Tom Hebert

The Rise of IRS Injunction Suits Threatens Taxpayer Rights

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Posted by Alex Hendrie, Tom Hebert on Monday, June 10th, 2019, 9:34 AM PERMALINK

The Internal Revenue Service (IRS) has a history of harassing law-abiding taxpayers. Congress sought to address this through legislation in 1998, but problems have persisted.

More recently, the IRS, working with the Department of Justice, has increasingly turned to “injunction actions,” as a tool to go after taxpayers as noted in a recent report by Tax Notes.

The IRS has authority to launch an injunction action against a taxpayer under U.S. Code Section 7402(a). They are typically launched under one of two circumstances: cases involving tax preparers and cases involving suspected tax shelters. In recent years, the IRS has also used Section 7402 to seek disgorgement against taxpayers, which requires the defendant to turn over all money that they have made in conduct associated with the injunction claim.

Instances of disgorgement (and of Section 7402 in general) have skyrocketed in recent years – since 2015 there have been over 40 cases involving disgorgement, while there were just five between 1954 and 2014.

The agency’s increasingly aggressive use of Section 7402 lawsuits violates the pro-taxpayer reforms passed two decades ago. Section 7402 was little used until passage of the IRS Restructuring and Reform Act of 1998 (RRA), a landmark law which created important protections for taxpayers.

RRA was enacted with several pro-taxpayer provisions and curbed the IRS’ enforcement authority, created the Treasury Inspector General for Tax Administration, an independent watchdog office, and codified the Taxpayer Bill of Rights, a document that the IRS must send every taxpayer who faces an enforcement action.

The Taxpayer Bill of Rights guarantees a basic level of service to American taxpayers. For instance, taxpayers are guaranteed the right to be informed, the right to privacy, the right to challenge the IRS, and the right to not pay more money in taxes than you owe.

Section 7402 injunction lawsuits effectively allow the agency to disregard many of these rights. For instance, these lawsuits are searchable on the Justice Department’s website, subjecting taxpayers to public shaming and damaging their reputation   

The IRS has used its broad authority to file injunction suits in complex cases where it is unclear whether taxpayers are at fault. This was the case in United States v. Zak, where the government filed a complaint asking the court to block six defendants from promoting use of the conservation easement deduction. Without alleging any specific facts, the agency made a blanket claim that defendants impermissibly inflated the value of the deduction by overstating the value of donated easements. The government also seeks to confiscate via disgorgement any income the defendants made from facilitating conservation easement donations.  

To be clear, Section 7402 has legitimate uses. For instance, injunctions have been used against tax preparers that have committed clear fraud by claiming false deductions for unwitting taxpayers in an attempt to defraud the Treasury. However, its use should be limited in scope.

Alarmingly, the IRS has been using Section 7402 as an end run around enshrined taxpayer protections and using this provision to subject taxpayers to extensive litigation. Given the increasing use of this provision, it may be necessary for Congress to step in and reaffirm the congressional intent of RRA by updating the law to stop IRS abuse over taxpayers. 

Photo Credit: Martin Haesemeyer

Norquist: Mexico Tariffs Are Taxes on Americans

Posted by Tom Hebert on Friday, May 31st, 2019, 3:20 PM PERMALINK

The Trump administration has announced its intention to impose new tariffs against Mexico starting at 5 percent on June 10th and gradually rising to 25 percent by October 1st. 

These new tariffs will undermine the progress made toward passage of the United States-Mexico-Canada Trade Agreement (USMCA) and undercut the recent positive news that Section 232 steel and aluminum tariffs on Mexico and Canada were being lifted. 

These new tariffs will increase the price of top imports from Mexico, including cars, TVs, cell phones, medical instruments, and fresh produce. 

On CNBC’s Squawk on the Street this morning, Americans for Tax Reform President Grover Norquist told host Rick Santelli that the new tariffs are harmful to American consumers:

“Tariffs are taxes,” Norquist said. “They are taxes on American consumers and American producers who use imported products. We need to get those tariffs down as quickly as we can. I understand the President's using tariffs to try and get other countries to be more free trade. The sooner we can come to an agreement, the more certainty we have. And we can get those taxes off the American consumer.”

Trade is vital for America’s economy and employment – with more than 20 percent, or 41 million jobs in the U.S. directly tied to trade.  

