Isabelle Morales

Lawmakers Should Support the American Innovation and Competitiveness Act

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Posted by Isabelle Morales on Tuesday, March 16th, 2021, 12:46 PM PERMALINK

Representatives Ron Estes (R-KS.) and John B. Larson (D-CT) and Senators Todd Young (R-IN) and Maggie Hassan (D-NH) have introduced the American Innovation and Competitiveness Act (AICA). This law will make research and development (R&D) expensing permanent, a key tax provision that encourages investment, innovation, and job creation. All members of Congress should support and co-sponsor this important legislation. 

Other members who support this bill include Reps. Jimmy Panetta (D-CA), Suzan DelBene (D-WA), Darin LaHood (R-IL), and Jodey Arrington (R-TX), and Senators Catherine Cortez Masto (D-NV.), Rob Portman (R-OH), and Ben Sasse (R-NE). 

Currently, businesses can immediately deduct the costs of new investments including the cost of R&D. However, beginning in 2022, businesses will face a tax increase because they have to amortize R&D expensing over a 5-year period.

In fact, according to the Tax Foundation, allowing R&D amortization to go into effect would be a $100 to $120 billion tax hike over the next decade. It would be a significant blow to American businesses that would harm jobs, wages, and American competitiveness.

The American Innovation and Competitiveness Act will make R&D expensing permanent so that businesses can immediately deduct new expenses.

The pandemic has exposed the need to rethink U.S. supply chains over the medium and long-term so that we are not overly dependent on any one country. One of the best ways to achieve this is to ensure that we have appropriate policies to encourage research and development (R&D) in America. 

R&D amortization harms American jobs. Jobs tied to R&D are quality, high paying jobs. In 2017, the average wage for R&D related jobs was $134,978 – 2.4 times higher than the average wage, according to the Bureau of Labor Statistics.  

However, allowing R&D amortization to take effect will threaten these jobs, according to a study by Ernst and Young. The study estimates that annual US R&D spending will decline by $4.1 billion in the first five-year window and $10.1 billion annually thereafter. 

This reduction in R&D spending will directly lead to 23,400 fewer jobs each year in the first five years and almost 60,000 jobs each year thereafter. After accounting for indirect economic effects, amortization would cost 67,700 jobs every year for the first five years and 169,400 jobs every year thereafter.  

R&D amortization harms wages. According to a study by Ernst and Young, the United States R&D-related labor income would be reduced by $3.3 billion annually in the first five years and $8.2 billion annually in the second five years if this tax hike is allowed to go into effect.

When taking into account supply chains and consumer spending that would be negatively impacted, this tax hike would reduce labor income by $5.8 billion every year in the first five years and $14.4 billion every year thereafter. 

Allowing businesses to immediately deduct the cost of all new investments, including R&D, is the right tax policy. Immediate expensing gives businesses the equivalent of a zero percent rate on new investments, which means that they have more money available to them to create jobs and increase pay. Additionally, it incentivizes businesses to invest in capital, which leads to stronger economic growth, more jobs, and higher wages. 

Expensing for all types of assets simplifies the tax code by equalizing the tax treatment of new investments with other business expenses such as wages, rent, and healthcare costs. 

If amortization of R&D goes into effect in 2022, R&D spending will be disadvantaged relative to other types of business spending, creating a disincentive to make these investments.  

The U.S. already lags many foreign competitors in promoting R&D. While allowing R&D amortization to take effect will harm American competitiveness, we are already lagging behind when it comes to promoting R&D. 

The UNESCO Institute for Statistics ranked the United States 9th in R&D investment. According to a Manufacturing Leadership Council study, the U.S. ranks 26th in R&D tax incentives when ranking the 36 developed countries in the Organisation for Economic Co-operation and Development (OECD). 

While this low ranking is alarming, it is based on current U.S. policies, not what will happen if R&D amortization goes into effect. This ranking will almost certainly decline if R&D expensing is allowed to expire at the end of 2021. 

Moving forward, we should be looking to policies to incentivize R&D. As part of this, lawmakers need to stop the looming tax hike on R&D and should support the American Innovation and Competitiveness Act to help American businesses invest and innovate.

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WSJ: States Avoided a “Great Depression-Scale Cash Crisis,” Suggesting $350 Billion State Bailout is Unnecessary

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Posted by Isabelle Morales on Tuesday, March 16th, 2021, 11:20 AM PERMALINK

The vast majority of states and localities saw no significant decline in revenues due to the Coronavirus pandemic and do not need the $350 billion bailout passed in President Biden’s $1.9 trillion spending bill.

This is proven in a recent report by Heather Gillers and Peter Santilli in The Wall Street Journal entitled, “States Expected Covid-19 to Bring Widespread Tax Shortfalls. It Didn’t Happen.” This article discusses how states avoided a Great Depression-scale cash crisis, despite dire predictions. The new $350 billion in funding is entirely unnecessary and caters to the needs of blue states with bloated budgets and high taxes.  

State Tax Revenues Generally Stayed Flat. Despite the pandemic’s toll on the economy, total state tax revenues generally stayed flat in 2020. According to the WSJ, “combined state tax revenues in 2020 nearly matched revenues from 2019, declining just 0.4%.” By the end of 2020, roughly half of states took in more revenue than in 2019.   

In addition, as recently reported by the New York Times, Wisconsin expects to have money to contribute to its rainy-day fund, Maryland has increased its revenue projections, and Minnesota expects a surplus. California is predicting a $26 billion surplus for budget year 2020-21. 

Increased revenue occurred for several reasons. For instance, after the worst of the pandemic in the second-quarter of 2020, several states began to see their tax revenues rise again. Idaho and Utah, which attracted remote workers from the West Coast, saw sizeable tax revenue gains. Idaho revenues outpaced 2019 dollars by 11 percent.

