Tax Reform Toolkit

Over the past few decades, the U.S. tax code has become a significant obstacle to economic growth, job creation and higher wages for American workers.

President Donald Trump, Speaker Paul Ryan and Senate Majority Leader Mitch McConnell made it clear before the November 2016 election that pro-growth tax reform would be a major legislative priority for Republicans in 2017 if they were given the chance to govern. Now that the American people gave Republicans control of the House, Senate and White House, there is a real opportunity to achieve comprehensive, pro-growth tax reform.

A rewrite of the tax code couldn’t come soon enough. It has been far too long since Congress made major updates to the tax code. In fact, the last major reform of our nation’s tax code was under the Reagan administration in 1986, and every major effort since then has failed. After three decades of no major changes to the tax code and a stagnant economy, the time for tax reform is now.

Key Talking Points:

Our tax code currently:

  • Suppresses American business creation and growth. Our high corporate tax rate is a problem for American businesses. The U.S. corporate tax rate of 39.1 percent is the highest rate in the world and reduces domestic investment.  
  • Is far too complex for the average citizen. The individual tax system is a problem for families. In 1913, the tax code was a reasonable 400 pages long, but by 2013 it grew to over 74,000 pages. Americans spend nearly 9 billion hours complying with the tax code every year.
  • Is full of special interests. Pervasive cronyism in our tax code hurts entrepreneurs and consumers. Over decades, Congress has enacted policies that manipulate the marketplace to benefit certain business or industries.

Accordingly, tax reform should include the following principles:

  • Lower and simplify individual tax rates. Tax reforms should aim to improve the simplicity and transparency of paying taxes. Lowering overall rates will allow families and hard working Americans to keep more of their earnings.
  • Lower the corporate tax rate. Congress should lower the corporate tax rate to encourage growth and investment.
  • Permit tax free entrepreneurship: Businesses should be permitted to deduct the full cost of their capital expenses when they incur them, known as expensing, rather than over many years using cumbersome depreciation schedules currently in effect.
  • Establish a territorial tax system. High U.S. tax rates reduce domestic investment by both U.S. headquartered business and foreign businesses, stifling job creation and wage growth.
  • End cronyism. Tax reform should explicitly seek to abolish policies that Congress intended to benefit particular industries or particular groups.

(Make sure to insert the Twitter handle of your Representative)

  • Click to tweet: @MEMBER it’s time for Congress to pass #ProGrowth policies and #TaxReform that allows America to prosper
  • Click to tweet: @MEMBER Americans need #taxreform that levels the playing field and ends special interest handouts. #ProGrowth
  • Click to tweet: @MEMBER tax laws should not favor the well-connected over hard-working taxpayers #TaxReform
  • Click to tweet: @MEMBER our high U.S. corporate tax rates are making American companies uncompetitive. #TaxReform should lower rates.
  • Click to tweet: @MEMBER #ProGrowth #TaxReform should stand up to special interests and serve American taxpayers

General Tweets:

  • Click to tweet: It’s been too long since Congress passed meaningful #TaxReform. The time is now to push forward #ProGrowth policies
  • Click to tweet: #TaxReform could bring back more than $2.6 trillion in profits currently locked out of the U.S.
  • Click to tweet: #ProGrowth #TaxReform would encourage new business investment, job creation and wage growth
  • Click to tweet: Americans spend nearly 9 billion hours complying with the tax code every year, we need to simplify tax code #TaxReform
  • Click to tweet: True #TaxReform must be fair for all hardworking Americans. No more special interest handouts!

These are notes to use when calling your member of Congress. You can find their phone number on the Heritage Action Dashboard.

Hi, I’m [NAME] from [STATE].

It is my understanding that Congress is expected to consider tax reform legislation in the coming months. This effort is long overdue and presents a real opportunity to rewrite tax laws that are currently holding American business back, allowing IRS bureaucrats to pick ‘winners and losers,’ and enabling cronyism to pervade Washington.

Americans should not be burdened to comply with a tax code that is far too complex for the average citizen. By the same token, it is unacceptable that the tax code has been deliberately made more complex by lobbyists to benefit big business, big labor, and big government interests.

America needs tax reform. Reform should provide common sense solutions to the problems facing individual Americans – studies show that Americans spend nearly 9 billion hours complying with the tax code every year, costing our economy over $400 billion in foregone economic growth.

More importantly, business tax reforms are necessary to grow the economy and spur job creation – at an average of 39.1 percent, the U.S. corporate tax rate is the highest in the industrialized world. This rate, combined with the inability of businesses to fully deduct their cost of new capital investment, makes American companies uncompetitive with their foreign counterparts.  