While Trump is right to fight for secure borders, these new tariffs risk undercutting all the good his administration has achieved for the economy thus far, such as the Tax Cuts and Jobs Act.

These new tariffs also threaten to undermine passage of the USMCA, which updates NAFTA to include new automotive rules, new protections for intellectual property rights, and modernizing agricultural trade to benefit American farmers. A recent report shows that the USMCA would raise U.S. real GDP by $68.2 billion and create approximately 176,000 jobs. As Mexico moves toward ratification of the agreement, these new tariffs could torpedo the Trump trade deal.

If the Administration follows through on its threat to impose new tariffs, it would wipe out future economic growth and obliterate a generational chance for an updated NAFTA agreement. 

Sasse Wins Fight to Permanently Ban Earmarks

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Posted by Tom Hebert on Friday, May 24th, 2019, 2:05 PM PERMALINK

In a huge victory for American taxpayers, the Senate Republican conference Thursday adopted Senator Ben Sasse’s (R-Neb.) amendment to permanently ban earmarks in the 116th Congress and beyond. 

“Earmarks are the ‘broken windows’ of government overspending, the currency of Congressional corruption, and the price of bad votes for more spending,” said ATR President Grover Norquist. “Earmarks are used to buy the votes of congressmen who would never vote for the overall package standing alone, without a bribe.”

ATR has had a longstanding opposition to earmarks and pork barrel spending. Put simply, earmarks are spending programs that members of Congress hide in appropriation or authorization bills to “bring home the bacon” for their districts. This kind of frivolous spending is disrespectful to the taxpayers and a flagrant violation of Congressional duty to be careful stewards of public funds.

“It’s pretty simple: Earmarks are a crummy way to govern and they have no business in Congress,” said Sasse. “Backroom deals, kickbacks, and earmarks feed a culture of constant incumbency and that’s poisonous to healthy self-government.” 

Congress banned earmarks in 2011, but the moratorium expired at the beginning of the 116th Congress in January. Sasse’s amendment bans earmarks for all future Congresses. Without Sasse’s amendment, earmarks would have returned.


Photo Credit: Gage Skidmore

NAM Study Shows Dem Threat to Repeal Tax Cuts Will Devastate Manufacturers

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Posted by Tom Hebert on Wednesday, May 22nd, 2019, 3:08 PM PERMALINK

Democrat 2020 frontrunner Joe Biden is calling for a repeal of the Tax Cuts and Jobs Act. A survey released by the National Association of Manufacturers (NAM) shows such a repeal would be a massive blow to manufacturing jobs, wages, and investments.

According to NAM’s Manufacturers’ Outlook Survey from Q1 of 2019, if the tax cuts were repealed:

  • 66 percent of manufacturers would have to scale back investment in the United States.
  • 62 percent of manufacturers said that they would scale back projected wage increases and bonuses.
  • 54 percent of manufacturers said they would cut back on hiring entirely

Small manufacturers have benefited greatly from the 20 percent passthrough deduction, and would be greatest hit if the tax law were repealed.

In 2018, NAM found that manufacturing confidence and job growth hit record-highs.

The survey also showed that 89.5 percent of manufacturers are optimistic about their company’s outlook. This optimism continues a record-high streak averaging 91.8 percent spanning the past 9 quarters.

NAM’s survey also forecasts that:

  • Employee wages will continue to rise 2.3 percent over the next 12 months.
  • Full time employment will increase 2.1 percent over the next 12 months, suggesting a tight labor market.
  • Capital investments will rise 2.8 percent over the next 12 months.

The NAM Shop Floor blog is an excellent resource documenting examples of how the Tax Cuts and Jobs Act has helped manufacturers of all sizes.

The effects of the tax reform bill are being felt all across the economy. In April, the economy added 263,000 jobs, and unemployment is at a 50-year low of 3.6 percent. Over the past year, the economy has added an average of 218,000 jobs per month. Families all across the country are seeing direct tax reduction — on net, households are paying an average of 24.9 percent in lower taxes according to a report released by H&R Block based on their clients’ tax returns.

Biden fashions himself a champion of manufacturing, yet remains obsessed with repealing the very tax cuts which helped revive manufacturing in the United States.


