To: Members of the Senate Committee on Finance
From: Andrew Lautz and Bryan Riley; National Taxpayers Union
Date: March 17, 2023
Subject: Key Taxpayer Considerations for the First Session of the 118th Congress
- Introduction
On behalf of National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, we write to congratulate you on the start of the 118th Congress, applaud you for your service on the Senate Finance Committee, and share recommendations from NTU’s experts and advocates on policy reforms under the Committee’s jurisdiction for the first session of the 118th Congress.
NTU was founded in 1969 to be the “Voice of America’s Taxpayers.” For decades, we have worked with stakeholders inside and outside of government, in Washington, D.C. and across the 50 states, to achieve favorable policy outcomes for taxpayers. We have worked with Members of both parties over the years to shape and enact multiple iterations of federal tax reform, strengthen taxpayer rights and due process, oversee the Internal Revenue Service (IRS), promote and protect the economic gains of free trade, remove red tape from America’s bureaucratic health care system, and help build an economy and federal budget that works for all the nation’s taxpayers.
As you embark on what will no doubt be a busy agenda for the Senate Finance Committee in the 118th session of Congress, we wish to offer some initial taxpayer considerations on the policies and oversight priorities the Committee should pursue in 2023 and beyond. We wish to be a productive partner for Committee Members and staff on both sides of the aisle. We welcome any feedback you may have and the opportunity to meet with you, and are at your service.
- 2023 NTU Policy Priorities Under the Committee’s Jurisdiction
NTU has several policy priorities for 2023 under the Committee’s jurisdiction, including several items of unfinished business from the 117th Congress. We separate these priorities below by the primary Subcommittee they fall under.
Taxation and IRS Oversight
Among our top tax policy priorities for 2023 are:
- Permanently allowing businesses to fully and immediately expense their research and development (R&D) expenditures, reversing a switch to five-year amortization that took effect on January 1, 2022; 22 other taxpayer, free-market, and consumer advocacy organizations support this broadly bipartisan initiative led by Sens. Maggie Hassan (D-NH) and Todd Young (R-IN).
- Permanently allowing businesses to fully and immediately expense investments in short-lived assets (100 percent bonus depreciation), passed in the 2017 Tax Cuts and Jobs Act (TCJA) on a temporary basis and scheduled to begin phasing out in 2023; making 100 percent bonus depreciation permanent, a proposal that was led by former Sen. Pat Toomey (R-PA) in the 117th Congress, is supported by the same coalition of 23 taxpayer, free-market, and consumer advocacy organizations and, according to Tax Foundation, would boost jobs, income, and economic output.
- Restoring full interest deductibility under Section 163(j) of the Internal Revenue Code to its pre-2022 definition of adjusted taxable income, based on earnings before interest, taxes, depreciation, and amortization (or EBITDA); this policy is also bipartisan and has benefited from the leadership of former Sen. Roy Blunt (R-MO) and other Senate Finance Committee Members.
These provisions, all determined by effective dates enacted in TCJA, are overdue for a correction by Congress. Two of the three policies above have broad bipartisan support, and their inclusion in TCJA should not foreclose bipartisan cooperation to make permanent policy. We are not immune to the political realities of the current Congress though, and divided government generally, and so would encourage Committee Members to also work together on Child Tax Credit (CTC) reform and targeted expansion.
CTC expansion has previously enjoyed bipartisan support, with leaders in both parties electing to significantly expand the size of the base credit in recent years. NTU does not currently support a permanent $3,000 base ($3,600 bonus) credit, largely because we have yet to see a serious, bipartisan proposal to pay for a permanent policy that would cost at least $1.6 trillion in the first 10 years. Sen. Mitt Romney’s (R-UT) CTC expansion proposal is a notable and thoughtful exception in that it proposes a fiscally balanced CTC expansion, but as of this writing the proposal still lacks bipartisan support.
NTU believes that the best path forward is a smaller, more fiscally sustainable CTC expansion, borrowing the best elements of Republican and Democratic proposals to reform and expand the credit. We have a forthcoming paper on fiscally responsible CTC reform and expansion that we hope to share with Committee Members and staff soon.
A top policy priority for NTU in 2023 is IRS reform, a necessary prerequisite to the agency’s effective use of its significant influx of appropriations through last year’s Inflation Reduction Act (IRA). Unfortunately, the IRA was not accompanied with necessary reforms to IRS processes and procedures, which should prioritize modernization of the agency’s outdated infrastructure and enhancement of taxpayer services.
