There is Strong Opposition from Conservative Groups and Senators

While supporters of PDPRA claim that the bill is bipartisan, there is significant opposition on the right.

An amendment to strip out the inflationary rebate penalty – the key provision of PDPRA – was supported by 13 out of 15 Republican Senators on the Finance Committee when it was offered in July.

The amendment was offered by Senator Pat Toomey (R-Pa.) and supported by Senators Mike Crapo (R-Idaho), Pat Roberts (R-Kan.), Mike Enzi (R-Wyo.), John Cornyn (R-Texas), John Thune (R-S.D.), Johnny Isakson (R-Ga.), Rob Portman (R-Ohio), Tim Scott (R-S.C.), James Lankford (R-Okla.), Steve Daines (R-Mont.), and Todd Young (R-Ind.)

There is also strong opposition from conservative groups. Almost 20 conservative groups including ATR wrote in opposition to PDPRA when the legislation was released in July. 

The Rebate Penalty Does Nothing to Directly Help Seniors

Not only is the proposal unpopular and disruptive to Part D, it would do little to directly help reduce seniors drug costs. Any revenue generated from this penalty goes directly into government coffers, not to seniors that may need help affording their medicines.

The proposal may actually have the opposite effect of crowding out the existing rebates and discounts which flow through to patients. 

In sum, the inflationary rebate penalty imposes a price-fixing mechanism into the Medicare Part D system by forcing manufacturers to pay a 100 percent fee if the list price of a drug increases faster than inflation. The revenue generated from this penalty would go straight to the government, and would do nothing to directly reduce drug costs. Congress should reject the PDPRA.

Photo Credit: Flickr


Democrats Are Wrong to Criticize the 21 Percent Corporate Rate

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Posted by Alex Hendrie on Tuesday, February 11th, 2020, 8:00 AM PERMALINK

Democrats have wrongly argued that the Tax Cuts and Jobs Act has enabled corporations to avoid paying their taxes. Far-left politicians like Representative Alexandria Ocasio Cortez (D-NY) and self-avowed socialist Bernie Sanders (I-Vt.) have repeatedly raised this point.

Democrats on the Ways and Means Committee are now following this theme with a hearing called “The Disappearing Corporate Income Tax.”

There are two fundamental problems with the Democrat criticism. First, Democrats ignore the many benefits to workers and the economy from the Trump Tax Cuts. Secondly, they ignore the simple reason that some corporations are paying less than the statutory 21 percent rate – the existence of numerous credits and deductions that are designed to promote investment and job creation.

It is also important to note that companies are not using “loopholes” to lower their tax liability. They are following the law exactly as written and are paying state and local taxes as well as payroll taxes – sometimes totaling billions of dollars per year. 

Many of the tax provisions that lower corporations’ effective rates are non-controversial and have bipartisan support. For instance, businesses are currently allowed to immediately deduct the cost of business assets purchased. This provision, known as full business expensing, has been supported by the Obama White House. In fact, as noted in an Obama White House document, expensing is designed to lower the effective tax rate of a business:

“A policy of allowing an immediate deduction (or ‘expensing of investment costs’) has an alternative rationale, which is to lower the effective tax rate on income derived from business investments, and thereby encourage additional demand for capital goods.”

The Organisation for Economic Co-operation and Development (OECD) has recognized that full business expensing increases GDP.  

Similarly, the R&D credit was first created under President Reagan as a temporary provision and was extended by Congress more than a dozen times. It was made permanent in 2015 on a bipartisan basis and was signed into law by President Obama.

In advocating for this provision, the Obama White House noted that every $1 in tax reduction from the R&D credit creates $2 in benefits to the economy and that 80 percent of the credit is directly attributable to salaries of U.S. workers performing U.S. based research.

While the tax cuts did lower the corporate rate from 35 percent to 21 percent, this brought the U.S. rate in line with the rest of the developed world. The U.S. rate is 25.89 percent after accounting for the state corporate tax, while the average rate in the 36-country OECD is 23.52 percent.

This tax cut has also benefited the American economy and workers. Businesses have created 100,000 jobs in 34 of the 38 months that Trump has been President and the unemployment rate has been below 4 percent for 23 consecutive months. Wage growth has been at or above 3 percent for the past 18 months, according to the Bureau of Labor Statistics (BLS).

Americans are also seeing their savings increase. When Donald Trump was elected President, the Dow Jones sat at 18,332. It is now at above 29,000, an increase of more than 60 percent. This stock market growth benefits the 100 million 401(k)s, the 46.4 million households that have an individual retirement account, and the nearly $4 trillion in public pension funds, half of which is invested in stocks. 

