Alexander Hendrie

JCT Analysis of The Senate Tax Cuts and Jobs Act Includes Flawed Individual Mandate Assumptions


Posted by Alexander Hendrie on Monday, November 20th, 2017, 9:00 AM PERMALINK

The Joint Committee on Taxation last week released its distributional analysis of the updated Senate tax bill. Unlike previous analyses of the Tax Cuts and Jobs Act, this new JCT study shows a tax increase on Americans at certain income levels.

However, these findings are based on JCT's flawed methodology which overstates the impact that the Obamacare individual mandate has on compelling individuals to purchase insurance. The Senate tax bill does not increase taxes on Americans of any income level and is not repealing or modifying eligibility for the Obamacare tax credit.

In fact, a separate analysis of the Tax Cuts and Jobs Act that excludes the JCT's assumptions on the individual mandate shows strong tax reduction for Americans at every income level.

JCT Analysis of the Tax Cuts and Jobs Act With Repeal of The Mandate
Starting in calendar year 2021, the JCT analysis of the most recent version of the Senate’s Tax Cuts and Jobs Act shows a tax increase on those earning between $10,000 and $30,000. According to this analysis, individuals and families earning between $10,000 and $20,000 would see a tax increase of 5 percent, while those making between $20,000 and $30,000 would see a 13.3 percent increase in their federal tax liability.

As was the case in other versions of the Tax Cuts and Jobs Act, every other income category sees strong tax reduction (figure 1 - click to expand).


The Senate's Tax Cuts and Jobs Act reduces taxes across the board, so these findings are based solely on the assumption that repeal of the individual mandate tax penalty will mean millions of Americans choose not to purchase costly, Obamacare health insurance. Under this assumption, millions will also no longer recieve subsidies to purchase Obamacare, including the advanced refundable tax credit.

As a result, JCT is assuming that individuals will choose to increase their own taxes by choosing to not purchase insurance and not receive the refundable tax credit.

It is important to note that the Obamacare tax credit is not being repealed or limited in any way. As noted by Senator Pat Toomey (R-PA), no one is losing eligibility from health insurance programs and no one is losing subsidies or tax credits for these programs.

JCT Analysis of the Tax Cuts and Jobs Act Without Repeal of the Individual Mandate 
Case in point, the JCT analysis of the Senate tax bill without the repeal of the individual mandate shows strong tax relief for Americans of all income levels. In 2021, JCT projects those earning between $10,000 and $20,000 see a five percent tax cut, while those earning between $20,000 and $30,000 see an 11.2 percent tax cut (figure 2 - click to expand).

Absent JCT’s flawed analysis of the individual mandate, the biggest winners of the Tax Cuts and Jobs Act are those making between $20,000 per year and $50,000 per year, with each of these income categories receiving an average tax cuts of at least eight percent.


This is not the first time that the individual mandate’s effectiveness has been overstated by government models. The Congressional Budget Office has repeatedly overstated the number of Americans that would purchase Obamacare, because it the model gave too much weight to the power that the the mandate had in compelling individuals to purchase insurance.

As a result, the agency predicted that 25 million people would be enrolled on Obamacare exchanges. In reality, only 12 million individuals enrolled on exchanges.

 

Photo Credit:

More from Americans for Tax Reform


Senators Should Support the Tax Cuts and Jobs Act

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alexander Hendrie on Wednesday, November 15th, 2017, 5:37 PM PERMALINK

The Senate’s Tax Cuts and Jobs Act is a pro-growth, pro-family proposal that will reduce taxes on Americans at every income level and dramatically simplify the 70,000+ page tax code. It will also provide a much-needed overhaul to the outdated tax code so that businesses large and small will again be able to compete against foreign competitors and create jobs across the country.

The Senate Finance Committee this week is moving through a comprehensive regular order process that has included years of Committee hearings and Member input. Following the completion of this process later this week, the Senate should swiftly take up and pass the Tax Cuts and Jobs Act.

The Tax Cuts and Jobs Act will Reduce Taxes for Americans of Every Income Level

The Tax Cuts and Jobs Act provides tax reduction for Americans of every income level. The Senate bill doubles the standard deduction to $12,000, or $24,000 for a family. About 70% of filers – or 105 million individuals and families currently take the standard deduction, and these families would see strong tax reduction.

