Alexander Hendrie

ATR Statement in Support of American Health Care Act

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Posted by Alexander Hendrie on Wednesday, March 22nd, 2017, 9:00 AM PERMALINK

Congress will soon vote on the American Health Care Act (AHCA), legislation that repeals Obamacare and implements numerous reforms toward a system of patient-centered, free market healthcare.

Members of Congress should have no hesitation supporting and voting “YES” on the AHCA to begin the process of repealing Obamacare.

The AHCA makes important changes to entitlements, updates and improves HSAs and gives American middle class families and businesses important tax relief. It implements an efficient age-adjusted tax credit that is vastly superior to the existing credit and is not an entitlement. The legislation also begins the process of removing burdensome insurance regulations while leaving room for HHS Secretary Price to alleviate the burden of other regulations. 

It is an excellent first step in implementing a healthcare system that works for all Americans.

“The Obamacare repeal bill abolishes 14 taxes that today siphon off nearly one trillion dollars from American Taxpayers each decade,” said Grover Norquist, President of Americans for Tax Reform. “The bill also expands Health Savings Accounts, making health care reform patient-centered rather than top-down command and control. And the reform block grants Medicaid to the states through a per capita allotment-- a long time Reagan Republican goal to empower states and reduce federal control.”

Opposition to this legislation means support for the status quo that is Obamacare. This is unsustainable and reckless. 

The law has resulted in one-size fits all insurance that is too expensive, despite numerous government subsidies. Over one thousand counties in the nation have just one insurer participating on an exchange. Premiums increased by close to 25 percent last year, a trend that will likely only increase if this legislation fails.

Many lawmakers in Congress have long promised their constituents they would repeal and replace Obamacare with a cost-effective, patient centered, sustainable alternative. By passing this legislation they can fulfill this commitment to voters.​

Repeal of Obamacare Taxes

When it was signed into law, Obamacare imposed roughly a trillion dollars in new or higher taxes that hit middle class families, raise the cost of healthcare, and reduce access to care. 

The law imposed a tax for failing to buy government-mandated insurance, a new tax on health insurance, a tax on medical devices, a tax on innovative medicines, taxes on Health Savings Accounts and Flexible Spending Accounts, and even a tax hike on Americans facing high medical bills.

This legislation repeals all of these taxes. It also delays the Cadillac tax on employer provided insurance plans until 2026. [Full list of Obamacare Taxes Repealed]

Repealing these taxes will provide much needed relief to the paychecks of families across the country. Repealing Obamacare will also undo former President Barack Obama’s broken promise not to sign “any form of tax increase” on any middle class American family.

Expands Health Savings Accounts

Health Savings Accounts (HSAs) are a key component to ensuring Americans have access to patient centered health care that best fits their needs and incentivizes keeping costs low. American families typically pay for some or their entire healthcare costs indirectly (doctors and hospital visits, medicines and treatments etc.). HSAs give individuals direct control over these funds so they can make healthcare choices that best fit their individual needs and in the most efficient way.

Not only does the repeal bill abolish several taxes on HSAs, the law also makes several improvements. The plan expands the contribution limits for HSAs ($6,550 for individuals and $13,100 for families) so they can now be relied on to cover more medical costs. The legislation also increases the flexibility of savings accounts by allowing spouses to make catch-up contributions to HSAs and allows HSAs to cover certain medical expenses incurred before the saving account has been established.

Implements New, Age-Adjusted Tax Credit

The legislation implements an improved advanced refundable tax credit that is administered based on a taxpayer’s age ($2,000 for individuals under 30 scaling up to $4,000 for individuals over 60). The credit is indexed to inflation plus one percentage point and applies to the oldest five individuals in a family. It can be used by anyone not receiving employee insurance or Medicare/Medicaid.

Compared to the flawed and highly wasteful income based Obamacare tax credit, this new tax credit is far more efficient and will result in taxpayer dollars being spent far more responsibly.

While some have claimed that this tax credit is an entitlement, it is a common feature of Republican alternatives to Obamacare. The plan put forward by Senator Rand Paul (R-Ky.) contains tax credits, as does the plan released by HHS Secretary Tom Price when he was in Congress. All of these plans contain tax credits because they are vastly superior to other alternatives such as a straight subsidy.