This good news is not just anecdotal – there are numerous examples of companies providing increased benefits or pay raises to their employees and of utility companies reducing rates.

Businesses have responded to the tax cuts by creating new employee benefit programs including adoption programs, workforce development programs, and education 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 also 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: 

Businesses have 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.

 


Trump FY 2021 Budget Expands Health Savings Accounts to Working Seniors

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Posted by Alex Hendrie on Monday, February 10th, 2020, 1:50 PM PERMALINK

President Trump’s Fiscal Year 2021 budget calls for expanding tax advantaged Health Savings Accounts (HSAs) by allowing working seniors eligible for Medicare to continue using their account. This will reduce taxes, promote patient centered healthcare, and encourage robust saving.

Since they were created in 2004, HSAs have become a popular and successful vehicle for individuals to spend and save their own money for a wide array of healthcare needs. However, under current law, workers who are Medicare eligible are not allowed to contribute to an HSA even if they have an HSA qualified plan. The budget fixes this needless restriction.

HSAs are used in conjunction with low premium, high deductible health insurance plans and can be used to pay for many expenses, including doctor visits, prescription drug costs, and hospital care.

Today, HSAs are used by almost 30 million American families and individuals. Annual contributions to an HSA in 2020 are capped at $3,550 for an individual and $7,100 for a family. Both an individual and employer can make contributions.

HSAs have been successful in promoting efficient healthcare spending that prioritizes consumer driven healthcare over one-size-fits-all care. 

Funds are controlled by the individual and follow them between jobs, creating an incentive to spend funds wisely. Research shows that families and individuals that utilize HSAs spend less on health care and use fewer medical services without forgoing necessary primary and preventative care.

HSAs can be a significant vehicle to pay for healthcare expenses. An HSA user can accumulate as much as $600,000 after contributing to an account for 40 years assuming a rate of return of 5 percent, according to the Employee Benefit Research Institute. 

HSAs also reduce taxes for American families. HSAs offer triple tax benefits to users – contributions made are tax free, investments are earned tax free, and payments made for qualifying health expenses are tax free.

Allowing Medicare-eligible seniors to continue using their HSAs will continue the success of these tax advantaged accounts in promoting healthcare savings and lowering taxes.

Photo Credit: Flickr - Gage Skidmore


Trump FY 2021 Budget Repeals EV Tax Credit

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Posted by Alex Hendrie on Monday, February 10th, 2020, 1:29 PM PERMALINK

President Trump’s Fiscal Year 2021 budget proposal calls for repeal of the Electric Vehicle Tax Credit.

This is the right policy. The EV credit is regressive, wasteful, and distortionary tax policy that arbitrarily benefits one type of car over others.

The tax code should promote economically efficient decisions by limiting the number of distortionary provisions. The electric vehicle tax credit directly undermines this goal and should be repealed as part of revenue neutral or revenue reducing tax reform.

Under current law, the 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 credit is highly regressive with a majority of the benefits of this credit go to residents of wealthy, blue states. Almost 80 percent of the credit goes to those making $100,000 or more per year. 

Further, according to 2019 projections of electric vehicle sales in the United States, California will account for over 61 percent of all EV sales in the nation. California’s clear domination of EV market share occurs despite the fact that California only accounts for roughly 12% of all licensed U.S. drivers.

Unsurprisingly, this type of tax subsidy is unpopular with the American people with 67 percent of voters oppose subsidizing electric vehicles.

The credit is also rife with waste and fraud. A recent report by the Treasury Inspector General for Tax Administration (TIGTA) found “the IRS does not have effective processes to identify and prevent erroneous claims.” Between 2014 and 2018, roughly 16,500 taxpayers received $73.8 million in potentially erroneous EV tax credits. A previous 2011 report found that as many as one in five EV credits claimed went to individuals who did not qualify for the credit.

Senators Ron Johnson (R-Wis.), Chuck Grassley (R-Iowa), and John Barrasso (R-Wyo.) led a letter last month urging for more information on these fraudulent claims.

Congress should follow the lead of the President repealing the EV credit as part of revenue-neutral tax reform.

Photo Credit: Flickr - Gage Skidmore


President Trump’s FY 2021 Budget Calls for Further Middle Class Tax Relief

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Posted by Alex Hendrie on Monday, February 10th, 2020, 1:09 PM PERMALINK

President Trump’s Fiscal Year 2021 budget calls for further tax relief for American families through the extension of the individual Trump tax cuts.