Please tell the Congressman to be aware of these issues when reforming the tax code. Above all, I expect Congressman [NAME] to stand up to special interests and serve American taxpayers and [his/her] constituents. It is time to reform outdated tax laws with a principled approach – to end cronyism, simply our tax code, and support American business with pro-growth policies.

Below is a sample letter to the editor. We encourage you to adapt and personalize the letter below. Heritage Action Regional Coordinators are always here to help edit your letter and get it published.

Congressman [X],

Today, we have an anti-growth, complex and out-of-date tax code. President Donald Trump, Speaker Paul Ryan and Senate Majority Leader Mitch McConnell made it clear before the November 2016 election that pro-growth tax reform would be a major legislative priority for Republicans in 2017 if they were given the chance to govern.  

Our tax code currently suppresses American business growth, is far too complex for the average citizen, and is full of cronyism. Accordingly, I encourage [you] to stick to the following principles on tax reform: lower and simplify individual tax rates, lower the corporate tax rate, permit “full expensing,” establish a territorial tax system, and end cronyism.

The American people gave Republicans control of the House, Senate and White House, and there is a real opportunity to achieve comprehensive, pro-growth tax reform. Congress can use this as an opportunity to pair tax reform with spending cuts in order to comply with the rules of budget reconciliation and maximize the economic benefits of tax reform. After all, the federal government has a spending problem, not a revenue problem.

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The Need for Pro-Growth Tax Reform

Background: President Donald Trump, Speaker Paul Ryan and Senate Majority Leader Mitch McConnell made it clear before the November 2016 election that pro-growth tax reform would be a major legislative priority for Republicans in 2017 if they were given the chance to govern. Now that the American people gave Republicans control of the House, Senate and White House, there is a real opportunity to achieve comprehensive, pro-growth tax reform. A rewrite of the tax code couldn’t come soon enough. It has been far too long since Congress made major updates to the tax code. In fact, the last major reform of our nation’s tax code was under the Reagan administration in 1986, and every major effort since then has failed. After three decades of no major changes to the tax code and a stagnant economy, the time for tax reform is now.

Problem: Over the past few decades, the U.S. tax code has become a significant obstacle to economic growth, job creation and higher wages for American workers. This is due to a number of reasons.

1.)    Our tax code suppresses business creation, expansion and reinvestment here in America due to high rates, double taxation, and how foreign profits are taxed. At an average of 39.1 percent, the U.S. corporate tax rate is the highest in the industrialized world making Americans companies uncompetitive with their foreign counterparts. Small businesses, who mostly file taxes through the individual income tax code as pass-through entities, also have a difficult time competing as they experience an average top marginal income tax rate of 47.2 percent. High tax rates encourage businesses to raise prices, decrease wages for workers, or even leave the country altogether.

If this wasn’t enough, the tax code inherently punishes saving and investment, the lifeblood of economic growth. Income that is saved or invested is often taxed two, three, or more times. The same dollar can be hit by individual income taxes, again by the corporate income tax, and yet again by the capital gains and dividends tax. After all this, before your family can inherit your small business or farm, the government levies a final death tax. These forms of double taxation discourage saving and investment, the most essential components of economic growth.

In addition, the U.S. is one of a very few countries that operate under a worldwide tax system rather than a territorial one. This means domestic companies are double taxed on profits they earn overseas – once by the foreign country they earn profits in, and once again when they bring those profits back to the U.S. This system encourages domestic companies to keep their profits out of the country, preventing more than $2.6 trillion in profit from being reinvested here at home.

2.)    Our tax code is far too complex for the average citizen. In 1913, the tax code was a reasonable 400 pages long, but by 2013 it grew to over 74,000 pages. Americans spend nearly 9 billion hours complying with the tax code every year costing our economy over $400 billion in foregone economic growth. The complexity of the tax code allows individuals and businesses with the best lawyers and accountants to game the system and pay the least amount of taxes possible.

3.)    Our tax system is full of cronyism that allows a few well-connected actors to game the system over hard-working taxpayers. The combination of tax credits, deductions and carve outs littered throughout the tax code due to special interest lobbying allow the most powerful and established individuals and businesses to pay low taxes while suppressing their competition.

