Tag: taxes

Written Testimony on the Illegal IRS Rule to Increase Taxes & Spending under Obamacare

The written testimony that Jonathan Adler and I submitted for the House Oversight Committee hearing on the Internal Revenue Service’s unlawful attempt to increase taxes and spending under Obamacare is now online. An excerpt:

Contrary to the clear language of the statute and congressional intent, this [IRS] rule issues tax credits in health insurance “exchanges” established by the federal government. It thus triggers a $2,000-per-employee tax on employers and appropriates billions of dollars to private health insurance companies in states with a federal Exchange, also contrary to the clear language of the statute and congressional intent. Since those illegal expenditures will exceed the revenues raised by the illegal tax on employers, this rule also increases the federal deficit by potentially hundreds of billions of dollars, again contrary to the clear language of the statute and congressional intent.

The rule is therefore illegal. It lacks any statutory authority. It is contrary to both the clear language of the PPACA and congressional intent. It cannot be justified on other legal grounds.

On balance, this rule is a large net tax increase. For every $2 of unauthorized tax reduction, it imposes $1 of unauthorized taxes on employers, and commits taxpayers to pay for $8 of unauthorized subsidies to private insurance companies. Because this rule imposes an illegal tax on employers and obligates taxpayers to pay for illegal appropriations, it is quite literally taxation without representation.

Three remedies exist. The IRS should rescind this rule before it takes effect in 2014. Alternatively, Congress and the president could stop it with a resolution of disapproval under the Congressional Review Act. Finally, since this rule imposes an illegal tax on employers in states that opt not to create a health insurance “exchange,” those employers and possibly those states could file suit to block this rule in federal court.

Requiring the IRS to operate within its statutory authority will not increase health insurance costs by a single penny. It will merely prevent the IRS from unlawfully shifting those costs to taxpayers.

Related: here is the video of my opening statement, and Adler’s and my forthcoming Health Matrix article, “Taxation without Representation: the Illegal IRS Rule to Expand Tax Credits under the PPACA.”

My Testimony on the Illegal IRS Rule Increasing Taxes & Spending under ObamaCare

Here is the video of my recent opening statement before a House Oversight Committee hearing on the IRS rule that Jonathan Adler and I write about in our forthcoming Health Matrix article, “Taxation without Representation: the Illegal IRS Rule to Expand Tax Credits under the PPACA.”

Please forgive the audio.

In addition, Pete Suderman writes that Adler and I “have jointly authored a long and quite convincing rebuttal to defenders of the IRS rule over at the journal Health Affairs. If they are right, it could be a fatal blow to the law.”

House Oversight Hearing on the IRS’s Illegal Rule Increasing Taxes & Spending under ObamaCare

Overall, this Tennessean article summarizes well yesterday’s House Oversight Committee hearing on the IRS rule that Jonathan Adler and I write about here and here. Unfortunately, the article does perpetuate the misleading idea that the nation’s new health care law is “missing” language to authorize tax credits in federally created Exchanges. (The statute isn’t missing anything. It language reads exactly as its authors wanted it to read.)

Excerpts:

Rep. Scott DesJarlais’ argument that the health-care reform law lacks wording needed to implement a crucial part of it took a major step forward Thursday.

The Jasper Republican got a hearing before the House Committee on Oversight and Government Reform on his claim that the Internal Revenue Service lacks authority to tax employers who fail to offer health policies and leave workers to buy coverage through federally established exchanges.

His arguments, while not uncontested during the hearing, apparently won over the committee chairman, Rep. Darrell Issa, R-Calif. Issa signed on Thursday as a co-sponsor of DesJarlais’ bill related to the issue. Other House Republican leaders also have shown interest, DesJarlais said in an interview afterward. He said he expects a vote on the House floor sometime this fall.

And a Senate version has been introduced by Sen. Ron Johnson, R-Wis…

DesJarlais contends that Congress worded the law in a way that authorizes the taxes and tax credits only for insurance bought through state-based exchanges, not federal ones…

The distinction is important because many states are balking at setting up their own exchanges. DesJarlais’ argument would mean federal exchanges couldn’t be implemented in those states, either…

“They have rewritten a law Congress haphazardly drafted,” DesJarlais said.