The plan also reduces almost every tax bracket, resulting in tax cuts across the board. Under this plan, a family of four earning $73,000 would see a tax reduction of 40% or $1,500 per year.

 The Middle Class would be the biggest winners under the Senate tax bill. Under this plan, those earning between $50,000 and $70,000 would receive a tax deduction of 7.1% in 2019, and earners making between $20,000 and $30,000 would see their taxes fall by 10.4%.

The Tax Cuts and Jobs Act is Pro-Family

The Senate tax bill doubles the child tax credit to $2,000 per child. Expanding the child tax credit will help millions of Americans across every state. According to the most recent IRS data, more than 22 million Americans used the child tax credit in 2015. These families will see strong tax reduction, and will also see simplification from the consolidation of other pro-family tax preferences into the expanded child tax credit.

The Tax Cuts and Jobs Act Dramatically Simplifies the Tax Code

Today, the tax code is absurdly complex. Since 1985 the tax code has doubled, and it has increased six fold since 1955. Today, the code totals 2.4 million words. This complexity costs Americans millions of hours and billions of dollars in lost productivity.

According to the Tax Foundation, Americans will spend more than 8.9 million hours complying with the tax code, costing $409 billion. 2.6 billion hours will be spent complying with individual income taxes, costing $98 billion each year. Similarly, the National Taxpayers Union Foundation estimates that taxpayers spend 1.8 billion hours on 1040 forms a year, costing $262 billion every year.

The many reforms in the Senate tax bill, including the doubling of the standard deduction and the repeal of many deductions and credits will drastically simplify the code and reduce the compliance burden on American families.

The Tax Cuts and Jobs Act Reduces Taxes on Businesses Large and Small

The Senate tax bill proposes a globally competitive 20 percent corporate rate that will allow American businesses to compete against foreign competitors. The U.S. currently has the highest marginal corporate income tax rate in the developed. At 35 percent (plus an average state rate of 4 percent), the U.S. corporate rate is nearly 15 points higher than the typical developed country which has a rate around 25 percent. Since 2000, 32 of the 35 developed countries have reduced their corporate rates. Only the U.S. and Chile have higher corporate tax rates.

The Tax Cuts and Jobs Act also proposes drastic tax reduction for businesses organized as pass-through entities (LLCs, sole-properties, partnerships etc.) The bill creates a 17.4 percent deduction on pass-through income resulting in tax relief for millions of small businesses across the country.

The Tax Cuts and Jobs Act Repeals the Individual Mandate

The Senate’s Tax Cuts and Jobs Act repeals Obamacare’s individual mandate, resulting in strong tax relief for millions of middle class families. The annual tax is currently $695 for an individual, and $2,085 for a family of four, or 2.5% of your household income, whichever is higher.

According to IRS data compiled by the office of Senator Steve Daines, 6.6 million households paid the individual mandate in 2015. 79 percent of those households have a yearly income of less than $50,000, while 37 percent of those households have a yearly income of less than $25,000.

The Tax Cuts and Jobs Act Will Create Higher Wages and More Jobs

Over the past decade, the economy has struggled at just two percent GDP growth as the country has experienced the worst recovery in the modern era. The Congressional Budget Office projects that under current policies, two percent growth will continue into the next decade. Because of this lackluster recovery, families have lost an average of $8,600 in annual income, according to Joint Economic Committee.

The Tax Cuts and Jobs Act will reverse this alarming trend, result in higher wages and new or better jobs for Americans across the country. According to a recent White House study, a 20 percent corporate tax rate would increase average household income by at least $4,000 a year.

The Tax Foundation estimates that the bill will grow the overall economy by 3.7% in the long term. The tax reductions will grow wages by 2.9% over the long term, delivering much needed relief to Americans blighted by wage stagnation over the past eight years. In the long run, the plan increases after-tax income of all taxpayers by 4.4% and will create approximately 1 million jobs.