Because Covid-19 largely spared higher-income jobs, income tax payments helped propel surpluses in states like Colorado, Vermont, Georgia, Maine, California, Maryland, and Virginia. In Illinois, officials had warned their residents of an upcoming dire shortfall. Instead, personal income taxes outpaced 2019 dollars, so the state's tax revenue only dropped by 1 percent.

Finally, "a stimulus-fueled stock rally helped protect finance jobs and income and capital gains tax revenues in states like California and New York. In California, a surge of initial public offerings in 2020 has helped total tax revenue grow by 2.5 percent."

The Federal Government Has Already Put Hundreds of Billions of Dollars Towards State and Local Government Relief. Further, Congress has also already provided aid to states, including approximately $360 billion that directly went to state and local governments to help them respond to Covid-19. Currently, there is $58 billion worth of unspent state and local aid.  

In fact, even before the last $900 billion package, lawmakers had provided states and localities with 17 times their 2020 revenue loss and double their expected 2020 and 2021 loss, according to the Heritage Foundation.  

Democrat Are Using This Funding to Dictate State Tax Policy. As a condition of accepting the state and local funds, states will be prohibited from lowering taxes.

The bill explains that states “shall not use the funds... to either directly or indirectly offset a reduction in the net tax revenue... from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”

This prohibition would last through 2024. This is an attempt to prevent state tax competition as Democrat-run states are unable to compete with well run, low-tax states.

Federal Spending is Already at Unsustainable Levels. Moving forward, lawmakers must prioritize responsible spending. Due to Covid-19, the federal budget deficit tripled in the budget year ending on Sept. 30. “The deficit reached $3.1 trillion according to the Treasury Department. That is 16.1% of the country’s total economic output, the most since 1945, when the U.S. was financing massive military operations to help end World War II.”  

To put this spending in context, there are 122.8 million families in the U.S. and 79.5 million households, according to the Census Bureau. By either metric, we have spent a significant amount of taxpayer dollars already — $51,500 per family and $33,380 per household has already been spent. 

President Biden’s $1.9 trillion plan will spend an additional $15,500 per household or $23,900 per family. 

Even former Clinton Treasury Secretary and Obama Chief Economic Adviser Larry Summers has expressed skepticism with Joe Biden’s plan. Writing in The Washington Post, Summers argued that Biden’s stimulus plan is three to six times larger than the economic shortfall and that it will result in wasteful spending that threatens to cause future financial instability and unnecessary inflation. 

Eventually, these massive costs will be borne by the American people.  

The resilience of state budgets should be evidence enough that the new $350 billion funding is irresponsible and unnecessary. States do not need this money and have already received significant help from the federal government.

Photo Credit: GPA Photo Archive


Joe Biden Would Raise the U.S. Corporate Tax Rate Higher Than Communist China

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Posted by Isabelle Morales on Monday, March 15th, 2021, 3:50 PM PERMALINK

According to Nancy Cook of Bloomberg, President Joe Biden is planning to increase the corporate tax rate from 21 percent to 28 percent in order to pay for trillions of dollars in new spending. 

This increase would impose on Americans a higher corporate tax rate than Communist China’s 25%.

Current rate: 21%

China’s rate: 25%

Biden’s rate: 28%

Biden’s 28 percent tax rate (resulting in a combined federal/state corporate tax rate of about 32 percent) is also higher than the United Kingdom (19 percent), Canada (26.8 percent), and Ireland (12.5 percent). 

In 2017, Republicans lowered the federal corporate tax rate from the Obama-Biden era 35 percent rate down to the current 21 percent rate as part of the Tax Cuts and Jobs Act. When Trump took office, America’s corporate rate was the highest in the developed world. 

The corporate tax cut was the cornerstone of the previously robust American economy. Before COVID-19, the Trump economy routinely created well over 100,000 private sector jobs per month. Nominal wage growth enjoyed 19 consecutive months of over 3 percent growth, and unemployment was consistently below 4 percent, a 50-year record low. 

Because corporate tax hikes encourage companies to do business elsewhere, less money will be invested into the U.S. economy. The result is less jobs, lower wages, and a slower recovery. A study released by EY found that American companies suffered a net loss of almost $510 billion in assets between 2004 and 2017 due to the high U.S. rate. If the corporate rate was lower between 2004 and 2017, the study estimates that U.S. companies would have acquired a net of $1.2 trillion worth of assets, meaning that more than $1.7 trillion in assets were lost because of the uncompetitive U.S. rate.  

A Treasury Department study estimated that “a country with a 1 percentage point lower tax rate than its competitors attracts 3 percent more capital.” This is because raising the corporate rate makes the United States a less attractive place to invest profits.   

If Joe Biden raises the corporate tax rate, he will discourage businesses from investing in the United States. Capital is mobile, so a tax increase can result in this jobs and investment going overseas.

As a Harvard Business Review piece explains:  

“When capital is invested elsewhere, real wages decline, and if product prices are set globally, there is no place for the corporate tax to land but straight on the back of the least-mobile factor in this setting: the American worker. The flow of capital out of the United States only accelerates as opportunities in the rest of the world increase. This is the key to understanding why, despite political rhetoric to the contrary, reforming the corporate tax is central to improving the position of the American worker.”  

The coronavirus pandemic has caused incredible harm to American businesses and workers. Still, Joe Biden is championing the idea of increasing the corporate tax rate to fulfill his misguided, poorly thought-out promise to punish “greedy corporations.” Instead, he will punish American workers and the U.S. economy.

Photo Credit: Gage Skidmore


Senators Should Reject Biden’s HHS Pick, Xavier Becerra

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Posted by Isabelle Morales on Thursday, March 11th, 2021, 11:30 AM PERMALINK

California Attorney General Xavier Becerra, President Biden’s pick to lead the Department of Health and Human Services, will soon be considered by the full Senate. Becerra has voiced his support for expanding government healthcare and Medicare For All several times in the past. These reforms would lead to extensive middle-class tax hikes.  