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Photo Credit: Adam - Flickr

Trump Reaches Deal with Mexico & Canada to End Tariffs

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Posted by Tom Hebert on Tuesday, May 21st, 2019, 1:38 PM PERMALINK

President Trump recently announced a deal with Mexico and Canada to remove steel and aluminum tariffs on imports and remove retaliatory tariffs imposed on American businesses. This is a big win for American workers and paves the way for swift ratification of the president’s United States-Mexico-Canada Agreement (USMCA).

Ending the 25 percent tariff on steel and the 10 percent tariff on aluminum from Mexico and Canada will have broad, positive effects. On net, the tariffs impacted over $400 billion of traded goods on an annual basis. According to a report released by the American Action Forum, steel tariffs increased imported steel costs by $5.8 billion, and aluminum tariffs increased imported aluminum costs by $1.7 billion.

Retaliatory action by Mexico has adversely impacted the cost of American exports by $3.7 billion. Furthermore, Canadian retaliatory action has adversely impacted the cost of American exports by $16.6 billion. 

Trump has been steadfast in his desire to renegotiate trade deals for the benefit of American workers and businesses and the end of these tariffs should pave the way for approval of the USMCA. 

The USMCA updates NAFTA to include new automotive rules, new protections for intellectual property rights, and modernizing agricultural trade to benefit American farmers.

A recent report shows that the USCMA would raise U.S. real GDP by $68.2 billion and create approximately 176,000 American jobs. 

The USMCA would increase U.S exports to Canada by $19.1 billion, and increase U.S. exports to Mexico by $14.2 billion. Under the new agreement, U.S. imports from Canada are projected to increase by $19.1 billion, and U.S. imports from Mexico are projected to increase by $12.4 billion. The report estimates that the USMCA would have a positive impact on all U.S. industry sectors, with the manufacturing and services sectors experiencing the most gains. 

The trade deal would also be a boon for the automotive industry. The Office of the United States Trade Representative estimates that USCMA ratification would add $34 billionin new automotive manufacturing investment, $23 billion in new annual purchases of U.S. automotive parts, and 76,000 jobs in the next five years. 

If implemented, the USMCA would contribute to already robust economic growth. 

In April, the economy added 263,000 jobs, and unemployment is at a 50-year low of 3.6 percent. Over the past year, the economy has added an average of 218,000 jobs per month, and unemployment for key demographics are at all-time lows. Families all across the country are seeing direct tax reduction — on net, households are paying an average of 24.9 percent in lower taxes according to a report released by H&R Block based on their clients’ tax returns. 

Trump’s removal of tariffs on Mexico and Canada is a huge win for American workers. Now, it is time for Congressional Democrats to work with Republicans in a bipartisan fashion to ratify USCMA.

Photo Credit: Gage Skidmore

Binding Arbitration for Medicare Would Establish Backdoor Price Controls

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Posted by Tom Hebert on Friday, May 17th, 2019, 9:00 AM PERMALINK

Recent media reports indicate that a top aide to Speaker Nancy Pelosi (D-Calif.) wants to impose binding arbitration into the healthcare system as part of drug pricing reform.

This proposal would specifically apply a dispute settlement process to physician-administered drugs under Medicare Part B but could easily be applied to other parts of the healthcare system.

Binding arbitration is a flawed proposal. While there are many unknowns behind how the proposal would work in practice, it should be concerning as it would be another way for Washington bureaucrats to implement backdoor price controls on lifesaving medicine. 

Binding arbitration would be used to settle disputes between two different parties without going through the court system. Each party appeals to a neutral third party that considers the options and chooses one of them as the binding decision.

Under this proposal,  binding arbitration would apply when a subjective value of a drug is exceeded, for new drugs entering the market, and for drugs with no competition. HHS would pick a supposedly neutral third party to arbitrate between the department and the drug manufacturer.

This arrangement creates a critical problem — why would HHS pick panels that routinely rule against the department in arbitration? This would lead to selection bias which would all but ensure that HHS would be able to establish price controls on lifesaving medicine.

Binding arbitration resembles Obamacare’s Independent Payment Advisory Board (IPAB), which instituted price controls and rationing within the Medicare system. Thankfully, Congressional Republicans repealed the IPAB.