His bill, which has 35 cosponsors, would keep the IRS from moving forward with its regulatory language.

“I have employers watching this very closely,” DesJarlais added. Essentially, he said, the issue is “about whether ObamaCare can continue to exist.”

The Illegal IRS Rule to Increase Taxes & Spending under ObamaCare: Our Response to Timothy Jost

Jonathan Adler and I have a post at the at the Health Affairs blog where we respond to Timothy Jost’s critique of our working paper, “Taxation without Representation: the Illegal IRS Rule to Expand Tax Credits under the PPACA.” Jost has been our most tenacious (if not most consistent) critic.

Here’s an excerpt. Keep in mind that although we say “tax credits,” government spending accounts for about 80 percent of the money involved. Which is a lot: the cost of this illegal IRS rule could be in the hundreds of billions of dollars.

The dispute is over whether the [Patient Protection and Affordable Care] Act authorizes the IRS to provide tax credits only in Exchanges established by states (under Section 1311) or also in Exchanges established by the federal government (under Section 1321). Three facts are key to this dispute.

First, both sides acknowledge that the statutory language governing eligibility for tax credits is clear and unambiguous. The Act provides that taxpayers are eligible for tax credits if they purchase a health plan through “an Exchange established by the State under section 1311.” That language clearly authorizes tax credits only in state-established Exchanges, and the Act employs or refers to that language no less than six times when authorizing tax credits. There is no parallel language anywhere in the statute authorizing the IRS to offer tax credits through federal Exchanges established under Section 1321.

Second, there is nothing in the statute that conflicts with the plain meaning of that language. Indeed, the rest of the statute supports that plain meaning. Nor has anyone identified anything in the law’s legislative history that conflicts with that language. The only statement anyone has found on this point shows the statutory language was intentional. During congressional debate, the bill’s lead author, Senate Finance Committee chairman Max Baucus (D-MT), explained that the bill conditions tax credits on the establishment of a state-run Exchange.

Third, even though some members of Congress and the President might have preferred a law that authorized tax credits in federal Exchanges, they nevertheless enacted a law that did not. Many advocates of health care reform urged passage of the Senate bill even though there were parts of the bill they did not like, and knowing full well that not all defects could or would be fixed through the reconciliation process. Congress amended the sections of the Senate bill that authorize tax credits and cost-sharing subsidies a total of 12 times through the reconciliation process, but left the language limiting tax credits to state-established Exchanges undisturbed. Again, many of those amendments support the clear meaning of that language, and none of them conflict with it.

And yet, in late May the IRS finalized a rule that will issue tax credits—and therefore will trigger cost-sharing subsidies and employer-mandate penalties—through federal Exchanges, contrary to the plain language of the statute. It is our contention that this rule is illegal.

We invite everyone to read our working paper alongside Jost’s post, and our reply, and to decide for themselves whether the IRS is breaking the law.

You can also watch Jost and me testify before Congress on the IRS rule tomorrow at 9am ET in room 2154 of the Rayburn House Office Building.

States Resist ObamaCare Implementation, Oklahoma Edition

The Washington Post reports:

The Supreme Court may have declared that the government can order Americans to get health insurance, but that doesn’t mean they’re going to sign up.

Nowhere is that more evident than Oklahoma, a conservative state with an independent streak and a disdain for the strong arm of government…

When it comes to health insurance, the effort to sign people up isn’t likely to get much help from the state. Antipathy toward President Obama’s signature health-care overhaul runs so deep that when the federal government awarded Oklahoma a large grant to plan for the new law, the governor turned away the money — all $54 million of it.

The idea that the federal government will persuade reluctant people here to get insurance elicited head-shaking chuckles at Cattlemen’s Steakhouse…

But some in Oklahoma aren’t so sure the population here will be easy to persuade, especially if the state government continues to condemn “Obamacare.”

“If we’re not being cooperative and all the rhetoric is hostile, then that’s going to be a real barrier to providing information to people,” said David Blatt, director of the Oklahoma Policy Institute, a state policy think tank. “There’s a lot of important outreach that needs to happen before January 1, 2014, and it’s going to be extremely difficult to do that when you have state leaders standing there saying, ‘Over our dead bodies.’ ”

Resistance remains strong in other states as well, with some governors promising to opt out of parts of the law.