Biden campaigned as a moderate who opposed Medicare for All, yet his pick to lead the administration on healthcare policies is a self-described single-payer advocate. Becerra’s leadership of the HHS could push the U.S. towards socialized healthcare, which would result in tax hikes for American middle-class families, kill jobs across the country, and would cause shortages of quality care. 

"Biden's presidential campaign told America he would not raise any tax on middle income Americans, would not take away their health insurance and not bankrupt America with a Green New Deal," said Grover Norquist, president of Americans for Tax Reform. "His cabinet picks -- now including Becerra -- shout loudly that he does want to take away your health insurance and replace it with a top down, one size fits all government program, burden middle class Americans with an energy tax and spend without limit in the name of a Green New Deal." 

See Also: Key Vote: ATR Urges “NO” Vote on Becerra Nomination

When asked on October 22, 2017 if he supports Medicare for All, Becerra said "Absolutely. "I've been a supporter of Medicare for All for the 24 years that I was in Congress."  

Socialized healthcare would kick 180 million American families off their healthcare plan. According to a recent study, 81 percent of Americans are satisfied with their employer-provided care.

It would result in trillions of dollars in middle class tax increases. A study by the Urban Institute and the Commonwealth Fund Medicare estimated that Medicare for All will require between $29 trillion and $35 trillion in higher taxes. Taxes which target the "rich" like a wealth tax, a financial transactions tax, a 10 percent surtax on “the wealthy,” a 70 percent top income tax rate, and doubling the tax rate on capital gains would only pay for about 20 percent of the cost of Medicare for All, according to the best-case scenario estimates by the left.   

Senator Bernie Sanders (I-Vt.), the bill’s author, acknowledged that Americans making more than $29,000 per year would pay more in taxes under Medicare For All. Needless to say, this plan would violate Biden’s pledge not to raise taxes on anyone making less than $400,000.  

This government healthcare plan would also kill millions of jobs, as noted by a report from the University of Massachusetts Political Economy Research Institute (PERI). The study noted that 1.8 million health care jobs would be eliminated if Medicare for All become law. Healthcare workers like nurses and doctors will experience lower wages under Medicare For All, discouraging thousands of workers from staying or entering a career in healthcare.  

Medicare For All would also restrict access to care. The combination of price controls and a reduction of payments for hospitals and doctors would create healthcare shortages and lead to a rationing of care. This situation already exists in countries that already utilize government healthcare. For instance, in Canada, patients reportedly wait over 20 weeks on average to receive treatment from a specialist. At any one time, over one million Canadians are waiting for a procedure. It is even worse in the United Kingdom where patients often wait over six months to receive treatment.  

Becerra is an advocate for expanding the size of government, one size fits all healthcare, and higher taxes. This is not the moderate administration Americans were told they were voting for.

Photo Credit: Gage Skidmore


ATR Signs Letter Urging Treasury Department to Reject Retroactive Conservation Easement Tax Increases

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Posted by Isabelle Morales on Thursday, March 11th, 2021, 11:20 AM PERMALINK

Americans for Tax Reform joined the National Taxpayers Union and the Center for a Free Economy in sending a coalition letter to Treasury Secretary Janet Yellen urging the administration fairly implement the conservation easement tax deduction and reject efforts to retroactively increase taxes on Americans. 

The conservation easement deduction was first enacted in 1976 with the goal of incentivizing property owners to conserve land and historic sites through a charitable deduction. In order to claim the deduction, the taxpayer must agree to restrict their right to develop or alter the property. Organizations known as land trusts agree to monitor the restrictions placed on the property. 

In recent years, the IRS has pushed burdensome compliance, examination, and enforcement procedures related to the conservation easement tax deduction. These trends will impact taxpayers across the country and could serve as a precedent to how tens of millions of taxpayers are treated in the future.

The IRS began subjecting taxpayers claiming the deduction to burdensome new filing requirements and onerous compliance costs following the release of IRS Notice 2017-10, a notice abruptly released on December 23, 2016 without any prior stakeholder input. As the letter notes, this resulted in actions taken that violate the Taxpayer Bill of Rights, which guarantees a basic set of rights to taxpayers when dealing with the IRS.  

This notice has also opened the door for lawmakers to push legislation retroactively increasing taxes on taxpayers claiming the deduction. Under the Charitable Conservation Easement Program Integrity Act, taxpayers could be retroactively disallowed a deduction from donations made as far back as January 2016 – imposing tax increases on taxpayers retroactively for tax years 2016, 2017, 2018, and 2019 and imposing tax increases prospectively.

The tax code must be applied with consistency, certainty, and fairness. Taxpayers cannot reasonably or confidentiality comply with law if they believe the federal government will change these laws after the fact.

Secretary Janet Yellen should  fairly implement the conservation easement tax deduction and reject efforts to retroactively raise taxes on taxpayers claiming the deduction.

You can read the full letter here or below: 

 

March 10, 2021  

Dear Secretary Yellen:  

On behalf of the undersigned organizations, which advocate for millions of taxpayers across America, we write first to offer our congratulations and best wishes to you as the new Secretary of the United States Treasury. It is our hope that in days to come, we will build constructive working relationships on many matters, even as we may respectfully offer differing views on certain tax and fiscal policies.  

Among those matters where we may find common ground is our abiding, mutual concern for a well-functioning, balanced system of tax administration. We were therefore encouraged by several of your thoughtful responses during your confirmation process regarding improvements to how tax laws are implemented, beyond what those laws may stipulate. One of your replies to a Question for the Record from Senator Portman on Section 170(h) deductions (pertaining to conservation easements) was particularly encouraging to us:  

Question: …Will you commit to working with the IRS to publish sample deed language so that taxpayers can have certainty when making donations, helping to further this important policy goal? Once we have this guidance, I think it is important that we provide an opportunity for taxpayers to come into compliance with the new rules.  