Currently, Medicare Part B drugs are calculated based on market prices using a formula which calculates the “Average Sales Price” of U.S. drugs. This formula factors in discounts negotiated between payers, hospitals, and health plans. In recent years, this system led to a 0.8 percent decrease in the cost of Top 50 Medicare Part B drugs. 

Using government power to lower prescription drug costs would have the unfortunate effect of reducing access to lifesaving medicine for American healthcare consumers.

Price controls reduce access to lifesaving medicine for patients. As noted in a recent study by the Galen Institute, roughly 290 new medical substances were launched worldwide between 2011 and 2018. Of these medicines, the U.S. had access to 90 percent. In contrast, foreign countries have access to far fewer. The United Kingdom had 60 percent of medicines, Japan had 50 percent, and Canada had just 44 percent.

The United States is a world leader in research and development of lifesaving medicine because our healthcare system is based around the free market. Rejecting price controls in all forms is essential to maintaining a healthcare system that encourages innovation and near-total access to lifesaving medicine.

While binding arbitration may sound like a reasonable proposal, it would actually put healthcare policy in the hands of faceless Washington bureaucrats and should be rejected by policymakers.

Photo Credit: Flickr

Return-Free Tax Filing Would Be a Disaster

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Posted by Tom Hebert on Friday, May 10th, 2019, 11:44 AM PERMALINK

Tax season is inherently stressful for Americans across the country because of the extensive complexity and compliance requirements of the tax code.

Senator Bernie Sanders (I — Vt.), Senator Elizabeth Warren (D — Mass.), and Representative Alexandria Ocasio-Cortez (D — N.Y.) want to solve this problem by giving the IRS the power to file your taxes for you. This massive expansion of government would be a disaster if implemented in the U.S as noted in a new report from the Bipartisan Policy Center. 

Return-free tax filing would require a dramatic overhaul of the tax code that could increase taxes on middle and low-income families all across the U.S. 

Under this system, the IRS would also have a perverse incentive to overcharge taxpayers and withhold information as the agency would calculate how much you owe in taxes, and then give you the opportunity to contest.

As noted by the BPC report, countries that use return-free filing have tax codes vastly different than the U.S. For instance, these countries: 

  • Apply something close to a flat marginal tax rate on most taxpayers
  • Tax individuals as opposed to households or couples
  • Little to no taxes on capital gains
  • Few deductions, exemptions, and exclusions

In order to make return-free filing work in the U.S., Congress would have to repeal widely-used deductions and credits like the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). 

Both provisions are inherently complex and taxpayers would be required to provide detailed information to the IRS in order for them to properly administer the provisions. 

Return-free filing has been tried in California, and it was an abject failure. Only 3 percent of taxpayers used the system, and its total participants topped out at 90,000 filers. Giving the government the power to file taxes is also broadly unpopular with taxpayers.

Return-free filing is also wildly unpopular. A recent poll shows that:

  • 60 percent of taxpayers oppose letting the government file their taxes
  • 72 percent of taxpayers thought the IRS would make mistakes when calculating tax returns.
  • 82 percent of taxpayers said they would feel comfortable rejecting the IRS-prepared return and preparing their own return.
  • 64 percent of taxpayers believed that the IRS did not have the necessary personal and financial information to calculate an accurate return.
  • 68 percent of taxpayers said that they would not trust the government to produce “accurate and fair” tax returns.

Despite what Democrats are saying, giving the government the power to file your taxes would raise taxes on the middle class, has failed spectacularly in California, and is broadly unpopular. Congress should reject any attempt to move towards a return-free filing system.


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ATR Supports H.R. 2505, the “Unauthorized Spending Accountability Act of 2019”

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Posted by Tom Hebert on Friday, May 3rd, 2019, 11:08 AM PERMALINK

Rep. Cathy McMorris Rodgers (R-Wash.) has introduced H.R. 2505, the “Unauthorized Spending Accountability (USA) Act,” a bill that would empower Congress to shrink the size and scope of the federal government. Americans for Tax Reform supports this legislation and urges its passage. 

Congress establishes federal programs via authorization bills. These programs can be authorized to operate for a specific period of time or indefinitely. After the programs are established, Congress then authorizes the appropriation of money to fund the programs. 

Congress routinely appropriates money to programs that are no longer authorized. According to the Congressional Budget Office (CBO), Congress appropriated $340.7 billion to 261 programs or activities with expired authorizations in Fiscal Year 2018. 