The Tax Cuts and Jobs Act Moves toward a Globally Competitive Territorial System of Taxation

The tax reform plan replaces the outdated worldwide system of taxation with a territorial system of taxation. Currently, the U.S. tax code subjects American businesses to two layers of taxation – once when the income is earned overseas, and again when it is brought back to the U.S. to be reinvested in jobs and wages.

This creates a disadvantage for American companies, especially as the U.S. is one of six countries in the developed world that still uses a worldwide system of taxation. Today, 95 percent of consumers live outside the U.S. and a total of 41 million jobs are tied to business operations overseas, so this outdated system results in lost jobs and lower wages.

The Tax Cuts and Jobs Act Will Encourage More Investment in the U.S.

The Senate tax bill implements immediate, 100 percent full business expensing for the next five years, and expands Section 179 small business expensing. This will encourage businesses to make more investment in the U.S. economy and will dramatically simplify the tax code.

Under current law, businesses must deduct, or “depreciate” the cost of new investments over multiple years depending on the asset they purchase, as dictated by arbitrary IRS rules. Moving to full expensing ends this distortion and treats all investment equally.

According to research by the Tax Foundation, implementing full business expensing increases GDP by five percent after a decade and increases wages by 4 percent, creating more than one million jobs.

Photo Credit: Jim Grey


KEY VOTE: ATR Urges Passage of H.R. 1, the Tax Cuts and Jobs Act


Posted by Alexander Hendrie on Monday, November 13th, 2017, 8:00 AM PERMALINK

The Tax Cuts and Jobs Act lives up to its name. The legislation cuts taxes on Americans of all income levels and will grow the economy, leading to new and better jobs and more take-home pay.

ATR urges a YES vote on H.R. 1

Later this week, the House of Representatives will vote on H.R. 1, the Tax Cuts and Jobs Act. All members of Congress should vote YES on this important legislation.

“House passage of the Tax Cuts and Jobs Act is an important step toward enacting a pro-growth tax reform package that reduces taxes for Americans at all income levels and fulfills the promises of the tax reform framework put forward by the GOP leadership this summer,” Said Grover Norquist, President of Americans for Tax Reform. “The tax reform bill’s biggest winner will be the person who couldn’t find a job during eight years of stagnation under Obama.”

By voting YES on the Tax Cuts and Jobs Act members of Congress have a rare opportunity to reform the broken tax code and offer relief to taxpayers across the country.

This legislation contains numerous provisions that simplify the tax code, give tax cuts to families and businesses, and grow the economy leading to higher wages and new or better jobs.

Individual Provisions:

Consolidates the seven tax brackets into four (12%, 25%, 35%, and 39.6%) - Under this reform, the existing 10 percent bracket goes to zero. The 15 percent bracket goes to 12 percent.

-The 12 percent bracket applies to income up to $45,000 ($90,000 for married couples). This does not include the standard deduction of $12,000 or $24,000.

-The 25 percent bracket applies to income between $45,001 and $200,000 ($90,001 and $260,000 for married couples).

-The 35 percent bracket applies to income between $200,001 and 500,000 ($260,001 and $1 million for married couples).

-The 39.6 percent bracket applies to income above $500,000 ($1 million for married couples).

-Doubles the standard deduction (The first $12,000 for individuals and $24,000 for families will not be taxed). 

-Increases the child tax credit from $1,000 to $1,600 per dependent under 17 with an additional $300 credit per parent. The child tax credit is currently used by 22 million Americans.

-Simplifies the tax code – The bill repeals personal exemptions, repeals the state and local tax deduction for income and sales taxes and caps the SALT deduction for property taxes at $10,000. The home mortgage interest is grandfathered in and preserved for new homes up to $500,000. All other itemized deductions with the exception of charitable giving are repealed.

-Repeals the alternative minimum tax – This tax is currently paid by 4.5 million individuals and families.

-Repeals the death tax effective 2025 - In years 2018 to 2024, the exemption is doubled to $10 million ($20 million for a couple) and indexed to inflation. The generation skipping transfer tax is also repealed while the gift tax is lowered from 40 percent to 35 percent. Step-up in basis is preserved.

-Preserves retirement tax savings accounts such as 401(k)s and Individual Retirement Accounts.  