Answer: Taxpayer certainty with regard to tax treatment in all issues is an important goal for the system at large. If confirmed, I will strive to meet that goal through the issuance of taxpayer guidance, and I appreciate the importance of creating certainty for taxpayers on this issue. 

Secretary Yellen, we could not agree more with your assessment, and we urge you to take timely steps that provide a framework within which the IRS may develop such guidance.  

As you may know, our organizations have taken an active, collaborative role with Congress and the Executive Branch in formulating sound tax administration policies – some of us, for more than five decades. We therefore write from deep experience in cautioning that the compliance, examination, and enforcement procedures evolving around Internal Revenue Code Section 170(h) present grave implications for the entire tax system. Ever since the issuance of IRS Notice 2017-10, which declared certain conservation easement arrangements to be listed transactions, we have noted with alarm numerous trends that will affect how tens of millions of taxpayers – not just the thousands claiming Section 170(h) deductions – could be treated in the future. Just a few of those trends are:  

  • Retroactivity. Although issued in late 2016, Notice 2017-10 has been the basis of a near-100 percent IRS audit rate of partnership-based conservation easement transactions, some dating back many years prior. Audits are, by their nature, backward-looking, yet they are normally confined to establishing whether a taxpayer faithfully complied with laws, rules, and other guidance that were firmly anchored in place during the year for which the examination was launched. Current IRS audits of partnership easements are often based on the Service’s shifting interpretations of laws and rulings, some of them upending decades of established understanding of how Section 170(h) deductions should be structured. Retroactivity, especially of such an egregious nature as this, is counterproductive and ill-advised.  
  • Arbitrary Litigation Strategies. Going with the Service’s extremely aggressive assertion of retroactive application of its shifting positions in audits has been its similarly fluid stance in court. The first wave of IRS lawsuits challenging Section 170(h) deductions tended to center on the appraised value of the conservation easements underlying the taxpayers’ claims. Yet, after a string of court losses where the government fatuously argued zero or minimal value to all the easements under scrutiny, further waves of IRS litigation made far more exotic arguments against “foot faults” involving highly technical details of easement agreements themselves – details which the entire conservation and historic preservation communities had long regarded as settled features. 1 See Questions for the Record, U.S. Senate Committee on Finance, Hearing on the Nomination of Dr. Janet Yellen, Responses by Dr. Yellen, January 21, 2021, p. 61.  

 

  • Capricious Enforcement Tactics. Even prior to Notice 2017-10, taxpayers claiming the Section 170(h) deduction were experiencing harsh treatment at the hands of the tax agency. As Senators Blumenthal and Murphy reported in a 2016 communication to then-Commissioner Koskinen, “constituents describe audits focused on their donation of a conservation easement as antagonistic, aggressively adversarial, lengthy, and expensive.” Such reports, some of which have been communicated directly to us, have accelerated since partnership easements became a listed transaction. These accounts bear the hallmarks of troubling Service behavior that we witnessed in the late 1980s, early 1990s, and early 2010s – all of which necessitated sweeping corrective legislation as well as managerial overhauls at the tax agency. Such disruption should be avoided if at all possible, and can be now with modest effort.

 

  • Collateral Damage to Taxpayer Rights Laws. Inevitably, the tactics mentioned above are leading to another pattern we have observed in the past – a corrosive attitude within the IRS toward laws for we which we strongly advocated, such as the Taxpayer Bill of Rights of 1988 and the IRS Restructuring and Reform Act of 1998 (RRA ’98). One of our organizations has already deemed it necessary to file amicus briefs in court cases involving two such problems: the Service’s indifference to RRA 98’s supervisor approval requirement for penalty determinations, as well as its apparent disregard for even the barest formalities of the Administrative Procedure Act in crafting guidance.2 Other problems include the IRS’s quiet disposal of longstanding due process procedures for appraiser diligence matters.3 These cases, and several more we are scrutinizing, originally pertained to conservation easements, but are allowing the IRS to steadily build an arsenal of legal precedents that can be wielded against taxpayers in all types of financial situations.  

 

  • Conflict with Other Policy Goals. The Biden Administration has committed to the objective of conserving 30 percent of lands and oceans by the year 2030. Regardless of whether one supports this particular policy, as a practical matter its execution will entail reliance on a variety of tools, including private sector-driven conservation. Given that easements have so far protected well over 30 million acres in the U.S. – a rapidly rising figure – from an environmental standpoint it would be a tremendous mistake to allow private land conservation to be undercut because of careless, opaque tax administration.  

 

The IRS National Taxpayer Advocate (NTA) has recommended (and in January reiterated) that “because litigation in this area may very well continue for years,” the Service ought to “[d]evelop and publish additional guidance that contains sample easement provisions to assist taxpayers in drafting deeds that satisfy the statutory requirements for qualified conservation contributions.”4 This sensible approach could, under your leadership, be quickly facilitated by forming a working group of expert stakeholders inside and outside of government under a 90-day deadline to formulate the guidance. This in turn could be subject to public notice and comment so that, by late summer of this year, a great measure of consistency and transparency could finally be brought to an area of tax administration that has proven burdensome both to the Service and to taxpayers. As IRSAC’s recommendations some 15 years ago with historic preservation easements, and the creation of a panel to settle valuations of donated art both demonstrate, reaching agreement on complex issues in the Section 170 space is feasible if all parties come to the table in good faith.  

Secretary Yellen, we hope you will take this early opportunity to forge a consensus over a long-troubled area of tax administration that can, with a relatively small investment of time and effort, yield major dividends for taxpayer compliance and confidence.  

Should you wish to discuss this or any other tax administration issue further, we would certainly welcome the opportunity. Thank you for your consideration.  