Thanks to the Trump tax cuts, a family of four earning the median income of $73,000 is seeing a reduction of federal income taxes of $2,000 – a 60 percent cut. Similarly, a single parent with one child making the median income of $41,000 is seeing a $1,300 tax cut, a 73 percent reduction in federal income taxes. 

However, because of arcane Senate procedure and the refusal of Democrats to support the tax cuts, the individual tax reductions could only be enacted for 8 years – through 2025.

Many Democrats in Congress and on the campaign trail have proposed repealing these tax cuts. This would be a significant tax increase for American families.

According to the Heritage Foundation, the average American would be almost $27,000 poorer over the next ten years if the tax cuts were repealed. The average family of four would be almost $46,000 poorer.

The Trump budget will make the Trump tax cuts permanent, extending numerous provisions including:

  • The doubling of the standard deduction from $6,000 to $12,000 for an individual and $12,000 to $24,000 for a family. Thanks to this reform, 90 percent of taxpayers are now taking the standard deduction, dramatically simplifying tax compliance as fewer individuals are itemizing.
  • The reduction of nearly every individual income tax bracket.
  • The doubling of the child tax credit from $1,000 to $2,000. The CTC is claimed by roughly 22 million American families.
  • The 20% small business deduction for pass-through businesses (LLCs, partnerships, S-corporations etc.). There are over 26 million pass-through entities in the U.S.
  • The doubling of the death tax exemption from $5.5 million to $11 million. This reform reduced the number of estates owing the death tax from 5,500 to 1,700.
  • An expansion of the thresholds at which the Alternative Minimum Tax hits individuals. Because of this tax cut, the AMT now kicks in when a taxpayer makes annual income of $1 million. The number of families paying the AMT has dropped from 5 million to 200,000.

Photo Credit: Flickr - Gage Skidmore


Coalition Urges Withdrawal of International Pricing Index

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Posted by Alex Hendrie on Thursday, January 30th, 2020, 5:00 AM PERMALINK

In a letter to HHS Secretary Alex Azar, ATR and a coalition of 52 organizations urged the administration to withdraw, not finalize, the proposed International Pricing Index.

Click here to read the full letter. 

Recent media reports indicate that the administration is planning to move forward with the IPI and could release an updated proposal in the coming weeks.

This would be a mistake. The IPI would import socialist style price controls that will harm patients and innovation.

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 have 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.

The Trump administration has repeatedly identified price controls as being harmful to innovation. Instead of fighting these price controls, the proposed International Pricing Index adopts them. This will suppress competition and innovation and harm American competitiveness and investment.

Click here to read the full letter or see below: 

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

Dear Secretary Azar:

We urge you to withdraw, not finalize, the administration’s proposed International Pricing Index (IPI) 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 detriment of consumers, patients, and doctors.

The U.S. is a world leader in research & development because our healthcare system 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

Bob Carlstrom
President, AMAC Action

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

Gregory Conko, Senior Fellow
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

Naomi Lopez Bauman
Director of Healthcare Policy, Goldwater Institute

Tim Chapman
Executive Director, Heritage Action for America

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

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

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

Doug Kellogg
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

Photo Credit: 401(K) 2012


KEY VOTE: ATR Urges No Vote on H.R. 5377, a Pledge Violation

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Posted by Alex Hendrie on Wednesday, December 18th, 2019, 3:00 PM PERMALINK

The House of Representatives is set to vote on H.R. 5377, the “Restoring Tax Fairness for States and Localities Act.”

ATR urges a “NO” vote. 

This legislation is a violation of the Taxpayer Protection Pledge, a commitment made by 218 members in the House and Senate to oppose any and all net tax increases.

[Click here for a list of pledge signers in the 116th Congress ]

If passed into law, it will raise taxes on individuals and small businesses that file through the individual income tax system. This bill trades a temporary rollback of the SALT cap for a permanent rate hike. 

This legislation is a net tax increase of $2.4 billion over the ten-year budget window, according to the Congressional Budget Office.

H.R. 5377 also rolls back the Tax Cuts and Jobs Act, passed by Republicans and signed into law by President Trump. 

“The Trump tax cuts reduced taxes across the board. This legislation is step one toward abolishing the entire Trump tax cuts and increasing taxes on the middle class, a key goal of every Democrat presidential candidate," said Grover Norquist, President of Americans for Tax Reform.

The legislation raises the cap on the state and local tax deduction from $10,000 to $20,000 for 2019 and removes the cap entirely for 2020 and 2021.

The legislation also raises the top rate from 37% to 39.6% and lowers the threshold that this top rate kicks in for all filing statuses.

Under current law, the 37 percent bracket kicks in for a single filer at $518,400 in income. Under the legislation, the new top rate is increased to 39.6 percent and the threshold is lowered to $441,475 of income.