Enacts Medicaid Reform

The existing fiscal trajectory of Medicaid is unsustainable. Obamacare expanded Medicaid to millions of able-bodied adults, an approach with high costs and low outcomes.

The AHCA addresses this by block granting Medicaid to the states through a per capita allotment. This approach will control federal spending and ensure states retain flexibility to implement a system that best fits their individual needs. Streamlining the funding process will not only ensure that Medicaid enrollees have access to more appropriate care, it will also cut down on waste, and promote more efficient allotment of resources.

These reforms will also save hundreds of billions of dollars over the next decade.

Addresses Obamacare’s Insurance Regulations

The legislation reduces the impact of many Obamacare insurance regulations. Most notably, the bill zeroes out the individual mandate and employer mandate tax penalties. Under the AHCA, these mandates become suggestions with no enforcement mechanism.

The bill also increases coverage options by repealing actuarial standards of Obamacare plans and permits changes to age-based ratings to give insurers greater flexibility over costs.

In other cases, this bill does not repeal or modify insurance regulations, because doing so would mean the AHCA is no longer reconciliation compliant and thus would be unable to pass the Senate under a simple majority. Adding new provisions repealing insurance regulations would trigger a 60 vote threshold in the Senate, which makes it virtually impossible to pass repeal legislation.

Fortunately, HHS Secretary Price has the authority to loosen or undo these regulations. Numerous sections of federal law grant the Secretary broad discretion to reinterpret federal law including what counts as a “qualified health plan” or “essential benefits,” or to grant states “innovation waivers” to Obamacare requirements. 

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Tax Simplification Should Include Repeal of FATCA

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Posted by Alexander Hendrie on Tuesday, March 21st, 2017, 3:00 PM PERMALINK

After more than 30 years, comprehensive, pro-growth tax reform may finally be signed into law in 2017. This is an opportunity to cut taxes for American families and businesses across the board, enact an internationally competitive system for businesses, and drastically simplify the tax code.  It should also be an opportunity to repeal the Foreign Account Tax Compliance Act (FATCA).

FATCA was signed into law in 2010 with the goal of stopping tax evaders that were using offshore bank accounts. However, it was designed as a blunt instrument that targets any American with a bank account overseas. Most who are forced to comply are expatriate Americans who have, little if any U.S. presence. 

As a result, compliance costs far outstrip any effectiveness in curbing tax evasion. American citizens overseas have become locked out of financial institutions including banks, stockbrokers, hedge funds, and insurance. Often, it is easier for these businesses to deny US citizens service.

“FATCA is the Alternative Minimum Tax (AMT) for Americans overseas—an intrusive, complicated, painful and unfair tax regime designed to be massive overkill in hunting for coins between the cushions,” said Grover Norquist, President of Americans for Tax Reform. “We are finally abolishing AMT—after 48 years—in Trump’s tax reform package. We should put FATCA to sleep at the same time.”

Under FATCA, any overseas account held by U.S. citizens must be reported to the IRS. This means that millions of Americans must give up personal information and comply with burdensome IRS regulations and reporting requirements. The law requires financial institutions to collect and disclose this information. If they fail to do so, the IRS can impose a 30 percent withholding on an institution’s U.S. investments.

FATCA also requires American citizens to comply with tax filing forms if they have assets overseas meet or exceed $50,000. For overseas Americans, this means they must comply with the tax compliance laws in their country of residence in addition to IRS laws.

FATCA should be repealed as part of tax reform. In a letter to Congressional leaders, 23 conservative and free market groups urged Congress to repeal this burdensome law as tax reform efforts move forward.

However, this should be step one of reforming the taxation of overseas citizens. FATCA is merely a symptom of a larger problem.

Just as American businesses operating overseas are forced to comply with the outdated and burdensome worldwide system of taxation, Americans are forced to comply with a system of citizenship-based taxation.

This means that regardless of where a US citizen lives, they must comply with IRS rules and are double taxed on income - once when they earn it overseas and again because they are an American citizen. While repealing FATCA would ease the burden on citizens living abroad, a longer term solution should involve enacting residence-based taxation for Americans.