H.R. 2505 would defund these zombie programs by putting all unauthorized programs on a pathway to sunset in 3 years. After the first year, an unauthorized program’s budget is reduced by 10 percent. In the second and third year, its budget decreases by 15 percent until sunsetting at the end of the third year. If Congress decides to reauthorize the program during this three-year period, the program ceases to sunset and remains fully funded. 

H.R. 2505 also establishes a Spending Accountability Commission (SAC) with three main objectives: establishing an authorization schedule of all discretionary programs, conducting reviews of all mandatory spending programs, and assisting Congress in finding prudent spending cuts to mandatory programs. The SAC would be responsible for maintaining a three-year schedule for discretionary federal programs, and would offer proposed cuts in mandatory spending in the event Congress cannot agree on reauthorizing a program. 

If implemented, H.R. 2505 would establish a three-year reauthorization cycle for all discretionary programs. At the end of the three-year period, the sunset and sequestration cycle would begin if the program is not reauthorized. If Congress wishes to override the sequester, it must agree to mandatory spending cuts as reported by the SAC. 

With the national debt at over $22 trillion and counting, Congress must work on streamlining and reducing government spending as much as possible. While Democrats control the House of Representatives, relying on Congress to reduce spending in and of itself is a difficult proposition, which is why an automatic sunset and sequestration period for unauthorized programs is necessary. H.R. 2505 is an important piece of taxpayer-friendly legislation that sets Congress back on a path of fiscal accountability. Congress should swiftly pass it, and President Trump should sign it into law. 


Photo Credit: Gage Skidmore

Unemployment Rate Hits 50-Year Low

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Posted by Tom Hebert on Friday, May 3rd, 2019, 10:31 AM PERMALINK

The U.S. economy added 263,000 jobs in April and unemployment is at just 3.6 percent, a 50 year low. Wage growth is also strong – average hourly earnings have grown 3.2 percent over the past year.

This latest news, released by the Department of Labor, shows that the Trump tax cuts and Republican regulatory relief are continuing to have positive effects on the U.S. economy.

Unemployment has been at or below 4 percent for the past 14 months, and the economy has added an average of 218,000 jobs per month over the past year.

Key demographics are also seeing record levels of unemployment:

  • Unemployment for adult women is at 3.1 percent, a 66 year low.
  • Unemployment for Hispanics is at 4.2 percent – the lowest rate since this data was first collected in 1973.
  • Unemployment for veterans is at 2.3 percent, a 19 year low.

The labor force participation rate remained steady at 62.8 percent, a stark contrast to the 40-year lows the labor force participation rate hit under the Obama Administration.

This April Jobs report is just the latest proof that the Trump economy is strong.

GDP grew by 3.2 percent in the first quarter of 2019 and has averaged 3 percent quarter-to-quarter growth since the Tax Cuts and Jobs Act was passed into law.

Businesses have responded to the tax cuts by giving employees higher wages and creating new employee benefit programs, while utility companies are passing tax savings onto consumers in the form of lower rates.

Families are also seeing direct tax reduction – a family of four with annual income of $73,000 (median family income) will see a tax cut of more than $2,058, a 58 percent reduction in federal taxes. In net, households are paying an average of 24.9 percent in lower taxes according to a report released by H&R Block based on their clients’ tax returns. 

While the Democrats continue to downplay or mislead the American public on the positive economic news, the April jobs report again shows that the economy is strong and that the Republican Tax Cuts and Jobs Act is benefiting the working class with higher wages and more job opportunities.

Photo Credit: Gage Skidmore

RSC Budget Reforms Entitlements, Fixes Healthcare System

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Posted by Tom Hebert on Thursday, May 2nd, 2019, 3:27 PM PERMALINK

The Republican Study Committee Budget,  “Preserving American Freedom,” contains numerous reforms that would reform our federal welfare system, stop Medicare and Social Security from becoming insolvent, and fix our broken healthcare system.

The budget, proposed by RSC Chairman Mike Johnson (R-La.) and RSC Budget and Spending Task Force Chairman Jim Banks (R-IN), provides a stark contrast to the House Democrats that didn’t even release a budget this year.