Business Provisions:

-Permanently reduces the corporate income tax rate to 20 percent effective immediately - The current 35 percent federal rate is the highest in the developed world. Reducing this rate to 20 percent will allow American businesses to compete against foreign competitors and will allow the U.S. economy to grow. According to an analysis by the Council of Economic Advisers, a 20 percent corporate rate would increase average household income by between $4,000 and $9,000.

-Enacts 100 percent, full business expensing for five years - Section 179 small business expensing is increased from $500,000 to $5 million, and the phaseout is increased from $2 million to $10 million.

-Reduces the business tax rate on pass-through entities from 44.6 percent to 25 percent - This new rate would be applied based on one of two formulas designed to prevent wage income from being mischaracterized as business income.

 -Implements a partial cap on deductibility of net interest expense for corporations - The cap will be applied when a corporation’s net interest exceeds 30 percent of earnings before interest, tax, depreciation and amortization (EBITDA).

-Implements a modern, territorial system of taxation so that American businesses operating overseas can compete.

-Introduces a one-time repatriation rate of 14 percent for cash and 7 percent for non-cash, payable over eight years. This allows $2.6 trillion in after-tax income to come back to the U.S. to be reinvested in the economy. Ideally, the repatriation rate should be single digit rates. However, this reform will still allow trillions to come back into the U.S. economy. 

 

 

 

Photo Credit:

More from Americans for Tax Reform


ATR Analysis of the Senate’s Tax Cuts and Jobs Act

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alexander Hendrie on Friday, November 10th, 2017, 10:43 AM PERMALINK

The U.S. Senate last night released their tax reform plan, the “Tax Cuts and Jobs Act.” Senate Finance Committee Chairman Orrin Hatch (R-Utah) and members of the Committee should be commended for releasing a tax plan that cuts taxes for individuals, simplifies the code, and allows American businesses to compete and thrive abroad and at home.

ATR President Grover Norquist released the following statement praising the plan:

“The release of the Senate outline for tax reform following the House Ways and Means legislation makes it clear that existing differences can be negotiated within a matter of weeks to enact a pro-growth tax reform package that reduces taxes for Americans at all income levels and fulfills the promises of the tax reform framework put forward by the GOP leadership this summer.”

Both the House and Senate bills reduce taxes for Americans of all income levels, reduce taxes on businesses, and implement reforms to the code that will grow the economy, leading to higher wages and new or better jobs.

In following a lengthy regular order process that has included dozens of hearings, the Senate Finance Committee will begin marking up this legislation next week. The Finance Committee should quickly approve this bill and send it to the full Senate for approval.

Individual provisions

-While the house bill contains four brackets, the Senate bill maintains the existing seven brackets. However, the Senate bill lowers (almost) every bracket and is a significant net tax cut.

                -Current law: 10, 15, 25, 28, 33, 35, 39.6

                -Senate bill: 10, 12.5, 22.5, 25, 32.5, 35, 38.5

                -House bill: 12, 25, 35, 39.6

The Senate bill would see strong tax reduction for American families across the country. A family of four earning $73,000 would see a tax cut of nearly $1,500 – a tax reduction of 40 percent.

-Both bills double the standard deduction ($6,000 to $12,000 for an individual. $12,000 for a family and $24,000 for a family).

-The Senate bill fully repeals the State and Local Tax deduction. The House bill leaves intact a $10,000 limit on deductibility of property taxes but otherwise repeals SALT.

-Both bills increase the child tax credit. The Senate bill increases the CTC to $2,000 per child, while the House bill increases the CTC to $1,600 per child with a $300 credit for parents and adult dependents.

- The House bill doubles the exemption for the Death Tax (to roughly $10M per individual) and repeals it fully after six years. The Senate bill also doubles the exemption but fails to repeal the Death Tax.

-Both bills repeal the Alternative Minimum Tax.

-The House bill creates a $500,000 cap on the home mortgage deduction. The Senate preserves the existing $1 million cap.

-Both bills preserve existing 401(k) and retirement tax preferences.

-The Senate bill repeals the Obamacare individual mandate tax penalty. 

Business

-Both proposals propose a 20 percent rate, which would take the U.S. rate from the highest in the developed world to a rate that is competitive with the rest of the world. The Senate bill implements this rate in 2019, while the House bill implements a 20 percent rate effective 2018.