Similarly, a family taking the married filing jointly status currently hits the 37 percent bracket at $622,050 in income. Under the legislation, this family will hit the 39.6 bracket at $496,000 in income.

Repealing or rolling back the SALT cap is regressive.

  • 94 percent of the benefits from repealing the SALT cap would go to taxpayers making more than $200,000 a year. 
  • The left leaning Center for Budget and Policy Priorities has stated that this proposal would be “regressive and costly.”
  • The Center for American Progress has stated that repeal of the SALT cap “should not be a top priority” as it would “overwhelmingly benefit the wealthy, not the middle class.”
  • Senator Michael Bennet (D-CO) recently criticized efforts to repeal the SALT cap noting that it runs counter to Democrat ideals: “We can say we’re for a progressive tax bill and for fighting inequality, or we can support the SALT deduction, but it’s really hard to do both of those things.”
     

Repealing or rolling back the SALT cap is also unnecessary. 

While Democrats claim the SALT cap raised taxes, this is overstated and misleading.

 The TCJA reduced taxes for roughly 90 percent of Americans and for taxpayers at every income level through lower rates, the expanded standard deduction, and the doubling of the child tax credit.

Furthermore, repeal of the Alternative Minimum Tax meant that 4.5 million families were able to claim $10,000 in SALT deductions, as the AMT disallowed this deduction.

The SALT deduction subsidizes high tax, big government states. This deduction is rarely used by middle class families as they take the standard deduction instead of itemizing. Capping this deduction has meant that the federal government is no longer providing a benefit to upper income earners in blue states.

ATR urges a NO vote on this regressive legislation that violates the Taxpayer Protection Pledge.

Photo Credit: Mark Fischer


ATR Expresses Disappointment with Tax Extenders Deal

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Posted by Alex Hendrie on Tuesday, December 17th, 2019, 11:54 AM PERMALINK

Congress announced a tax extenders deal late Monday that extends numerous tax provisions as part of the budget agreement.

While there is some important tax reduction included in this package, in net, this legislation marks a return to Congress’ bad habit of routinely extending specific, temporary tax cuts for one or two years at a time instead of focusing on broad based tax reduction. Not only did this promote uncertainty, but it distorted the revenue baseline and obscured the true cost of these provisions.

This pattern in 2015 was broken in 2015 when Congress passed the Protecting Americans from Tax Hikes (PATH) Act, which made many conservative tax priorities permanent and phased out distortionary credits.

While some lawmakers, like Ways and Means Republican Leader Kevin Brady (R-Texas), continue to advocate for making all remaining extenders permanent or repealing them, others have pushed for targeted tax breaks to receive short term extensions again and again.

Unfortunately, this tax extenders package does the latter. This legislation extends dozens of provisions for one, two, or in some cases, five years while doing nothing to address them in the long-term.

Worse still, this legislation retroactively revives many credits that expired at the end of 2017. Under this, agreement these credits and deductions can be claimed for 2018, which could result in a windfall for these taxpayers.

This is not the only retroactive tax change – the proposal also retroactively increases taxes through the disallowance of the Alternative Fuels Mixture Credit.

The fact is, retroactivity is terrible policy – any extenders should be dealt with prospectively, rather than retroactively. Taxpayers that have followed the law based upon reasonable statutory interpretations should be afforded certainty and fairness. Retroactivity undermines confidence in the tax system by affecting activity (in this case taxes paid, and credits claimed) that has already occurred.

In the past, when Congress has determined the statute of a law is inconsistent with Congressional intent, they have disallowed the provision on a prospective basis. For instance, when paper manufacturers claimed a credit for mixing diesel with alternative biomass fuels, or “black liquor,” Congress disagreed with this outcome and repealed the credit prospectively.

The retroactive repeal of the AFMC interferes with ongoing litigation, denies taxpayers due process, and creates potentially arbitrary and unfair outcomes. If Congress wants to make changes to the AFMC, it should be done on a prospective basis.

The deal extends several important tax cuts including the Craft Beverage Modernization and Tax Reform Act (CBMTRA) and the CFC-look thru rule. However, it disappointingly only extends these provisions for one year, even as numerous other provisions received multi-year extensions. 

Moving forward, Congress should make these provisions permanent:

  • CMBTRA enacted excise tax relief for local craft breweries, wineries, and distilleries. Because of this tax reduction, local breweries, distilleries, and wineries across America are hiring more employees, purchasing new equipment, and expanding production. A list of examples of breweries, wineries, and distilleries that have expanded because of this tax reduction can be found here.
     