The current citizen-based system affects an estimated eight million Americans that live and work overseas. This system is nearly unique to America – every other country in the world with the exception of Eritrea has residence-based taxation.

In contrast, residence-based taxation subjects individuals to taxation based on location of residence without regard to citizenship. This would make tax compliance far simpler and should be part of any effort to simplify the code for individuals.

There is a clear need to reform this burdensome system and updated the way the tax code treats citizens living overseas. This can start with repealing FATCA, however it should not end until residence-based taxation is signed into law.

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Wyden Calls for Capital Gains Tax Hike

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Posted by Alexander Hendrie on Friday, March 3rd, 2017, 5:05 PM PERMALINK

While giving remarks at the liberal Tax Policy Center, Senate Finance Ranking Member Ron Wyden (D-Ore.) called for increasing taxes on capital gains by taxing it as ordinary income. Deriding the capital gains tax as a “loophole,” Wyden criticized GOP plans to reduce the rate, instead suggesting that they should be taxed at a top rate of 39.6 percent. As noted in his remarks:

“Of course, when you talk about the carried interest loophole, you’re talking about capital gains. And when you talk about capital gains, you’re talking about the biggest tax shelter of all – the one hiding in plain sight. 

“Today the capital gains tax rate is 23.8 percent. Republicans want to make it 16 percent. So if you can take advantage of a gimmick that characterizes your income as a capital gain, your tax rate plummets. The White House and the majority party in Congress are working to make it even easier to get away with that gamesmanship.”

A goal of the left is higher taxes across the board and one of their favorite targets is hiking the capital gains tax. They do this because they know they can only raise the top ordinary income tax rate so much higher than it is today without wrecking the economy.

Often they see raising the cap gains tax in increments as the best way to achieve their long-term policy goal of higher taxes. One of their favorite targets is taxing carried interest capital gains as ordinary income. Despite the misleading rhetoric put out by the left, there is no difference between carried interest and any other income derived as a capital gain.

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ATR Urges Congress to Repeal Section 541 of the Tax Code

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Posted by Alexander Hendrie on Wednesday, March 1st, 2017, 1:46 PM PERMALINK

Americans for Tax Reform today released a letter to Congress urging lawmakers to repeal Section 541 of the tax code. Section 541 is an outdated and unnecessary provision that imposes a personal holding company tax on certain businesses to prevent a loophole that no longer exists.

March 1, 2017

The Honorable Kevin Brady
Chairman, Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

Dear Chairman Brady:

One of the guiding principles of pro-growth tax reform must be simplification of the code for both businesses and families. As Congress works toward reform, one section of the code that should be repealed is Section 541, an outdated and unnecessary provision that imposes a personal holding company tax on certain businesses to prevent a loophole that no longer exists.

At around 75,000 pages in the length, it is unquestionable that the code is too complex. Each year, American families and businesses spend more than 8.9 billion hours and $400 billion complying with the code. Unsurprisingly, the majority of Americans support simplifying the tax code.

Simplification of the code should include removing the numerous unnecessary provisions such as the Death Tax, the Alternative Minimum Tax, and many of the distortionary tax credits. While this process sounds straightforward, in reality there are numerous sections of the code that can – and should be repealed as part of tax simplification.

One part of the code that should be repealed is Section 541. Section 541 serves little purpose, is often unknown amongst tax experts, and today serves solely as a trap for unwary taxpayers.

When it was enacted into law nearly 80 years ago, Section 541 was intended to address a potential loophole in the code where taxpayers would retain assets in a corporate entity rather than distributing them to the (and paying taxes at) the individual level.

At the time, there was clear incentive to do this – the top individual income tax rate approached 80 percent, while the top corporate income tax rate was as low as 20 percent. Today, no such discrepancy between individual and corporate rates exists.

The provision imposes an additional 20 percent in taxes if 60 percent of a business’s AGI is passive income and if more than 50 percent of the corporation’s stock is owned by five or fewer individuals. As a result, the only taxpayers hit by Section 541 are those who are unaware of the law and have made innocuous business choices, yet they are needlessly punished with a higher tax burden.

As you consider overhauling the code through dramatic simplification, I urge you to consider including repeal of Section 541. The fact, is the current code is too complex and burdensome for American families and businesses because of provisions like Section 541.