-According to an analysis by the Council of Economic Advisers, a 20 percent corporate rate would increase average household income by between $4,000 and $9,000.

-Both proposals implement 100 percent expensing for five years.

-Both proposals also expand Sec. 179 small business expensing. The House bill increases Sec. 179 from $500,000 to $5 million, with the phaseout increasing from $2 million to $10 million for five years. The Senate bill permanently increases Sec. 179 to $1 million with a phaseout of $2.5 million.

-Both proposals preserve Sec. 1031 like-kind exchanges for real property.

-Both proposals limit the deductibility of net interest. The House bill utilizes a 30 percent cap when net interest exceeds earnings before interest, tax, depreciation and amortization (EBITDA). The Senate bill also limits deductibility of interest to 30 percent of modified taxable income.     

-Both proposals reduce the tax rate on pass-through entities (sole-properties, partnerships, LLCs, S-corps)

-The Senate bill provides a 17.4% deduction for domestic non-service pass-through income.

-The House bill applies a 25% rate to 30 percent of non-service pass-through income, while 70 percent is taxed as individual income.

-Both bills repeal or limit multiple credits and deductions:

-Sec. 199 domestic manufacturing deduction is repealed.

-The net operating loss deduction is limited.

-Deductions for entertainment and transportation expenses are limited.

-The tax credit for the production of drugs for rare diseases is repealed in the House bill but not the Senate bill

International

-Implements a modern, territorial system of taxation through the creation of a 100 percent dividend exemption system.

-Both proposals implement base erosion rules designed to ensure that income is not improperly assigned to low tax jurisdictions.

-Both the House and Senate plans implement a repatriation rate. The House has a 14 percent for cash, and 7 percent for non-cash, while the Senate has a 10 percent rate for cash and a 5 percent rate for non-cash. This allows an estimated $2.6 trillion in after-tax income to come back to the U.S. to be reinvested in the economy. Ideally, the repatriation rate should be single digit rates. However, this reform will still allow trillions to come back into the U.S. economy. 

Photo Credit: Gage Skidmore

More from Americans for Tax Reform


The “Bubble Rate” Is Not A 46 Percent Rate and Is Consistent with the Taxpayer Protection Pledge

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alexander Hendrie on Sunday, November 5th, 2017, 1:07 PM PERMALINK

An article released earlier this week in Politico claimed that the House Republican tax reform legislation contains a 46 percent tax bracket. However, H.R. 1 does not create a new, higher tax bracket. It is simply a phaseout of the 12 percent bracket for those within the top bracket. Bubble rates were a feature of President Reagan’s landmark 1986 tax reform legislation.

H.R. 1 is also consistent with the Taxpayer Protection Pledge, a written commitment to constituents made by 209 members of the House of Representatives including House Speaker Paul Ryan and Ways and Means Chairman Kevin Brady.

Under the legislation, families earning above $1.2 million see the benefits of the 12 percent bracket (applying to income below $90,000) phased out up to $1.614 million worth of earnings. This claw back shouldn’t be considered a higher tax bracket, but rather a way of phasing out the 12 percent bracket.

Phasing out tax provisions based on income level is a common feature of the tax code: 

-The child tax credit currently phases out over $75,000 for individuals and $110,000 for joint filers. 

-Itemized deductions currently phase out at $311,300 for families or $259,400 for individuals. 

-Personal exemptions begin phasing out at $261,500 for individuals and $313,800 for families. It fully phases out at $384,000 for individuals and $436,300 for families. 

-The Earned Income Tax Credit begins phasing out at $50,198 for a family of four.

-The American Opportunity Tax Credit is phased out between $80,000 and $90,000 ($160,000 and $180,000 for families).

As noted above, a phase out of the bottom income tax bracket for those within the top bracket was also included in the Reagan Tax Reform Act of 1986. This reform clawed back the 15 percent bracket for those in the top tax bracket.