 

Sincerely,  

 

Pete Sepp, President  

National Taxpayers Union  

 

Alexander Hendrie, Director of Tax Policy  

Americans for Tax Reform  

 

Ryan Ellis, President  

Center for a Free Economy

Photo Credit: International Monetary Fund


Biden’s Corporate Tax Hikes Would Hurt Global Competitiveness

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Posted by Isabelle Morales on Wednesday, March 10th, 2021, 3:40 PM PERMALINK

President Joe Biden has proposed raising the corporate tax rate from 21 percent to 28 percent as part of his plan to raise taxes by as much as $4 trillion over the next decade. Biden also wishes to impose a 15 percent corporate minimum tax and to double the tax rate on Global Intangible Low Tax Income (GILTI) and impose it on a country-by-country basis.

Raising taxes on businesses would reduce jobs, lower workers’ wages, harm Americans’ retirement savings, and hurt already struggling businesses. A particularly concerning effect, though, is that raising the corporate taxes would hurt the United States’ global competitiveness.

Joe Biden’s Corporate Income Tax Hike Would Establish the United States’ Rate as One of the Highest in the Developed World. 

Under Joe Biden’s proposed 28 percent rate (resulting in a combined corporate tax rate of about 32 percent), America’s rate would be higher than key competitors such as the United Kingdom (19 percent), China (25 percent), Canada (26.5 percent), Ireland (12.5 percent), Germany (29.9 percent) and Japan (29.74 percent), according to data compiled by the Organisation for Economic Co-operation and Development (OECD). 

Many countries also have lower rates on businesses that innovate and invest. For instance, China has a 15% rate for industries including high tech enterprises, while the United Kingdom has a 10 percent “patent box” rate for businesses that depend on patented inventions and innovations.  

Before Republicans passed the Tax Cuts and Jobs Act in 2017, the United States had the highest corporate tax rate in the developed world. The U.S. rate was unchanged since 1986 while the rest of the world, including European countries, had continually lowered their corporate tax rates in recognition of the competitive edge they received from this tax cut. 

According to a 2018 paper in the National Tax Journal by Lyon and McBride, by 2017 the United States’ combined (national and subnational) corporate tax was 38.9 percent. At that time, the OECD’s average was 23.9 percent. Because of the 2017 tax cut, the United States’ combined tax is now 25.8 percent. Though it is still higher than the OECD average, it is a significant improvement.  

An article from Caroline Harris of the U.S. Chamber of Commerce explains that Biden’s corporate tax increase “would cause the United States to drop from 21st to 30th on overall competitiveness, a position even lower than before tax reform, and to fall to 33rd on corporate taxes.” Surely, during an economic downturn, this is a poor direction to be heading in.   

Corporate Tax Hikes Would Drive Investment Overseas, Leading to Significant Economic Damage

Because corporate tax hikes encourage companies to do business elsewhere, less money will be invested into the U.S. economy. The result is less jobs, lower wages, and a slower recovery. A study released by EY found that American companies suffered a net loss of almost $510 billion in assets between 2004 and 2017 due to the high U.S. rate. If the corporate rate was lower between 2004 and 2017, the study estimates that U.S. companies would have acquired a net of $1.2 trillion worth of assets, meaning that more than $1.7 trillion in assets were lost because of the uncompetitive U.S. rate.  

A Treasury Department study estimated that “a country with a 1 percentage point lower tax rate than its competitors attracts 3 percent more capital.” This is because raising the corporate rate makes the United States a less attractive place to invest profits.   

If Joe Biden raises the corporate tax rate, he will discourage businesses from investing in the United States. Capital is mobile, so a tax increase can result in this jobs and investment going overseas.   

As a Harvard Business Review piece explains:  

“When capital is invested elsewhere, real wages decline, and if product prices are set globally, there is no place for the corporate tax to land but straight on the back of the least-mobile factor in this setting: the American worker. The flow of capital out of the United States only accelerates as opportunities in the rest of the world increase. This is the key to understanding why, despite political rhetoric to the contrary, reforming the corporate tax is central to improving the position of the American worker.”  

Increasing corporate taxes would also revive the problem of corporate inversions and foreign acquisitions of U.S. businesses. Concern over inversions grew during Obama’s second term in 2014, when a number of large American businesses with combined assets of $319 billion announced plans to invert.  

Inversions occur when a U.S. business merges with, or acquires, a foreign business with the intent of incorporating the new, combined entity overseas. This was due to the U.S. tax code being uncompetitive, forcing some businesses to merge with foreign companies in order to experience more reasonable tax rates in other countries.   

The inversion problem was virtually eliminated when the TCJA was signed into law. In fact, after the TCJA, companies began to come back to America. If the corporate tax rate is increased, a 15 percent corporate minimum tax is implemented, and the tax rate on GILTI doubled, we'd see this trend reversed.

Because of the TCJA, BEA data from the first year after the law was implemented showed that it contributed to faster growth for things like employment and expenditures for property, plant, and equipment (PP&E) and research and development (R&D). This reversed “a long-term trend where growth at foreign affiliates outpaced that of U.S. parents.”   

Increasing corporate taxes will have dire effects on the United States’ global competitiveness. It will make it easier for foreign businesses to acquire American businesses, driving hundreds of billions of dollars away from the U.S. economy. It will also lead to drastic declines in investment and capital in the United States, ultimately to the detriment of American workers.   

The coronavirus pandemic has caused incredible harm to American businesses and workers. Still, Joe Biden is championing the idea of increasing the corporate tax rate to fulfill his misguided, poorly thought-out promise to punish “greedy corporations.” Instead, he will punish American workers and the U.S. economy. 

Photo Credit: Gage Skidmore


ATR Supports the “Protecting Retirement Savers and Everyday Investors Act”

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Posted by Isabelle Morales on Wednesday, March 3rd, 2021, 3:00 PM PERMALINK

ATR President Grover Norquist today released a letter in support of the “Protecting Retirement Savers and Everyday Investors Act,” legislation that prohibits states from imposing financial transactions taxes (FTT) on American savers and investors across the country.