Onward,

Grover G. Norquist
President, Americans for Tax Reform


Trump Promises “Historic” Tax Reform

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Posted by Alexander Hendrie on Wednesday, March 1st, 2017, 1:08 PM PERMALINK

In his first address to a joint session of Congress, President Donald Trump promised “historic” tax reform that will allow American businesses to compete, will reduce rates and complexity for American families, and will grow the economy.

It has been more than 30 years since comprehensive tax reform was last signed into law. Since then, our tax code has almost tripled in size. Today, the status quo of the current tax system is unacceptable and indefensible. Tax reform is desperately needed.

The code is far too complex for American families to understand. The tax code is more than 75,000 pages long and contains over 2.4 million words. This complexity forces American families and businesses to spend more than 8.9 billion hours and $400 billion complying with the code every year.

The US tax code is also the most uncompetitive in the world. The outdated code makes it difficult, if not impossible for businesses to compete with foreign competitors. The federal/state corporate tax rate is almost 40 percent, while small businesses pay rates above 40 percent. By comparison, the average rate in the developed world is just 25 percent. The tax rate has barely changed since 1986 while other countries have cut their rates aggressively. The U.S. is also one of the few countries that still has a worldwide system of taxation, which subjects American businesses to double taxation when they do business overseas.

The tax code is suppressing the economy. Over the next decade, the Congressional Budget Office projects the economy will continue to grow at a stagnant 2 percent, far below the historical average. This insufficiently low economic growth has resulted in too few new jobs and low wages.

President Trump has shown he understands the need for tax reform. In his first year in office, he must continue pushing for desperately needed pro-growth reform.

 

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Healthcare Reform Must Repeal All Obamacare Taxes and Strengthen HSAs

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Posted by Alexander Hendrie on Wednesday, March 1st, 2017, 10:00 AM PERMALINK

Obamacare has failed. The law has led to higher healthcare costs, cancelled plans, and more than one trillion in tax increases which hit millions of middle class families. It is imperative that Congress moves forward with repealing Obamacare and replacing it with patient centered, free market healthcare reforms, like those outlined in the “Better Way” Healthcare plan.

As Congress moves forward with legislation, lawmakers should prioritize several important changes to the tax code.

First, it is imperative that repeal of Obamacare results in the repeal of ALL Obamacare taxes.

Second, policymakers should use the tax code to increase individual choice and freedom Americans have over healthcare through strengthening tax preferred savings accounts.  Both policy changes should be key components of any transformation of the American healthcare system.

Repeal is A Giant Tax Cut for American Families and Businesses: There are nearly 20 new or higher taxes that hit middle class families, raise the cost of healthcare, and reduce access to care in Obamacare. In total, these taxes exceed one trillion dollars ($1,000,000,000,000) over a decade.

The law imposes a tax on employer provided care, a tax on innovative medicines, a tax for failing to buy government-mandated insurance, a new tax on health insurance, a tax on medical devices, taxes on Health Savings Accounts and Flexible Spending Accounts, and even a tax hike on Americans facing high medical bills.

Repealing these taxes will provide much needed relief to the paychecks of families across the country. Repealing Obamacare will also undo former President Barack Obama’s broken promise not to sign “any form of tax increase” on any middle class American family.

Health Savings Accounts Should Be Expanded: When it was signed into law, Obamacare contained several provisions to restrict tax advantaged Health Savings Accounts. For instance, the law prevented families from using HSA dollars to purchase over-the counter medicines, imposed a cap on Flexible Spending Accounts, and implemented an early withdrawal tax hike on HSA users.

Lawmakers should not only prioritize repeal of provisions that limit HSAs – they should also implement proposals that expand and strengthen savings accounts.

HSAs are a key component to ensuring Americans have access to patient centered health care that best fits their needs and keeps costs low. Healthcare costs are usually paid indirectly by Americans, but HSAs give families direct control to use funds as they see fit. In turn, this increases the ability of Americans to use these funds in a way that is most efficient and appropriate for the individual.