Solution: Congress must pass comprehensive, pro-growth tax reform that lowers rates for individuals and businesses, simplifies the tax code, ends cronyism, and encourages domestic business creation, expansion, and investment. To do this, tax reform should include the following principles:

1.)    Lower and simplify individual tax rates: This can be accomplished by increasing the standard deduction for low-income earners and lowering rates for high-income earners and small businesses that use the individual code. The current standard deduction, which is the fixed amount of income not taxable, is $6,350 for an individual and $12,700 for a married couple. Lowering and simplifying rates will allow hard-working taxpayers to keep more of their money while encouraging small business owners to expand their companies and create more jobs.

2.)    Lower the corporate tax rate: Taxes on businesses should be cut as much as possible to encourage job creation and higher wages for workers who end up paying more than 70 percent of all business taxes through lower wages. The federal corporate tax rate is 35 percent plus the state corporate income tax rate. The average U.S. combined federal and state rate is the highest among developed countries and is making American companies uncompetitive.

3.)    Permit tax free entrepreneurship: Allow all businesses to deduct the full cost of capital investments from their taxable income, replacing the current system of depreciation, a convoluted multi-year accounting system that only allows a partial deduction. Full expensing would encourage new business investment, job creation and wage growth.

4.)    Establish a territorial tax system: A territorial tax system only taxes U.S. companies on the profits they earn in America. This will encourage foreign business investment here in America and help bring back more than $2.6 trillion in profits currently locked out of the U.S. by our broken and outdated tax system.

5.)    End cronyism: This includes all the special interest handouts, tax credits, deductions, and exemptions in exchange for lower tax rates across the board. For businesses this includes getting rid of tax subsidies to green energy, special economic development zones, nuclear power, and every other preference in the tax code. For individuals, tax reform should remove as many special deductions and exemptions as possible, including the state and local tax deduction which subsidizes high tax states at the expense of fiscally responsible states. Removing tax preferences must be paired with lower rates, so average Americans receive a tax cut.

According to recent analysis, this kind of pro-growth tax reform has the potential to grow the economy by 10 percent over the next 10 years and increase the average American family’s wages by more than 7 percent or about $4,000 for someone earning $50,000 a year.

Conclusion: In order to bypass a Democrat-led filibuster in the Senate, Republicans intend to use a powerful tool called budget reconciliation to pass tax reform. While this path allows Congress to fast-track tax reform in the Senate, it prohibits the consideration of legislation that increases the federal deficit outside the adopted budget window. Although somewhat restrictive, Congress can use this as an opportunity to pair tax reform with spending cuts in order to comply with the rules of budget reconciliation and maximize the economic benefits of tax reform. After all, the federal government has a spending problem, not a revenue problem. Federal revenues are expected to rise to 20 percent of the economy by 2021, a dangerous level seen only once since the end of World War II. Reducing federal spending alongside tax reform would ensure tax reform is permanent; whereas simply cutting taxes through the budget reconciliation process would result in the expiration of those tax cuts in 10 years. Regardless of the approach taken, by enacting pro-growth tax reform Republicans can fulfill their promise to create jobs, increase wages, and restore our stagnant economy back to sustainable long-term growth.

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End the Obamacare Exemption for Congress

Background: Back in 2013, the Obama administration’s Office of Personnel Management (OPM) exempted members of Congress and their staff from the full burden of Obamacare by letting them enroll in the D.C. small business exchange to receive taxpayer subsidized plans, even though a small business was defined as fewer than 50 employees. Now, as millions of Americans continue to watch their health insurance premiums increase, members of Congress and their staffs remain exempt from the rising costs.

Problem: Indicative of the lawlessness of the Obama administration, Congress actually pleaded behind closed doors for the president to grant them a special exemption. Although Obamacare was signed into law in 2010, its provisions that pertain to Congress were phased in years later — just when Obamacare was starting to unravel. With their personal interest now at stake, members took a closer look at what the law required of them. A Heritage Foundation legal memoexplained at the time:

“One such provision is Section 1312(d)(3)(D), which reads: ‘Notwithstanding any other provision of law … the only health plans that the Federal Government may make available to Members of Congress and congressional staff … shall be health plans that are … created under this Act … or … offered through an Exchange established under this Act….’. Under this provision, it is clear that Members of Congress and their staff should lose their current employer-sponsored health insurance program.”

Members and their staff were initially required to opt-into Obamacare; however, President Obama’s OPM stepped in at the last minute to grant a taxpayer subsidized exemption — by redefining Congress to qualify as a “small business” under a separate part of the law. Heritage
Action explained in a coalition letter:

“Obama directed OPM to issue a rule purporting that Congress, which has thousands of employees, is a small business and therefore: ‘the DC Health Link Small Business Market administered by the DC Health Benefit Exchange Authority, is the appropriate SHOP from which Members of Congress and designated congressional staff will purchase health insurance in order to receive a Government contribution.’”