All members of Congress should support and co-sponsor this legislation. 

You can read the full letter here or below:

March 3rd, 2021

Re: Support the “Protecting Retirement Savers and Everyday Investors Act"

Dear Representatives McHenry and Huizenga:  

I write in support of the “Protecting Retirement Savers and Everyday Investors Act,” legislation that prohibits states from imposing financial transactions taxes (FTT) on American savers and investors across the country. All members of Congress should support and co-sponsor this legislation.

Most FTT proposals impose a 0.1 – 0.25 percent tax on any buying and selling of stocks, bonds, and other financial instruments. 

In the wake of the Robinhood-GameStop controversy, several Democrats have called for FTTs to limit market volatility. FTTs would do nothing to limit volatility: rather, they would act as a Trojan Horse to pass new regulations and new taxes.

If implemented in any given state, an FTT would result in significant harm to investors. Because the tax would be imposed on transactions processed by the exchanges in a state, it would harm investors across the country, not just those in the state which implements it. Your legislation would protect against this by prohibiting a financial transactions tax on taxpayers outside a state’s borders. 

FTTs represent another attempt by the left to create new and higher taxes on the American people and grow the size and scope of government. If implemented, this tax would have broad, negative economic effects. It would impose an additional layer of taxation on top of corporate income taxes, capital gains taxes, and individual income taxes. This would impose a barrier to trades, which could increase the cost of capital and reduce economic productivity.

This tax could even increase market volatility as investors would be less likely to buy and sell. It also punishes shareholders who have strategically invested, saved and planned for a prosperous future.

An FTT would especially impact 401(k)s, pensions, and index funds. These funds make frequent trades, so the tax would increase the costs of buying and selling, resulting in lower returns. A 0.1% surcharge would require average Americans to work another 2.5 years before retiring in order to make up for the shortfall in savings. A 2021 study conducted by the Modern Markets Initiative found a proposed financial transaction tax  would cost $45,000 to $65,000 over the lifetime of a 401(k) account.

FTTs fail to raise significant revenue because they reduce trades and increase the cost of capital. In fact, an analysis by the Congressional Budget Office found that imposing a FTT would “decrease the volume of transactions and would make some types of trading activity” and “probably reduce output and employment.” 

This is not hypothetical. FTTs have failed when they have been tried overseas. For instance, in 1984, Sweden imposed a financial transaction tax. However, this tax lasted just six years due to investors fleeing to foreign markets. Not only did the FTT raise little revenue, capital gains tax revenue dropped because of a reduction in sales. According to the Center for Capital Markets, this has also happened in Spain (1988), Netherlands (1990), Germany (1991), Norway (1993), Portugal (1996), Italy (1998), Denmark (1999), Japan (1999), Austria (2000), and France (2008). It was even repealed here in the United States in 1965 through a bipartisan vote, due to its failure. In the years following the repeal, trading volume in the United States increased substantially.  

While many are motivated to support an FTT by their disdain for short-selling, the fact is that short selling is not responsible for market crashes and economic downturns. Instead, it is a function of the free market. Investors will short a stock when they think it is overvalued. In this way, it helps promote investor efficiency and provides information to markets, ultimately softening the blow of a downturn.

For instance, the 2008 market crash could have been far more widespread if short sellers hadn’t recognized the housing market was overvalued. Arbitrarily restricting this trading will likely lead to severe pain if we experience another crash. Rather than improving market volatility, an FTT could make this problem worse as there would be fewer buyers and sellers and therefore more price jumps.

The effort by blue states to impose FTTs should be rejected. These taxes have failed where they have been tried before, would harm economic growth and investment, and would fail to raise any significant revenue. 

The Protecting Retirement Savers and Everyday Investors Act would protect Americans from FTTs by ensuring that states could not impose them on taxpayers across state lines. All members of Congress should co-sponsor and support this important, pro-taxpayer legislation.  

Onward,

Grover Norquist
President, Americans for Tax Reform

Photo Credit: S Chia


Lawmakers Should Reject H.R. 1, the "For the People Act"

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Posted by Isabelle Morales on Tuesday, March 2nd, 2021, 2:25 PM PERMALINK

As soon as this week, the House of Representatives is set to vote on H.R. 1, the "For the People Act." In the coming weeks and months, the law is also expected to be taken up by the Senate. H.R. 1, a top priority for Congressional Democrats, is an 800-page bill filled with partisan policies to rig the system in favor of the Left. 

This proposal would fundamentally transform how elections are conducted in the United States, would politicize the Federal Elections Commission, would create taxpayer-funded candidates, and would directly violate constitutional mandates like free speech and states’ freedom to determine their own election laws. Congress must reject this dangerous piece of legislation. 

Instead of working within our institutions, Democrats have taken to attacking the institutions themselves when they do not produce the left's preferred outcome. When they didn't like the composition of the Supreme Court, they threatened to pack it. When they couldn't convince enough of the legislature of an idea, they fought to repeal the filibuster. Now, because they do not want to lose the presidency or their majorities in the House and Senate, they are working to pass H.R. 1. 

See Also: Key Vote: ATR Urges NO Vote on H.R. 1, the "For the People Act"

H.R. 1 would unconstitutionally undermine state election oversight. Article I Section IV of the U.S. Constitution empowers states to determine the “Times, Places and Manner of holding elections…” By nullifying several state election laws, H.R. 1 would make significant strides in stripping states of this enumerated power.

It would force states to implement early voting, automatic voter registration, same-day registration, online voter registration, and no-fault absentee balloting.It eliminates any restrictions on vote-by-mail. Additionally, the bill would invalidate voter identification laws all across the country by allowing voters to simply sign a statement affirming their identity as they enter their polling place.

H.R. 1 would create taxpayer-funded candidates. Taxpayers would be on the hook for matching 600% of campaign contributions to subsidize candidates they may disagree with – a practice that has been ripe for corruption, despite having the intentions of reducing corruption. 