One path forward should be adopting the proposals outlined in the House Republican “Better Way” Healthcare blueprint. This plan expands HSAs to new groups like veterans and Native American Indians, dramatically increases the contribution limits for HSAs so they can be relied on to cover more medical costs, ties tax credits to savings accounts, and exempts HSAs from the high level cap on employer provided insurance. In concert with other reforms in the blueprint, including a more efficient age-adjusted, advanced refundable tax credit, HSAs serve as an important tool toward granting Americans increased choice, lower costs, and greater access.

These are commonsense, yet important changes to HSAs and will have a drastic effect in increasing patient choice and decreasing healthcare costs.
 

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Conservative Coalition: Free File Is the Solution to Tax Complexity

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Posted by Alexander Hendrie on Thursday, February 23rd, 2017, 3:00 PM PERMALINK

ATR President Grover Norquist today led a coalition of 19 free market groups urging Treasury Secretary Steven Mnuchin to support making the Free File tax preparation program permanent.

The current complexity of the tax code makes it difficult – if not impossible – for taxpayers to file on their own. Free File is critical to addressing this complexity. The program is an innovative public-private solution to tax complexity that has served more than 40 million taxpayers and saved $1.3 billion in preparation costs since its inception.

It is also a far superior method of dealing with tax complexity than the alternative – having the IRS file taxes for individuals. This would be a clear conflict of interest and would empower the IRS – an agency that already struggles to fulfill its existing responsibilities to taxpayers – with even broader power over the paychecks of American families.

The full letter can be found here or below.

February 23, 2017

The Honorable Steven T. Mnuchin
United States Treasury Secretary
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, DC 20220

Dear Secretary Mnuchin: 

On behalf of the undersigned conservative, free market organizations, we write in support of making the Free File tax preparation program permanent in 2017.

The Free File system is an innovative public-private solution to tax complexity that has served more than 40 million taxpayers and saved $1.3 billion in preparation costs since its inception. The program offers 70 percent of taxpayers, or those making less than $64,000, access to electronic filing software provided by leading private companies free of charge.

Today, it is difficult or impossible for most taxpayers to file their own taxes. The tax code is more than 75,000 pages long and contains over 2.4 million words. This complexity forces American families and businesses to spend more than 8.9 billion hours and $400 billion complying with the code every year.

Free File is critical to addressing this complexity. The program has frequently been reauthorized since it was introduced in 2008, and has enjoyed bipartisan support in Congress.

Despite the success of this program, some, like Senator Elizabeth Warren (D-Mass.) have called for the program to be eliminated based on the notion that the government should have sole responsibility over tax preparation. In place of making Free File permanent, she has called for having the IRS file taxes for individuals as their solution to tax complexity.

This would be a mistake and would empower the IRS – an agency that already struggles to fulfill its existing responsibilities to taxpayers – with even broader power over the paychecks of American families. Having taxpayers receive a bill from the IRS would also be a huge conflict of interest given the agency already assesses tax liability for taxpayers.

In addition, it would require an increase in IRS manpower due to complexity associated with an expanded responsibility. Given the existing complexity in the code, it would be difficult – if not impossible – for everyday taxpayers to know if they were paying the right amount of taxes under this scenario.

The Free File program has been a clear success in ensuring taxpayers are able to comply the absurdly complex tax code and is a vastly superior solution to having the IRS file taxes for Americans. We urge you to make Free File permanent in 2017.

Sincerely,

Grover Norquist
President, Americans for Tax Reform

Dan Schneider
Executive Director, American Conservative Union

Phil Kerpen
President, American Commitment

Dan Weber
President, Association of Mature American Citizens

Norm Singleton
President, Campaign for Liberty

Jeff Mazzella
President, Center for Individual Freedom

Tom Schatz
President, Council for Citizens Against Government Waste

Katie McAuliffe
Executive Director, Digital Liberty

George Landrith, President
Frontiers of Freedom

Mario H. Lopez
President, Hispanic Leadership Fund

Tom Giovanetti
President, Institute for Policy Innovation

Allen Gutierrez
National Executive Director, The Latino Coalition

Seton Motley
President, Less Government

Colin Hanna
President, Let Freedom Ring

Charles Sauer
President, Market Institute

Pete Sepp
President, National Taxpayers Union

Karen Kerrigan
President & CEO, Small Business & Entrepreneurship Council

David Williams
President, Taxpayers Protection Alliance

Berin Szoka
President, TechFreedom

Cc:

The Honorable Donald J. Trump
President of the United States
1600 Pennsylvania Avenue
Washington, D.C. 20500

The Honorable Kevin Brady
Chairman, Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

The Honorable Orrin G. Hatch
Chairman, Committee on Finance
U.S. Senate
219 Dirksen Senate Office Building
Washington, D.C. 20510

 

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Coalition to Congress: Preserve Advertising Deduction in Tax Reform

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Posted by Alexander Hendrie on Wednesday, February 22nd, 2017, 2:00 PM PERMALINK

ATR President Grover Norquist today led a coalition of 12 free market groups urging Congress to maintain the advertising deduction in the tax code and implement immediate, full business expensing.

The House Republican "Better Way" tax reform blueprint makes important, pro-growth changes to the code, such as implementing full business expensing. As the coalition notes, this will streamline the tax code:

"Implementing full business expensing is also a way to stop the code from arbitrarily picking winners and losers. Existing rules create needless complexity, and force business owners to make decisions for tax reasons, instead of based on what is most economically beneficial."

At the same time, forcing advertising costs to be depreciated over several years will undo any improvement to the code, will hurt economic growth, and harm businesses across the country: 

"Restricting the ability to deduct advertising costs would be detrimental to local and national advertisers, broadcasters, print and online media, and other firms that rely on advertising as their primary source of income. Imposing higher costs on businesses would reduce their ability to create jobs, value, and economic growth."

The full letter can be found here or below. 

February 22, 2017

The Honorable Kevin Brady
Chairman, Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515

The Honorable Orrin G. Hatch
Chairman, Committee on Finance
U.S. Senate
219 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Chairmen Brady and Hatch:

On behalf of the undersigned organizations we write in support of immediate, full business expensing as a crucial concept in pro-growth tax reform. Under the current system of depreciation, business owners must deduct the cost of purchasing equipment over several years depending on the asset they purchase, as dictated by complex and arbitrary rules.

Replacing this system with full business expensing should be an integral part of creating a tax code that encourages growth, innovation, and a competitive economy. According to research by the Tax Foundation, implementing full business expensing would lead to 5.4 percent higher long-term GDP, would create more than 1 million full time jobs, and would increase after-tax income by 5.3 percent.

Implementing full business expensing is also a way to stop the code from arbitrarily picking winners and losers. Existing rules create needless complexity, and force business owners to make decisions for tax reasons, instead of based on what is most economically beneficial. Currently, there are two different systems of depreciation and investments can be depreciated over 3, 4, 5, 7, 10, 12, 14, 15, 20, 25, 27.5, 30, 35, 39, 40, or 50 years depending on the system used and the asset purchased. This makes no sense and is bad tax policy.

The House Republican “Better Way” blueprint released last year meets the goals of full expensing by implementing a “cash flow” system of taxation. Under this system US business receive a zero percent rate on any expense or investment made.

Regrettably, other tax reform proposals, like the “Tax Reform Act of 2014,” released by former Ways and Means Chairman Dave Camp went in the other direction. Not only did the plan lengthen depreciation schedules, it also took aim at specific business costs, like advertising expenses.

This is the wrong approach to tax policy and would undermine the gains from full business expensing. Congress should make the tax code as simple and fair as possible. That means treating all expenses equally, whether that means wages and other forms of compensation, travel, rent, advertising, etc. None of this is particularly exotic.

If Congress attempts to pick winners and losers by singling out certain industries, it will invariably create far more losers than winners. For instance, denying full expensing to advertising expenditures would negatively impact an industry that contributes $5.8 trillion in total economic output and is tied to 20 million jobs directly or indirectly.

Restricting the ability to deduct advertising costs would be detrimental to local and national advertisers, broadcasters, print and online media, and other firms that rely on advertising as their primary source of income. Imposing higher costs on businesses would reduce their ability to create jobs, value, and economic growth.

Any serious, pro-growth tax reform package must include across-the-board, full business expensing. Any proposal that limits businesses’ current ability to deduct advertising costs, or other costs central to running a successful business, should be rejected immediately.