This maneuvering is the exact problem in Washington, D.C. — premiums double for the American people and Congress illegally forces taxpayers to subsidize their premiums.

Solution: Fortunately, just as the Obama administration’s OPM unilaterally established the Congressional exemption, so also can the Trump administration’s OPM rescind the rule. A coalition of conservative groups, including Heritage Action, sent a letter to President Trump on July 21, 2017, urging the President to take this step. Weeks later, the Senate essentially abandoned its effort to repeal and replace Obamacare.

If the Republican-controlled Senate cannot deliver on their promise to repeal and replace Obamacare, President Trump should subject Congress to the full brunt of the law until they do so. Trump should unilaterally undo Obama’s illegal exemption, requiring members of Congress to live under the law it forced onto the American people. Facing the reality of double-digit premium increases, Congress may feel pressure to come back to the negotiating table and follow through on years of promises to finally end the Obamacare nightmare.

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No More Obamacare Bailouts

Background: In an effort to win the support of health insurance companies during the debate over Obamacare in 2009, three health insurer bailout provisions were written into the bill to compensate health insurance companies for insuring high-cost consumers in the Obamacare state exchanges. These three bailout provisions include risk corridors, reinsurance and cost-sharing reduction subsidies. Combined, these could cost taxpayers $170 billion over the next decade. The risk corridor and reinsurance provisions expired last year, while cost-sharing reduction subsidies are currently in flux.

Cost-Sharing Reduction Subsidies: This third Obamacare bailout provision uses taxpayer dollars to subsidize health insurance deductibles and co-payments for plans bought by households with incomes less than 250 percent of the federal poverty line. While Obamacare intended to create cost-sharing reduction subsidies, the bill text does not include language funding the subsidies. However, the Obama administration ignored the plain reading of the law and paid for the subsidies using taxpayer dollars to the tune of nearly $14 billion.

In response, Congress sued the Obama administration in November of 2014 in U.S. House of Representatives v. Burwell. The House argued that the White House violated its Constitutional authority by spending money not authorized by Congress. In May of 2016, federal district court Judge Rosemary Collyer ruled in favor of the House, but the Obama administration appealed the decision to the D.C. Circuit Court. Now with President Trump in the White House, the last Obamacare bailout can be eliminated permanently. All President Trump has to do is accept the court’s initial ruling and stop paying the subsidies.

Problem: Since the November 2016 elections, congressional Republicans worked on legislation to repeal and replace parts of Obamacare. The House narrowly passed the American Health Care Act (AHCA) on May 4th, 2017 by a vote of 217 to 213, but Senate Republicans failed to pass their version of the bill called the Better Care Reconciliation Act (BCRA) or even a scaled down version of Obamacare repeal called the “Skinny Repeal” bill. The latter failed when moderate Republicans refused to allow the bill to proceed to a conference committee where revised legislation could have been crafted and voted on.

Instead of repealing and replacing Obamacare, moderate Republicans are now working with Democrats to appropriate the Obamacare cost-sharing reduction subsidies to bail out insurance companies and prop up Obamacare. Senator Lamar Alexander (R-Tenn.) announced the Help, Education, Labor and Pensions (HELP) Committee that he chairs would hold a hearing in early September “on the actions Congress should take to stabilize and strengthen [Obamacare’s] individual health insurance market, so that Americans will be able to buy insurance at affordable prices in the year 2018.”

Ed Haislmaier, an expert in health care policy and markets at The Heritage Foundation, explains the continuation of the cost-sharing reduction subsidies “will not help stabilize the broader individual market because the cost-sharing reductions apply only to plans purchased through the Obamacare exchanges.”

Solution: Under Obamacare, average individual market premiums more than doubled while health insurance companies fled the marketplace leaving 70 percent of U.S. counties with only one or two insurers. This all took place while President Obama was illegally paying out the cost-sharing subsidies. Authorizing the subsidies will do nothing to fix the underlying problems of our broken U.S. health care system spurred on by Obamacare. “What is instead needed to stabilize the unsubsidized market is the removal of Obamacare’s cost-increasing insurance mandates and misguided regulations,” Haislmaier explained. Heritage Action chief executive officer Michael A. Needham recently stated:

“The Senate’s inability to produce 51 votes for a piece of legislation that delivers on a seven-year campaign promise to repeal and replace Obamacare is not license for a bipartisan bailout of a failing law. Networks continue to narrow. Premiums continue to rise. And choice continues to decline. Obamacare is becoming a zombie law, and throwing more taxpayer money at Zombiecare is unacceptable.”