Thomas Jefferson once said: “To compel a man to furnish funds for the propagation of ideas he disbelieves and abhors is sinful and tyrannical.” In this way, it could be described as compelled speech. Especially because it will almost certainly propagate one political party (the Democratic party) over the other upon implementation.  

Taxpayers should not be forced to fund campaigns they find disagreeable. In fact, they shouldn’t be forced to fund campaigns they agree with. Americans’ ability to choose to or refuse to participate in politics has always been a foundational principle in the United States.  

H.R. 1 suppresses free speech. First, it empowers federal regulators to categorize and regulate speech, including online speech. It does so by undoing the FEC’s “internet exemption” which excludes the internet from regulation of political speech. This exposes online communication to the same scrutiny as traditional advertisements. 

The law also invents a new regulation called “PASO,” an overbroad standard that asks whether political speech “promotes,” “attacks,” “supports,” or “opposes” a federal candidate or official. Besides the blatant unconstitutionality of this regulation, it is also so unclear and broad that it can be used as a weapon by whichever political party is in power. As Rich Lowry explains, the current law “limits expenditures that expressly advocate for the election or defeat of a candidate, or refer to a candidate in public advertising shortly before an election.”

Any and all political, nonelectoral messages can be framed as something which promotes, attacks, supports, or opposes a candidate. Under this law, the party in power can frame their opponents’ political speech this way and subsequently limit their opponents’ speech. 

Additionally, the bill transforms the “stand by your ad” disclaimer in video advertisements, forcing organizations to identify their top five donors at the end of advertisements. This represents a radical change in policy: currently, the “stand by your ad” provision simply requires a statement by the candidate or organization/corporation that they approve the communication. In addition, the bill mandates the disclosure of all the names and addresses of donors giving more than $10,000 to groups that engage in “campaign-related disbursements.” With the incredible rise in partisanship, cancel culture, and doxing, it is more important than ever to protect donor privacy.

Finally, H.R. 1 would politicize the FEC. Under current law, the FEC is comprised of a six-member bipartisan committee: three Republicans and three Democrats. In order to move forward with any prosecution of alleged campaign violations or investigations, the FEC needs four votes. This law would limit the member number to five, therefore including two Republicans, two Democrats, and one “independent” from a minor political party. Under this rule, a president could appoint a Bernie Sanders-style “independent” to serve as the fifth member of the FEC. To make matters worse, under this law, a president could also pick the Chairman of the FEC, all but ensuring total presidential control of the Commission. 

H.R. 1 is a dangerous piece of legislation. This legislation would suppress free speech, invalidate state laws, create taxpayer-funded candidates, and do nothing to help the economy or fight the Coronavirus pandemic. This Democrat power grab should be rejected.

Photo Credit: Martin Deutsch


Warren’s Wealth Tax Will Give Massive New Powers to IRS, Doubling Its Size

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Posted by Isabelle Morales on Monday, March 1st, 2021, 4:00 PM PERMALINK

Senator Elizabeth Warren’s (D-Mass.) legislation to impose a $3 trillion wealth tax would give the IRS $100 billion in additional funding over the next 10 years. This would double the size of the IRS.

If just a fraction of this new funding was spent on new IRS employees, it could lead to tens of thousands of new agents and auditors. 

Warren’s proposal would disproportionately increase funding for “enforcement,” which includes funding for audits and criminal investigations, instead of “taxpayers services,” which includes funding for taxpayer advocacy, assistance, and education.

IRS funding for taxpayer services in FY 2019 was $2.6 billion Warren’s bill would increase this funding by $10 billion over 10 years. On the other hand, Warren would provide a $70 billion increase in enforcement funding over 10 years, compared to FY 2021 funding of $5.2 billion.

This new funding can be found on page 14 of Sen. Warren’s legislation:

SEC. 4. INTERNAL REVENUE SERVICE FUNDING.

(a) IN GENERAL.—Subchapter A of chapter 80 of the 15 Internal Revenue Code of 1986 is amended by adding at the end the following new section:

SEC. 7813. AUTHORIZATION OF APPROPRIATIONS.

‘There are authorized to be appropriated to the Secretary for fiscal years 2022 through 2032—

(1) for enforcement of this title, $70,000,000,000

(2) for taxpayer services, $10,000,000,000

(3) for business system modernization, $20,000,000,000.

According to the Bureau of Labor Statistics, the median pay of a “Tax Examiners and Collectors, and Revenue Agents” is $54,890 per year. If even $5 billion of Warren’s $100 billion in funding was used to hire new IRS workers, it would more than double the size of the agency and add more than 80,000 new government bureaucrats.

Warren’s wealth tax would also impose a 40 percent exit tax on any American that renounces their citizenship with net worth over $50 million. It would take aim at Americans living overseas by expanding tax penalties and reporting requirements that exist under the Foreign Account Tax Compliance Act (FATCA). Even the Washington Post editorial board said this arrangement "conveys a certain authoritarian odor," as it binds people to the United States with severe financial consequences for deciding to leave. 

Several countries have repealed their wealth taxes because of the numerous problems associated with them. In 1995, 15 countries had a wealth tax, 11 of which failed and were repealed. The countries that have repealed their wealth taxes are Sweden, Denmark, the Netherlands, Austria, Finland, France, Germany, Iceland, Luxembourg, Ireland, and Italy. In addition to cost of enforcement, which Austria cited specifically, and the difficulty of valuing assets, these countries also found that the tax was ineffective at combating wealth insecurity.

The wealth tax is also wholly unconstitutional. Article 1, Section 9, Clause 4 states: "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken."  

It is abundantly clear that a wealth tax is a direct tax. Federalist No. 36 explained that taxes on “houses and lands” were direct taxes. Supreme Court majorities have said on at least seven occasions that federal taxes on real property are “direct taxes.” With this condition in mind, it is also clear that Warren’s plan would not be apportioned based on state population, making it inconsistent with Article 1, Section 9.