 

Photo Credit: John Morgan

More from Americans for Tax Reform


Lawmakers Should Repeal IPAB In Full

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alexander Hendrie on Monday, October 30th, 2017, 3:28 PM PERMALINK

While efforts to repeal Obamacare and reform the nation’s healthcare system have stalled, there are still opportunities to enact healthcare reform that undoes the damage caused by Obamacare. Next week, Congress will take up a clean repeal bill of the Independent Payment Advisory Board, or IPAB. Repealing IPAB is bipartisan and may be the only chance for the Republican Congress to repeal parts of Obamacare. The House should be commended for taking up repeal of IPAB, and this measure should be supported by all members of Congress. 

IPAB was created seven years ago when Obamacare was signed into law. The basic role of IPAB is to lower costs through the implementation of blunt price controls that ration the existing Medicare system. This indiscriminate tool leaves the U.S. healthcare system with the same price controls attempted (and failed) in socialized medicine systems seen throughout the world.

In addition to being a blunt instrument that drives bad policy, IPAB also undermines the constitutionally granted authority Congress has over the power of the purse. IPAB bureaucrats are free to institute price controls they see fit without approval from Congress. As a result, this board has immense power over health outcomes and the livelihood of patients and doctors.

Given the board is problematic both politically and from a policy standpoint, it should not be surprising that there is broad consensus to repeal IPAB from numerous stakeholders.

The alternative – allowing the board to operate as planned – will result in indiscriminate cuts to Medicare that will undermine healthcare choice and access of 55 million Americans.

While there are clear arguments for repealing this panel, lawmakers should be sure to ignore poor arguments in favor of keeping IPAB. For example, some argue that IPAB repeal needs to be offset. However, this logic is flawed – under current law CBO has already assumed that IPAB will save money over the ten-year window even though the price controls have not yet been implemented. The assumption that preventing these price controls “costs” the government money is backwards thinking logic that is biased toward the status quo of Obamacare.

Ultimately, while previous stages of healthcare reform have failed Congress can still achieve repeal some of Obamacare by repealing IPAB and saving Medicare beneficiaries from indiscriminate price controls. Congress should vote next week to repeal IPAB. 

Photo Credit: The Sun

More from Americans for Tax Reform


Tax Reform Must Include Repeal of the Death Tax

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alexander Hendrie on Friday, October 27th, 2017, 9:38 AM PERMALINK

Repealing the Death Tax is an important part of the Republican tax reform framework. The Death Tax is a burdensome and unfair tax that forces families to pay a tax on all their deceased loved one’s assets. As the tax reform framework is developed into legislative text and moves through both the House and Senate, it is important that permanent, full repeal of the Death Tax is maintained.

Repeal of the Death Tax will spur economic growth. In 2016, the Tax Foundation estimated that repeal of the Death Tax would create 150,000 jobs. Additionally, the  Joint Economic Committee reported that the Death Tax has suppressed over $1.1 trillion of capital in the United States’ economy since being introduced. Much of this comes from small businesses, who are the core of America’s economy. This loss of capital ultimately results in fewer jobs and lower wages for American workers.

The Death Tax is bad for jobs and repeal would give families a raise. Again according to the Tax Foundation the Death Tax is an economy killer. They have a macroeconomic “dynamic” model to see what killing the Death Tax would do to the job market. This model projects that killing the death tax would create 139,000 jobs, increase private business hours by 0.1 percent, and increase wages by 0.7 percent.

Numerous studies have found that majority of Americans oppose the Death Tax and support its repeal. For example, a recent report by NPR found that 76 percent of Americans support full, permanent repeal of the Death Tax.  

In addition, the Death Tax contributes a miniscule amount of revenue relative to the size of federal government. In all, it makes up only one half of one percent of all federal revenue. Because the Death Tax is so economically destructive, almost all the revenue lost would be offset by increased economic growth. As noted by the Tax Foundation, repealing the Death Tax would result in $240 billion in lower taxes over a decade. However, the economic growth created by repealing the Death Tax would produce $221 billion in federal revenue because of increased wages and more jobs.

Repeal of the death tax pays for itself. The same Tax Foundation report says that the death tax would increase the economy by 0.8 percent (or $137 billion in today’s dollars). Because this additional economic growth would be subject to taxation all its own, it would more than make up for the revenue lost by repealing the death tax–it would make up the $20 billion per year, plus yield an extra $8 billion per year on top of that.  You heard that right–we’d actually collect more tax revenue if we stopped collecting the death tax.