Sincerely,

Grover Norquist
President, Americans for Tax Reform

Pete Sepp
President, National Taxpayers Union

Steve Pociask
President, American Consumer Institute

Thomas Schatz
President, Council for Citizens Against Government Waste

Katie McAuliffe
Executive Director, Digital Liberty

George Landrith
President, Frontiers of Freedom

Mario H. Lopez  
President, Hispanic Leadership Fund

Tom Giovanetti
President, Institute for Policy Innovation

Allen Gutierrez
National Executive Director, The Latino Coalition

Karen Kerrigan
President & CEO, Small Business & Entrepreneurship Council

David Williams
President, Taxpayers Protection Alliance

Berin Szoka
President, Tech Freedom

 

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Tax Reform Must Preserve the Deduction for Advertising Costs

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Posted by Natalie De Vincenzi, Alexander Hendrie on Friday, February 17th, 2017, 10:00 AM PERMALINK

2017 marks a once-in-a-generation opportunity to pass comprehensive, pro-growth tax reform. As lawmakers move forward with tax reform, they must retain the ability of businesses to deduct advertising costs. Eliminating or removing this deduction would distort business decisions and undermines the goals of growth, simplicity, and equity that drive tax reform. 

[ATR letter in support of preserving advertising deduction]

Treating Advertising Costs Differently From Other Business Decisions Would Distort the Tax Code: Advertising is one of many costs of doing business that firms are properly allowed to deduct, and has been treated as such in the tax code for more than 100 years. Other costs to businesses include wages and other forms of compensation, travel, and rent.

There is little difference between advertising costs and these other business expenses. Changing current law would needlessly create a bias against investing in advertising. In turn, this would encourage businesses to make economically inefficient decisions based on tax reasons.

Eliminating the Advertising Deduction Would Have Drastic Economic Consequences: Past tax reform proposals have called for limiting or eliminating the advertising deduction as a “pay-for” in tax reform. However, any revenue raised in this way would be dwarfed by the negative impacts to the economy. 

In total, advertising directly or indirectly supports almost 22 million jobs and $5.8 trillion in total economic output. Every dollar of advertising spending generates $22 of economic activity. Advertising associated with local radio and television is alone projected to contribute more than $1 trillion in economic output and 1.38 million jobs.

Preserving the Deductibility of Advertising is Consistent With the Principles of the “Better Way” Tax Reform Blueprint: One of the most pro-growth changes in the House Republican blueprint is the creation of a “cash-flow” business tax that allows businesses to immediately deduct the costs associated with necessary expenses like the purchase of tangible and intangible assets.

This gives business owners a zero percent rate on dollars spent when they invest in their business, which in turn drives stronger growth, and helps create more jobs and higher wages. In fact, implementation of immediate full business expensing would lead to an estimated long-term GDP growth of 5.4 percent and create more than one million jobs, according to the Tax Foundation.

Implementing full business expensing is a vital step toward creating a pro-growth tax code. At the same time, taking the existing treatment of advertising costs in the other direction by forcing it to be depreciated over multiple years makes no economic sense and undermines both the economic gains and the rationale for moving to full business expensing.

As part of the tax reform conversation, legislators should oppose any proposal that removes the ability of businesses to deduct advertising costs as a necessary business expense. Limiting this provision would undermine economic growth, the principles of the “Better Way” blueprint, and completely distorts business decisions.

 

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Correcting Misconceptions About the Border Adjustable Cash-Flow Business Tax

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Posted by Alexander Hendrie on Tuesday, February 7th, 2017, 9:00 AM PERMALINK

The House Republican “Better Way” tax reform blueprint proposes a desperately needed overhaul of the tax code. It has been more than 30 years since tax reform was last signed into law, and it is past time this outdated code was updated.

On both the individual side and business side, the plan reduces taxes across the board. In addition, the plan calls for much needed simplification, and implements numerous pro-growth policies. Specifically, the blueprint transforms the current corporate income tax to a cash-flow business tax through the implementation of full business expensing, the creation a territorial system of international taxation, and adding a border adjustability component.

While the plan is extremely pro-growth, border adjustability has been subject to mischaracterization and confusion. While it may sound to some like a tariff or a Value-Added Tax, it contains important differences with both. Instead, it should be viewed as an integral part of a modern, internationally competitive cash-flow business tax that replaces the cumbersome corporate income tax used today. 