Next, the wealth tax may become the next tax that begins by hitting “the rich” and ends up hitting far more people than originally intended. Congress enacted the Alternative Minimum Tax (AMT) in 1969 following the discovery that 155 people with adjusted gross income above $200,000 had paid zero federal income tax. The AMT grew so large that it was projected to tax nearly 30 million Americans (20 percent of filers) in 2010.

Additionally, the Spanish American War Tax imposed a 3% federal tax on long distance phone service in 1898. This tax was finally eliminated in 2006, after being imposed on countless Americans. Last, the personal income tax promised to be a tax on the wealthiest Americans. It began in 1913 with a top rate of 7% and hit those with a taxable income of over $500,000. Today, roughly half of American families pay the personal income tax.

While President Joe Biden has not yet endorsed the Warren wealth tax, this tax is clearly a priority for many on the Left. Senator Warren was the only Democrat added to the tax writing Senate Finance Committee this year and she has said this legislation to expand the IRS is one of her top priorities. Even so, President Biden will seek “significant increases in IRS enforcement and auditing,” according to Biden Council of Economic Advisers member Jared Bernstein.

The last time the Democrats were in power, the IRS wrongly used its authority to target and harass taxpayers, especially conservative non-profits.

Most notably, the Obama IRS was caught unfairly denying conservative groups non-profit status ahead of the 2012 election. 

Lois Lerner’s political beliefs led to tea party and conservative groups receiving disparate and unfair treatment when applying for non-profit status, according to a detailed report compiled by the Senate Finance Committee.

Because of Lerner’s bias, only one conservative political advocacy organization was granted tax exempt status over a period of more than three years:

“Due to the circuitous process implemented by Lerner, only one conservative political advocacy organization was granted tax-exempt status between February 2009 and May 2012. Lerner’s bias against these applicants unquestionably led to these delays, and is particularly evident when compared to the IRS’s treatment of other applications, discussed immediately below.”

Given that Senator Warren’s wealth tax would double the size of the IRS and could lead to tens of thousands of new IRS agents and auditors, the Lois Lerner scandal could be just the beginning.

Photo Credit: Gage Skidmore


ATR Leads Coalition Opposing a $15 Minimum Wage Tax

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Posted by Isabelle Morales on Monday, March 1st, 2021, 1:00 PM PERMALINK

Today Americans for Tax Reform submitted a letter along with 16 other organizations to the U.S. Senate in opposition to a $15 minimum wage tax.   

Recently, Senators Ron Wyden and Bernie Sanders proposed a tax on businesses that do not pay their workers a wage of $15 per hour. This came after the Senate Parliamentarian ruled against including a $15 minimum wage hike in the American Rescue Plan. 

Thankfully, Democrats abandoned this alternative plan yesterday. It is unlikely, though, that this is the last time this proposal will be brought up by Congressional Democrats. In this way, Americans for Tax Reform strongly opposes any and all efforts to tax businesses who do not pay their workers a wage of $15 per hour. 

This tax would likely have identical effects to a minimum wage increase. It would reduce jobs, increase automation, and crush small businesses. It is disappointing to see Democrats pushing such a radical, contractionary agenda, especially during an economic downturn when businesses are already struggling to stay afloat.

You can read the letter below.

March 1st, 2021

Dear Senator:

On behalf of millions of taxpayers across the country, we write to express our opposition to the proposal by Senate Finance Chairman Ron Wyden and Senate Budget Chairman Bernie Sanders to implement a tax on businesses that do not pay their workers a wage of $15 per hour.

According to press reports, Democrats have abandoned this job killing tax increase over concerns that it would be difficult to implement, easy to avoid, and deeply unpopular. This is welcome news.

As you know, the non-partisan Congressional Budget Office recently estimated that a $15 wage mandate would eliminate up to 2.7 million jobs. The decision to abandon this tax, as well as the recent ruling by the Senate parliamentarian that a national $15 minimum wage mandate does not comply with Senate budget reconciliation rules, is a relief to workers and small businesses who would have been harmed by efforts to double the minimum wage during a pandemic.

We remain deeply concerned by Democrat proposals to implement a massive tax hike on American employers that would kill jobs and harm the economy during a pandemic. If enacted into law, these types of proposals would also serve would also serve as a precedent to selectively target taxpayers based on any number of factors. Lawmakers should reject any effort to use the tax code to enact discriminatory or selective taxes.

Moving forward, we call on all members of Congress to reject both the overt efforts to implement job-killing national wage mandates, as well as any attempts to institute a backdoor national wage mandate by raising taxes on American businesses.

Sincerely,

Grover Norquist
President, Americans for Tax Reform

 

Brent Wm. Gardner
Chief Government Affairs Officer, Americans for Prosperity

 

Bethany Marcum
CEO, Alaska Policy Forum  

 

Andrew F. Quinlan 
President, Center for Freedom and Prosperity  

 

Ryan Ellis 
President, Center for a Free Economy  

 

Thomas A. Schatz 
President, Citizens Against Government Waste  

 

Chuck Muth 
President, Citizen Outreach  

 

David McIntosh
President, Club for Growth 

 

Michael Saltsman 
Managing Director, Employment Policies Institute  

 

Adam Brandon
President, FreedomWorks 

 

Carrie Lukas 
President, Independent Women's Forum 

 

Heather R. Higgins 
CEO, Independent Women's Voice 

 

Seton Motley
President, Less Government 

 

Brandon Arnold
Executive Vice President, National Taxpayers Union  

 

Tom Hebert
Executive Director, Open Competition Center  

 

James L. Martin
Founder/Chairman, 60 Plus Association

 

Saulius "Saul" Anuzis
President, 60 Plus Association

 

David Williams
President, Taxpayers Protection Alliance

 

Photo Credit: Pictures of Money


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