Wait until states find out that they can block ObamaCare’s employer mandate just by refusing to create an Exchange.

The Trouble with Zakaria’s Assessment of the Economy

Fareed Zakaria is a good journalist. But he’s also human. In his Washington Post column yesterday, Zakaria concludes that President Obama has a stronger case to make for his economic prescriptions than does Governor Romney. However, that conclusion—at least as presented in the column—is premised on a misreading of some recently published data.

Zakaria distills President Obama’s message down to the belief that investment in infrastructure, education, training, basic sciences, and technologies of the future are key to economic recovery, while Romney argues that relief from taxes and excessive regulatory burdens is the answer.

While both views have merit in Zakaria’s estimation, Obama has the stronger case. Why? Because Romney is barking about a relatively insignificant problem, concludes Zakaria:

We need a tax and regulatory structure that creates strong incentives for businesses to flourish. The thing is, we already have one.

To support that claim, Zakaria cites a figure from the 2011-12 edition of the World Economic Forum’s Global Competitiveness Report that ranks the United States 5th (out of 142 countries) and concludes that “whether compared with our own past—of, say, 30 years ago—or with other countries, the United States has become more business-friendly.” The problem is that he’s citing the wrong number and, thus, reaching the wrong conclusion.

The United States is ranked 5th on the overall global competitiveness index, which is a weighted value reflecting scores assigned for 12 broad criteria presumed to affect “competitiveness,” including: (1) institutions, (2) infrastructure, (3) macroeconomic environment, (4) health and primary education, (5) higher education and training, (6) goods market efficiency, (7) labor market efficiency, (8) financial market development, (9) technological readiness, (10) market size, (11) business sophistication, and (12) innovation.  U.S. scores on regulations and taxes contribute to that final ranking, but 5th is not where the United States ranks on those criteria.

To add another layer of complexity, the scores assigned to each of these 12 criteria are derived by weight-averaging the scores from individual survey questions. For example, there are 21 questions related to the first criteria, “institutions”—questions about property rights, public trust of politicians, judicial independence, transparency of government policymaking, etc. There are nine questions that feed into the infrastructure score; six that feed into the macroeconomic environment score, 16 that comprise the goods market efficiency score, and so on.

Zakaria errs by citing the overall, weighted average U.S. rank of 5th to support his assertion that we already have a tax and regulatory structure that creates strong incentives for business to flourish. That relatively high ranking reflects a few obvious U.S. advantages—tax and regulatory structure not being among them. The United States ranks fairly high with respect to some criteria, including “market size,” “university-industry collaboration in R&D” (which feeds into the innovation criterion), “strength of investor protection” (institutions), “availability of airline seats” (infrastructure), “inflation” (macroeconomic environment), “extent of marketing” (business sophistication), and a few others.

But on taxes and regulations, the U.S. ranks poorly. On the “Burden of Government Regulation,” the United States ranked 58th with a score of 3.4 on a scale from 0-to-7, slightly above the global average of 3.3. On the “Extent and Effect of Taxation,” the United States ranked 63rd out of 142 countries. On “Total Tax Rate, % Profits,” the United States came in 96th out of 142. On the issues that President Obama is pushing, the United States performs better than on those Romney advocates, which seriously weakens Zakaria’s argument.

The United States ranks 24th on quality of total infrastructure, better than on taxes and regulations. Likewise for “technological readiness” and “innovation.” “Higher education” (but not “job training”) generates bad scores for the United States, but clearly not for lack of spending. You can dig into the data here, and you’ll find that they tell a very different story than the one you may have read in yesterday’s Post.

Of course, Zakaria might still believe Obama has the stronger argument. But we should all be clear about the fact that regulations and taxes are real and growing problems, and that dismissing them as insignificant, even if inadvertent, doesn’t help policymakers find the solutions. Combine those impediments to investment and hiring with the growing perception that crony capitalism is on the rise (U.S. rank: 50th out of 142), that customs procedures present obstacles to global supply chains (rank: 58th of 142), that U.S. public debt weighs heavily on the economy (rank: 132th of 142), and that government spending is on a ruinous path (rank: 139th of 142 countries), and it becomes more apparent why an increasingly mobile business community often seeks the refuge and relatively warm embrace of foreign shores.