Is Border Adjustability A New Tax?
Although some have described the border adjustability component of the cash-flow business tax as a new, one trillion dollar tax on imports, this is a complete mischaracterization. While the border adjustability component raises revenue, it should not be viewed in isolation, but as a base broadener that facilitates lower rates for all businesses.

Border adjustability should also be considered in the context of the many, pro-growth changes in the Better Way plan, and as part of a system that equalizes the taxation of American businesses relative to foreign competitors. It is a dramatic tax cut for businesses and consumers relative to our existing system of taxation, as the plan creates a new, low rate for corporations of 20 percent and a 25 percent rate for pass-through entities.

The House plan reduces taxes on small businesses and corporations by about $4 trillion through reductions in marginal rates and by allowing immediate expensing of new business investments, which greatly exceeds the $1 trillion raised by border adjustability. In total, the plan reduces taxes by $2.4 trillion on a static basis, according to estimates by the Tax Foundation. Through the many pro-growth policies, the plan also leads to increased household income of almost 9 percent after economic feedback.

How Does Border Adjustability Work and Why is it Needed?
Under the border adjustability system, the costs associated with products exported from the US are fully deductible from the cash-flow tax, and the costs associated with products imported into the US are not deductible from the cash-flow tax.

This change is made to ensure American businesses are on a level playing field with foreign competitors, not so they have a protectionist advantage. America is the only nation without border adjustment among the 35-member Organisation for Economic Co-operation and Development (OECD) and the five country BRICS (Brazil, Russia, India, China and South Africa). The only other countries with a border adjustment include nations like North Korea, South Sudan, Iraq, Myanmar, and Western Sahara. 

[See the Full Map of Countries with and Without Border Adjustment Here]

Normally, when a product leaves a country the border adjustment mechanism adjusts rates downward, which is then offset when it enters the new country which border adjusts rates upwards. Neither country is imposing a tariff, rather they are taxing based on where the product is consumed.

Because the US does not have a border adjustment mechanism, American businesses that sell products overseas face an export penalty relative to transactions between two other countries with border adjustable systems. Similarly, foreign businesses selling in the U.S. receive an import tax break compared to transactions between two other developed nations.

Is the Border Adjustment Component A Tariff?
A border adjustment mechanism is not a tariff – it is administered through the tax code so it cannot be considered trade policy.

The differences between the two are far from technical. Implementing a border adjustment system is about treating exports and imports equally in the global economy. Implementing a tariff is about reducing imports from another country in a discriminatory way.

Border adjustability is trade neutral because the export portion and the import portion of the border adjustment are off-setting and equal in nature. Any revenue raised is dependent on the size of the country’s trade deficit or surplus. 

In the U.S. context, the border adjustment component of the cash-flow business tax raises a projected $1 trillion over a decade, but this is solely because of the U.S. trade deficit which totals roughly $500 billion every year. Every dollar worth of goods leaving the country cancels out one dollar worth of goods arriving in the country. A trade surplus would result in the component raising no revenue. 

Border adjustability is also likely compliant with the World Trade Organization –the global body governing international trade—because it is structured around an indirect, consumption based tax. The cash-flow business tax contains many components of an indirect tax such as the elimination of interest deductibility and allowing full business expensing to ensure it is compliant with global norms.

How Does the Cash-Flow Business Tax Differ From A Value-Added Tax?
The cash-flow, border adjustment tax in the House blueprint is not a VAT.

The most important difference between the two is that the House tax plan allows for a business to deduct any labor compensation, which is then taxed through the individual income tax. This ensures that taxation is transparent to voters and taxpayers. In contrast, VATs have a much broader base that includes all compensation paid to workers, which shields the true impact of the tax from those who pay it.

This difference addresses a key problem with the VAT – that it is hidden from taxpayers. The VAT is applied at every stage of consumption, from wholesale to retail. It is passed along until it literally becomes as much an inherent and cloaked component in the price as transportation or raw materials. It is embedded in the final cost of the goods sold, and is hidden to the consumer. As a result, countries that have adopted a VAT can easily raise the rate over time to expand the size of government. The same cannot be said for the cash-flow border adjusted business tax.

 

Photo Credit: 
https://www.flickr.com/photos/lulupine/

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