Senate Republicans must go back to the drawing board and find consensus on a plan to repeal and replace Obamacare. Until they do so, President Trump could simply withhold the Obamacare cost-sharing reduction subsidies and demand Republicans fulfill their seven-year old promise to repeal this disastrous law.

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Employee Rights Act (ERA) Toolkit

Earlier this year, Rep. Phil Roe (R-Tenn.) introduced the Employee Rights Act (H.R. 2723). This legislation would protect workers from union pressure by putting power in the hands of employees and making union leaders more accountable to their members.

For decades, and especially under the Obama administration, numerous rules that infringe on workers’ rights have been imposed on the American people. This is not only unproductive and wasteful in economic terms — it undermines individual liberty.

Today, conservatives have the opportunity to reverse such abuses and protect workers from government and union overreach. Making sure your Representative cosponsors the Employee Rights Act is a critical first step.  

Key Talking Points:

  • The Employee Rights Act would protect employees from union overreach by guaranteeing employees the right to:
    • Use a secret ballot when voting to ensure employees are protected from intimidation and reprisals by union bosses.
    • Decide when and if their union can spend money on matters unrelated to collective bargaining, a tactic union leaders often use to fund liberal candidates or causes without the explicit permission of their members.
    • Opt out of having their personal contact information provided to an organizing drive, a tactic used by unions to pass their private information to groups they politically disagree with.
  • These provisions are common sense protections. In fact, recent polling has found that between 64 and 88 percent of union households support each provision.

(Make sure to insert the twitter handle of your Representative)

  • @MEMBER cosponsor the Employee Rights Act. A majority of union households support its provisions. #ERA
  • @MEMBER Employee Rights Act would make union leaders more accountable to their members and protect workers. #ERA
  • @MEMBER outdated labor laws should be replaced with sensible policy. Employee Rights Act solves problems workers face today. #ERA
  • Congress has opportunity to restore workers’ rights. @MEMBER Americans want #ERA

General Tweets:

  • #ERA would reverse growing trend of overreach by union bosses. Employee rights — not labor union rights — must be restored.
  • Numerous #Obama labor rules imposed on the American people still infringe on workers’ rights. It’s time for Employee Rights Act #ERA
  • Gov’t shouldn’t tip the scale in relationship between unions & workers. Employee Rights Act establishes proper roles. #ERA

These are notes to use when calling your member of Congress. You can find their phone number on the Heritage Action Dashboard.

Hi, I’m [NAME] from [STATE].

Rep. Phil Roe introduced the Employee Rights Act (H.R. 2723) and I noticed the Congressman is not a cosponsor. This legislation would protect workers from union pressure by putting power back in the hands of employees and making union leaders more accountable to their members.

Workers should not be pressured or coerced by unions or union bosses to take actions that undermine their rights. ERA provides common sense solutions to these problems – polling shows between 71 and 88 percent of union households support ERA’s provisions.

Please tell the Congressman to co-sponsor Employee Rights Act. The bill now has over 80 cosponsors, and the House Committee on Education and the Workforce has held hearings. It’s time to reform outdated labor laws and ensure essential rights of employees are protected.

Below is a sample letter to the editor. We encourage you to adapt and personalize the letter below. Heritage Action Regional Coordinators are always here to help edit your letter and get it published.

Congressman [X], Support Employee Rights

Though the purpose of labor unions is ostensibly to protect workers, they often fail to do so because they are motivated by the “institutional objectives” of expanding in size, income and influence.

For decades, and especially under the Obama administration, numerous rules that infringe on workers’ rights have been imposed on the American people. This is not only unproductive and wasteful in economic terms — it negates individual liberty.

Workers deserve a say in decisions that put their jobs at risk. The Employee Rights Act would amend this by requiring a secret ballot vote before a union can call a strike. Furthermore, the bill would solidify paycheck protection provisions, provide a mechanism for union re-certification, and finally criminalize union threats under federal law.

If passed and signed into law, this legislation would solve many problems workers face today, including problems enshrined in current labor law. The bill would help restore a balance of power in the workplace from unions to workers and help ensure labor unions best serve the interests of employees, not union bosses.

Congressman [X] should support individual employee rights by cosponsoring the Employee Rights Act.

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