Alexander Hendrie

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 Section 541 is an outdated and unnecessary provision that imposes a personal holding company tax on certain businesses to prevent a loophole that no longer exists.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 As Congress works toward reform, one section of the code that should be repealed is Section 541, an outdated and unnecessary provision that imposes a personal holding company tax on certain businesses to prevent a loophole that no longer exists.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While this process sounds straightforward, in reality there are numerous sections of the code that can – and should be repealed as part of tax simplification.

One part of the code that should be repealed is Section 541.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.

 

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Conservative Coalition to Congress: Pass Pro-Growth Tax Reform in 2017

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Posted by Alexander Hendrie on Monday, February 6th, 2017, 6:00 AM PERMALINK

Americans for Tax Reform President Grover Norquist, together with a coalition of 31 other conservative, free market leaders and organizations today urged Congress to pass pro-growth tax reform in 2017.

In the letter, addressed to House Speaker Paul Ryan (R-Wis.) and Ways and Means Chairman Kevin Brady (R-Texas), the coalition urges significant progress to be made in the first hundred days of the Trump administration:

“Given the importance of this issue, we believe it is imperative that the House of Representatives make significant progress in the first hundred days of the Trump administration toward passing comprehensive, pro-growth tax reform.

“Passage of tax reform that simplifies and updates the code is key toward encouraging economic growth, creating more jobs and higher wages, and promoting innovation and ingenuity. The release of your ‘Better Way’ tax reform blueprint last year was the first step in achieving this important goal, and we encourage you to continue working to ensure tax reform becomes a reality.”

Pro-growth tax reform should lower rates for families and businesses across the board, simplify the byzantine code, ensures small businesses and corporations can compete, and make lasting, permanent changes to law.

The full letter is below and can be found here.

February 6, 2017

The Honorable Paul D. Ryan          
Speaker of the House                     
U.S. House of Representatives      
H-232, The Capitol                          
Washington, D.C. 20515                

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 Speaker Ryan & Chairman Brady:

On behalf of the undersigned organizations, we write in support of your efforts to pass pro-growth tax reform into law in 2017.

Given the importance of this issue, we believe it is imperative that the House of Representatives make significant progress in the first hundred days of the Trump administration toward passing comprehensive, pro-growth tax reform.

Passage of tax reform that simplifies and updates the code is key toward encouraging economic growth, creating more jobs and higher wages, and promoting innovation and ingenuity. The release of your “Better Way” tax reform blueprint last year was the first step in achieving this important goal, and we encourage you to continue working to ensure tax reform becomes a reality.

As you know, it has been more than 30 years since comprehensive tax reform was last signed into law. Since then, our foreign competitors have drastically reduced their rates, simplified their codes, and updated their systems to be globally competitive. Meanwhile, our tax code has almost tripled in size and has failed to keep pace with the norms of global tax competition. 

Tax reform should be viewed as an opportunity to reduce rates for all taxpayers while also repealing many of the discriminatory and preferential provisions in the code in favor of a broader base. Lawmakers also ought to repeal a number of unnecessary taxes like the Death Tax and the Alternative Minimum Tax, which only add to the complexity of the system.

On the business side, tax reform should ensure our small businesses and corporations can compete against foreign competitors, while also ending the confusing, arbitrary system of depreciation in favor of immediate, full expensing of business investments.

Where possible, changes to the tax code should be permanent changes to law. When lawmakers have enacted short-term tax legislation in the past, it has inevitably come under threat in the future by legislators that want to increase the scope and size of government through higher taxes. In contrast, permanent legislation will give families and businesses much-needed certainty and will help contribute to a stronger economy.

Today, pro-growth tax reform is needed more than ever. It is imperative that lawmakers prioritize an overhaul of the tax code in 2017 and make significant progress in the first hundred days of the Trump administration. 