The Death Tax needs to be repealed. Republicans in Congress and in the White House should be commended for prioritizing the repeal of the Death Tax.

Photo Credit: Thomas Hawk


Carried Interest Is A Capital Gain And Should Be Maintained As Such

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alexander Hendrie on Wednesday, October 25th, 2017, 1:59 PM PERMALINK

The Republican tax reform framework contains numerous provisions which will increase economic growth, raise wages, and create new or better jobs for American families.

For instance, the plan reduces taxes on all businesses by 42 percent, resulting in a 20 percent tax rate for corporations and a 25 percent rate for pass-through entities. The framework also implements a territorial system of taxation so that American businesses operating overseas compete on a level playing field against foreign companies.

In combination with the reforms to individual taxation such as cutting and consolidating the income tax brackets and doubling the standard deduction, the tax reform plan will result in bigger paychecks for taxpayers across the country.

One area, the framework is silent on is capital gains taxes, which directly hinder economic growth by disincentivizing investment. Because the plan contains many other pro-growth provisions, it is not necessarily a problem that there is no reduction in the capital gains tax, given the constraints faced by budget reconciliation. However, increasing this tax, either through a direct increase in the rate or by narrowing the base of the tax, would limit economic growth and contradict the goals of tax reform.

One way that lawmakers may increase taxes on capital gains is through taxing carried interest capital gains as ordinary income, rather than capital gains income.

This would be a mistake – there is no difference between carried interest and any other type of capital gain. Carried interest is the investor’s share of an investment partnership between the investor and individuals providing expertise on investment decisions. These partnerships generate income through a long-term investment in the same way as any to which the capital gains tax applies – individuals do not benefit from any special treatment. There is no sound basis for taxing these returns as ordinary income.

A carried interest tax increase is also bad policy. It would reduce investment and savings while damaging the economy and America’s economic growth prospects. The Joint Committee on Taxation estimates that a carried interest tax increase will raise a paltry $19.6 billion in revenue over a decade, with Tax Foundation estimating that this number would be just $13 billion due to the negative macroeconomic effects. Both numbers are a small fraction of the $41.7 trillion that will be raised over the same time period, according to the Congressional Budget Office.

In return, the impact of this tax increase will be felt by pension funds, charities and colleges that depend on investment partnership structures in order to meet savings goals. Small businesses would also be badly affected, as investment money available from these partnerships dries up.

The better policy would be preserving the base of the capital gains tax to promote investment by maintaining current law (or reducing taxes on all capital gains). Multiple layers of taxation under our tax code mean that there is little rationale for taxing income derived from a capital gain, as investment in capital is derived from income which has already been taxed at the individual level prior to reinvestment in the economy. Double taxation discourages savings, suppresses productivity, and discourages investment. It acts as a barrier to job creation, wage growth, and economic growth.

America’s capital gains taxes are already among the highest in the world.  The top rate has increased from 15 percent to 23.8 percent in the last 8 years alone. A study by Ernst and Young placed the top U.S. integrated rate at 56.3 percent after accounting for the corporate tax, federal and state capital gains taxes, and the Obamacare net investment income tax - far in excess of the average integrated rate of other OECD nations and the five BRICS countries which sits at just 40.3 percent.

The Republican tax reform framework is strongly pro-growth and will turbocharge the economy. Lawmakers should be sure not to undermine the framework through pay-fors that hinder economic growth.

Photo Credit: Madeleine Tsol


KEY VOTE: ATR Urges House Passage of Senate Passed H.Con.Res. 71, the FY 2018 Budget Resolution

Share on Facebook
Tweet this Story
Pin this Image

Posted by Alexander Hendrie on Tuesday, October 24th, 2017, 2:36 PM PERMALINK

The budget resolution is the vehicle to pass tax reform. Support for the budget equals support for tax reform

ATR urges a YES vote on the Senate Amendment to H. Con. Res. 71

 
"The Republican tax reform plan will turbo-charge the economy, create millions of new jobs and make America the best place in the world to invest, build and create," said Grover Norquist, president of Americans for Tax Reform. "The first step toward passing this tax reform plan is for congress to pass a budget resolution that unlocks reform."
 