  • The CFC look-thru rule is a key component of a modern, globally competitive U.S tax system. This provision was first enacted in 2006 and protects American businesses from double taxation when they redeploy business earnings from one CFC to another.  The majority of America’s foreign competitors do not face additional taxation when redeploying capital, so this provision is key to ensuring U.S. businesses are on a level playing field.
     

More broadly, lawmakers should ensure this extenders package does not become the norm and should return to scrutinizing outstanding provisions toward the goal of making these permanent or repealing them as part of broad-based tax reform.

Photo Credit: Kelli


Budget Deal Expands Retirement Savings

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Posted by Alex Hendrie on Tuesday, December 17th, 2019, 10:22 AM PERMALINK

The budget deal released by Congress and set to be voted on by the House and Senate later this week includes the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

This is a positive development -- the legislation contains numerous reforms that will assist small businesses in helping their employees save for retirement. In addition, it gives workers greater flexibility to save and older workers and retirees more control over their savings.

The law will make it easier to set up multiple-employer plans, which are commonly used by small businesses and independent workers as a pathway for retirement savings. These plans help employers offer workplace savings plans to their employees by removing many administrative hassles that have prevented small employers from offering their own independent plans.

The SECURE Act further encourages small employers to set up retirement plans by increasing the employer tax credit for starting a new retirement plan from $500 to $5,000. And that’s not all.

The bill would require employers to include long-time, part-time workers in 401(k) plans, and new parents would be able to withdraw from an Individual Retirement Account or 401(k) penalty-free. It also helps older workers by repealing the maximum age for contributions to an IRA and increasing the age when you are required to take a distribution from a retirement account.

To be clear, the SECURE Act is not perfect.

Despite unanimously passing the House Ways and Means Committee, Speaker of the House Nancy Pelosi removed a provision to expand 529 Education Savings Accounts in order to appease teachers' unions and liberals who oppose homeschooling.

Lawmakers could have also made other improvements to retirement savings like the reforms found in Sen. Rob Portman’s Retirement Security and Savings Act. 

However, none of these are reasons not to pass the SECURE Act.

Passage of this legislation will strengthen retirement savings and offers an opportunity for lawmakers to help workers, families, and small businesses.

See also: Congress Set To Repeal Three Obamacare Taxes 

Photo Credit: 401(K) 2012


Congress Set to Repeal Three Obamacare Taxes

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Posted by Alex Hendrie on Monday, December 16th, 2019, 5:34 PM PERMALINK

The budget deal released by Congress and set to be voted on by the House and Senate later this week repeals three Obamacare taxes – the health insurance tax, medical device tax and Cadillac tax.

Repeal of these taxes will result in hundreds of billions of dollars in tax reduction over the next decade and represents significant progress toward repealing all trillion dollars in Obamacare taxes.

Health Insurance Tax

Repeal of this tax is a win for the middle class, seniors, and small businesses that would have seen higher healthcare costs.

The tax is imposed on 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs.

The tax is responsible for a 2.2 percent increase in premiums per year and by almost $6,000 over a 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 HIT also directly impacts approximately 1.7 million small businesses, and would have cost small businesses 286,000 jobs and $33 billion in lost sales by over a decade.

Cadillac Tax

The 40 percent excise tax on employer-provided plans, known as the Cadillac tax, was passed into law under Obamacare but has never taken effect. If Congress had not acted, the tax would have gone into effect in 2022 on plans exceeding $10,200 for individuals and $27,500 for families.

The Cadillac tax is broadly unpopular with the American people – a 2018 poll had 81 percent of respondents in opposition to the tax.

In order to avoid the Cadillac tax threshold, employers would be forced to raise deductibles and copays in the plans they offer their employees. 

According to research by the Kaiser Family Foundation, nearly half of all companies which offer health insurance to their employees would have faced the tax by 2030. This could have cost families with high quality insurance plans as much as $3,400 per year.

The left-leaning Tax Policy Center reported that, “70 percent of the revenue raised by the Cadillac tax will be through the indirect channel of higher income and payroll taxes, rather than through excise taxes collected from insurers.”

Medical Device Tax

Obamacare imposed a 2.3 percent excise tax on the sale of medical devices by manufacturers and small businesses. This tax covers common hospital equipment like X-Ray machines, MRI machines, and hospital beds.

The medical device tax was in effect from 2013 and 2015 but Congress has suspended the tax since 2016. When it was in effect, research indicates that the tax reduced research and development by $34 million in 2013 and disproportionately harmed companies with lower profit margins. This resulted in a loss of approximately 28,000 jobs.

Photo Credit: kidTruant


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