Sincerely,

Grover Norquist
President, Americans for Tax Reform

Pete Sepp
President, National Taxpayers Union

James L. Martin
Founder & Chairman, 60 Plus Association

Dan Weber
President, Association of Mature American Citizens

Lindsay Boyd
Policy Director, Beacon Center of Tennessee

Jim Waters
President, Bluegrass Institute for Public Policy Solutions (Kentucky)

Jeff Mazzella
President, Center for Individual Freedom

Tom Schatz
President, Council for Citizens Against Government Waste

Chip Faulkner
Citizens For Limited Taxation (Massachusetts)

Chuck Muth
President, Citizen Outreach (Nevada)

Katie McAuliffe
Executive Director, Digital Liberty

Palmer Schoening
Chairman, Family Business Coalition

Adam Brandon
President and CEO, FreedomWorks

Mario H. Lopez
President, Hispanic Leadership Fund

Carrie L. Lukas
Managing Director, Independent Women's Forum

Heather R. Higgins
President and CEO, Independent Women's Voice

Andrew Langer
President, Institute for Liberty

Dr. Robert McClure
President and CEO, The James Madison Institute (Florida)

Lisa B. Nelson
President and CEO, Jeffersonian Project

Brett Healy
President, The John K. MacIver Institute for Public Policy (Wisconsin)

Allen Gutierrez
National Executive Director, The Latino Coalition

Seton Motley
President, Less Government

Colin Hanna
President, Let Freedom Ring

Dee Hodges
President, Maryland Taxpayers Association ​

Brian McClung
Chair, Minnesota Center-Right Coalition

Jordan Harris
Executive Director, Pegasus Institute (Kentucky)

William Booher
Interim Executive Director, Pelican Institute for Public Policy​

 

Charlie Gerow
CEO, Quantum Communications (Pennsylvania)

Paul J. Gessing
President, Rio Grande Foundation (New Mexico)

Andrew Moylan
Executive Director, R Street Institute

Karen Kerrigan
President & CEO, Small Business & Entrepreneurship Council

David Williams
President, Taxpayers Protection Alliance

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Every Modern Country in the World Has Border Adjustability Except America

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Posted by Alexander Hendrie on Thursday, February 2nd, 2017, 4:00 PM PERMALINK

America’s archaic, overly complex tax code makes it difficult – if not impossible – for U.S. businesses to compete with foreign competitors. We need revenue neutral, pro-growth tax reform to address this problem and reverse the trends of insufficient growth, too few jobs, and stagnant wages.

One reason for the American competitiveness problem is that the US is the only modern country without a border adjustment mechanism. Countries “border adjust” by applying equal, offsetting taxes on imports and tax breaks on exports. This allows countries to tax based on where the product is consumed, but the lack of a US border adjustment system results in a significant competitive disadvantage for American businesses.

Normally, when a product leaves one 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 here. Rather they are taxing based on where the product is consumed.

Because the US does not have a border adjustment, American businesses that export overseas face a penalty relative to transactions between two countries with border adjustable systems – there is no border adjustment downward when the product is exported to offset the upward border adjustment when the product is imported.  Similarly, foreign businesses importing into the U.S. receive a tax break compared to transactions between two other developed nations, because they do not have a border adjustment up when sending products into the U.S.

This problem is not limited to a few of America's trading partners. The U.S. 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 U.S. system is so antiquated that the only countries without a border adjustment are nations like North Korea, South Sudan, Iraq, Myanmar, and Western Sahara. 

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

While the border adjustment in the House GOP “Better Way” blueprint may sound like a tariff or a Value-Added tax, in reality it is neither. It is part of a modern, internationally competitive cash-flow business tax that replaces the cumbersome corporate income tax used today.

If lawmakers want American businesses to be able to compete, they must fix this outdated, uncompetitive system. They can do this by passing tax reform along the lines of the House blueprint.