Fixing Welfare and Enabling Upward Mobility

By any objective measure, the federal government’s decades-long war on poverty has failed. President Lyndon Johnson’s Great Society programs have done very little to help people escape the vicious cycle of poverty. Since 1965 when these programs were created, the government has spent $27.8 trillion. Throwing money at the problem has clearly not worked, yet in many instances, the programs actively thwart the upward mobility necessary for individuals and families to break out of poverty.

The RSC budget contains numerous substantive changes to the welfare system in order to promote upward mobility. For example:

  • The RSC budget would strengthen federal welfare programs with work requirements that would help Americans move away from dependence and toward self-sufficiency.
  • The RSC budget includes important reforms that would modernize the Supplemental Nutrition Assistance Program (SNAP) for future recipients. The cost of SNAP is growing and its efficacy is dwindling. The RSC budget would distribute funds to states based on a formula that accounts for factors such as poverty and unemployment. States would then have the flexibility to administer their own programs at optimal efficiency and subject to several federal requirements. The budget would also implement asset tests for SNAP recipients to ensure the program is benefiting the truly needy.
  • The RSC budget contains a number of different reforms to the Temporary Assistance for Needy Families (TANF) program. The budget strengthens work requirements, requires states to actually use TANF funds for TANF instead of plugging holes in the state budget, and adopts Rep. Kevin Brady’s important Jobs for Success Act, which ATR has praised here.

Saving Social Security

Social Security is on a fast track to bankruptcy. According to a recent report by the Social Security Trustees, the Social Security Old-Age and Survivors Insurance (OASI) Trust Fund will be out of money by 2035. Upon depletion, recipients will face an automatic benefit cut of 25 percent that will only increase over time.

The RSC budget contains numerous reforms that would keep Social Security solvent for future generations. For example:

  • The budget gradually phases in an adjustment of the retirement age to reflect increased life expectancy. In order to protect the solvency of the program, the budget would increase the retirement age at three months per year until it hits 69 for those turning 62 in 2030. The budget will also link the normal and early retirement ages to life expectancy so the program does not fall off track in the future.
  • The budget would focus the Social Security cost of living adjustment (COLA) on beneficiaries who need it most.
  • The budget modernizes the formula Social Security uses to calculate retirement benefits so that low-income workers receive higher retirement benefits than they do in the current law.
  • The budget removes perverse incentives that discourage active seniors from remaining in the workforce as they collect benefits.

Reforming Medicare

Medicare is unsustainable in its current form as the population ages. More than 10,000 Americans reach retirement age every day which will add to the 60 million Americans currently covered. 

Modernizing Medicare for the benefit of future generations is key and the RSC budget contains numerous reforms. For example:

  • The RSC budget would transition all of Medicare to a flexible health insurance program that federal employees enjoy. According to CBO scoring, this new system would lower beneficiary premiums by 7 percent.
  • In order to ensure the solvency of the program for future generations, the budget gradually phases in a premium increase so that the contributions of senior citizens are equivalent to taxpayer contributions. The budget also adjusts the age of eligibility to bring the program in line with current life expectancy rates.
  • The budget improves patient freedom by allowing seniors enrolled in Medicare Parts A and B to contribute to Health Savings Accounts (HSAs). This budget also allows seniors to keep their Social Security benefits if they keep their private insurance and opt out of Part A.

Repealing Obamacare and Fixing Healthcare

For far too long, Washington bureaucrats have had undue influence on the healthcare system. The RSC budget contains numerous reforms that bring healthcare choices back to patients, states, and doctors, saving taxpayers $3 trillion over ten years. For example:

  • The RSC budget expands Health Savings Accounts (HSA) so that healthcare consumers have greater flexibility and better control over their healthcare spending.
  • By any measure, Obamacare has been disastrous for the American people. Premiums have doubled in the past six years and healthcare choices are dwindling for families all across the country. The RSC budget fully repeals Obamacare and all of its tax hikes on the American people. This would save $1.3 trillion in taxpayer money over the next decade, and return critical healthcare decisions to patients and their doctors.
  • The budget creates new block grants out of Medicaid and the Children’s Health Insurance Program (CHIP) in order to give states increased flexibility. The budget expands CHIP eligibility by removing the income floor so that states can help all children in low-income families. These new grants would allow states to cover the four core groups that Medicare is supposed to cover. A flex grant would also be available to subsidize the care of the remaining population.

Photo Credit: GotCredit