It is imperative that the Trump tax reform plan is signed into law in 2017. The first step toward achieving this goal must be passage of a budget resolution. 

Without a budget resolution, Congress is unable to move forward with tax reform as almost every Senate Democrat has already ruled out supporting Trump's tax reform plan. The only path forward is through budget reconciliation which avoids a Senate filibuster before moving to a regular order process that involves Committees of jurisdiction drafting legislative text.

Support for this budget resolution should be viewed as support for the Trump tax reform plan. Opposition to the budget resolution equals opposition to tax reform.

All Members of Congress should vote YES on the Senate Amendment to H. Con. Res. 71, the FY2018 Budget Resolution.

The Trump Tax Reform Framework proposes tax cuts and simplification for individuals and businesses: 

  • Consolidates the existing seven tax brackets into three (12%, 25%, 35%). 
  • Doubles the standard deduction (The first $12,000 for individuals and $24,000 for families will not be taxed). 
  • Expands the child tax credit so that families have more take home pay. 
  • Simplifies the code by repealing unnecessary deductions and credits but preserves home mortgage and charitable deductions. 
  • Repeals the death tax and AMT. 
  • Reduces taxes on all businesses by 42 percent - The corporate tax rate is reduced to 20 percent, and the tax rate on pass-through entities is reduced to 25 percent. 
  • Enacts 100 percent, full business expensing for at least five years to stimulate new investment in the economy. 
  • Replaces the outdated worldwide system of taxation with a system of territoriality so that American businesses operating overseas can compete. 
  • Allows trillions of dollars' worth of after-tax income to come back to the U.S. to be reinvested in the economy after a one-time repatriation rate. 

Photo Credit:

More from Americans for Tax Reform


Lawmakers Should Repeal IPAB’s Price Controls with CHIP Reauthorization


Posted by Alexander Hendrie on Wednesday, October 18th, 2017, 2:00 PM PERMALINK

While efforts to repeal Obamacare and reform the nation’s healthcare system have stalled, there are still opportunities to enact healthcare reform that undoes the damage caused by Obamacare. Congress is likely to soon take up reauthorization of the Children’s Health Insurance Program (CHIP). They should use this opportunity to also repeal the Independent Payment Advisory Board (IPAB). Repealing IPAB is bipartisan and may be the only chance for the Republican Congress to repeal parts of Obamacare.

IPAB was created seven years ago when Obamacare was signed into law. The basic role of IPAB is to lower costs through the implementation of blunt price controls that ration the existing Medicare system. This indiscriminate tool leaves the U.S. healthcare system with the same price controls attempted (and failed) in socialized medicine systems seen throughout the world.

In addition to being a blunt instrument that drives bad policy, IPAB also undermines the constitutionally granted authority Congress has over the power of the purse. IPAB bureaucrats are free to institute price controls they see fit without approval from Congress. As a result, this board has immense power over health outcomes and the livelihood of patients and doctors.

Given the board is problematic both politically and from a policy standpoint, it should not be surprising that there is broad consensus to repeal IPAB from numerous stakeholders.

The alternative – allowing the board to operate as planned – will result in indiscriminate cuts to Medicare that will undermine healthcare choice and access of 55 million Americans.

While there are clear arguments for repealing this panel, lawmakers should be sure to ignore poor arguments in favor of keeping IPAB. For example, some argue that IPAB repeal needs to be offset. However, this logic is flawed – under current law CBO has already assumed that IPAB will save money over the ten-year window even though the price controls have not yet been implemented. The assumption that preventing these price controls “costs” the government money is backwards thinking logic that is biased toward the status quo of Obamacare.

Ultimately, while previous stages of healthcare reform have failed Congress can still achieve repeal some of Obamacare by repealing IPAB and saving Medicare beneficiaries from indiscriminate price controls. When Congress takes up legislation reauthorizing CHIP, they should also be prepared to take up bipartisan legislation repealing IPAB.

 

Photo Credit:

More from Americans for Tax Reform


Pages

×