OECD/BRICS Countries with Border Adjustment

OECD/BRICS Countries without Border Adjustment

  • Australia
  • Austria
  • Belgium
  • Brazil
  • Canada
  • Chile
  • China
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Germany
  • Greece
  • Hungary
  • Iceland
  • India 
  • Ireland
  • Israel
  • Italy
  • Japan
  • South Korea
  • Latvia
  • Luxembourg
  • Mexico
  • Netherlands
  • New Zealand
  • Norway
  • Poland
  • Portugal
  • Russia
  • South Africa
  • Slovakia
  • Slovenia
  • Spain
  • Sweden
  • Switzerland
  • Turkey
  • United Kingdom

 

 

  • United States

 



 

 

 

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Repeal of Obamacare Will Provide Much Needed Middle Class Tax Relief

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Posted by Alexander Hendrie on Tuesday, January 24th, 2017, 3:06 PM PERMALINK

At today’s Senate Finance Committee hearing for Tom Price to be Secretary of Health and Human Services, Sen. Claire McCaskill (D-Mo.) falsely claimed that repealing Obamacare’s 20 new or higher taxes would benefit “the rich.”

As further evidence of how ignorant Sen. McCaskill is about the contents of the law,Obamacare imposed roughly one trillion dollars ($1,000,000,000,000) in higher taxes over ten years that directly and indirectly hit middle class families and businesses.

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

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

Individual Mandate Non-Compliance Tax ($43.3 billion tax hike between 2016-2025)

Anyone not buying “qualifying” health insurance – as defined by President Obama’s Department of Health and Human Services -- must pay an income surtax to the IRS. In 2014, close to 7.5 million households paid this tax. Most make less than $250,000. The Obama administration uses the Orwellian phrase “shared responsibility payment” to describe this tax.   

Starting this year, the tax was a minimum of $695 for individuals, while families of four had to pay a minimum of $2,085.

 

Households w/ 1 Adult

 

Households w/ 2 Adults

Households w/ 2 Adults & 2 children

 

2.5% AGI/$695

 

2.5% AGI/$1390

2.5% AGI/$2085

A recent analysis by the Congressional Budget Office (CBO) found that repealing this tax would decrease spending by $311 billion over ten years.

Medicine Cabinet Tax on HSAs and FSAs ($6.7 billion tax hike between 2016-2025)

Since 2011 millions of Americans are no longer able to purchase over-the-counter medicines using pre-tax Flexible Spending Accounts or Health Savings Accounts dollars. Examples include cold, cough, and flu medicine, menstrual cramp relief medication, allergy medicines, and dozens of other common medicine cabinet health items. This tax costs FSA and HSA users $6.7 billion over ten years.

Flexible Spending Account Tax ($32 billion tax hike between 2016-2025)

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

Flexible Spending Account Tax ($32 billion tax hike between 2016-2025)

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

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

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

Health Insurance Tax ($130 billion tax hike between 2016-2025)

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

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

According to the American Action Forum, the Obamacare health insurance tax will increase premiums by up to $5,000 over a decade and will directly impact 1.7 million small businesses, 11 million households that purchase through the individual insurance market and 23 million households covered through their jobs. The tax is also economically destructive – the National Federation for Independent Businesses estimates the tax could cost up to 286,000 in new jobs and cost small businesses $33 billion in lost sales by 2023.

Chronic Care Tax ($35.7 billion tax hike between 2016-2025)

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

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

“Cadillac Tax” -- Excise Tax on Comprehensive Health Insurance Plans ($87.3 million tax hike between 2016-2025)

In 2020, a new 40 percent excise tax on employer provided health insurance plans is scheduled to kick in, on plans exceeding $10,200 for individuals and $27,500 for families. According to research by the Kaiser Family Foundation, the Cadillac tax will hit 26 percent of employer provided plans and 42 percent of employer provided plans by 2028. Over time, this will decrease care and increase costs for millions of American families across the country. 

HSA Withdrawal Tax Hike ($100 million tax hike between 2016-2025)

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

Ten Percent Excise Tax on Indoor Tanning ($800 million tax hike between 2016-2025) 

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

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