Among our IRS reform priorities for 2023, we believe that lawmakers should:
- Shift some IRA resources away from Enforcement and towards Taxpayer Services and Business Systems Modernization, for more rapid and comprehensive improvement in these core competencies of the IRS;
- Mandate progress from the IRS on the modernization and expansion of digital services, including electronic filing and online tools like “Where’s My Refund”; and
- Improve IRS compliance with the Paperwork Reduction Act.
We also hope to work with Committee Members on early and proactive discussions regarding the pending expiration of TCJA provisions in 2025, though understand that as a practical matter lawmakers may not engage in comprehensive negotiations on expiring TCJA provisions in the early part of 2023.
Health Care
Between the $1.6 trillion in federal spending on Medicare and Medicaid, the hundreds of billions of dollars spent on Medicaid by the states, and the more than $300 billion in federal tax expenditures primarily supporting Americans’ private health coverage, taxpayers have an enormous stake in the health policy decisions of Congress. The Committee, and especially its Health Care Subcommittee, have an important role to play in both the future of Medicare and Medicaid and at the intersection of tax and health policy.
Some of NTU’s top health policy priorities in 2023 include:
- Expanding health savings accounts (HSAs) so that consumers may direct more of their earnings and savings to health care expenditures in a tax-advantaged way; we are particularly interested in policy proposals that expand HSA access for low- and middle-income Americans;
- Targeted reforms to the Affordable Care Act’s (ACA) premium tax credit (PTC) and cost-sharing reduction (CSR) structure; we have supported narrowing PTC eligibility for high-income households while expanding consumer options under the CSR program; and
- Narrowly targeted oversight and scrutiny of pharmacy benefit manager (PBM) practices, which could threaten the efficient use of taxpayer dollars in the Medicare and Medicaid programs.
We also support reform to the IRA’s prescription drug pricing provisions, expanding workers’ access to health coverage through options like association health plans and health reimbursement arrangements, and more. We look forward to working with members of both parties at the Committee to advance pro-consumer, pro-taxpayer health policy reforms.
International Trade, Customs, and Global Competitiveness
Trade priorities supported by NTU include:
- Approving legislation that prohibits the executive branch from imposing tariffs without congressional approval;
- Reauthorizing the Generalized System of Preferences (GSP) and expanding GSP in order to encourage production in countries other than China;
- Reauthorizing the Miscellaneous Tariffs Bill (MTB) to cut costs for American producers;
- Modifying U.S. trade remedy laws to allow the U.S. International Trade Commission (USITC) to consider the impact of proposed tariff increases on the country as a whole;
- Pursuing policies that reduce barriers to trade between the United States and our allies, whether unilaterally, through bilateral free trade agreements (FTAs), regional agreements, multilateral agreements, or sectoral agreements; and
- Pushing back against the Biden administration’s recent assertion that other countries are free to ban U.S. exports based on unreviewable “security” allegations.
- Oversight Initiatives and Hearings NTU Would Like to See in 2023
We also separate our oversight priorities below by the primary Subcommittee they fall under, though any of the following initiatives or hearing proposals could apply equally to the full Committee.
Taxation and IRS Oversight
We hope lawmakers prioritize rigorous oversight on three overarching matters in 2023:
- IRS implementation of additional funding provided in the IRA;
- Ongoing global negotiations over the implementation of Pillars One and Two of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS); and
- IRS implementation of, and compliance and reporting burdens for, the IRA’s corporate alternative minimum tax (i.e., the book minimum tax).
Lawmakers should insist on regular updates from the IRS on how it is spending and planning to spend IRA appropriations. They should also request information from the IRS on how this influx of funding corresponds with 1) the agency’s ongoing implementation of the Taxpayer First Act, and 2) the agency’s regular discretionary budget request for fiscal year 2024 and beyond. Oversight should not be a substitute for some of the statutory agency reforms we note above, but should be a necessary component of the Committee’s activities as lawmakers work towards more comprehensive reforms.
NTU remains concerned with the ongoing international discussions over Pillars One and Two, in particular the Biden administration’s lack of information-sharing with lawmakers over the effects implementation of Pillars One and Two may have on the U.S. tax revenue and economic competitiveness. International tax reform should be designed with simplicity and administrability in mind, not maximizing the amount of revenue the U.S. and other countries can collect.
We hope lawmakers challenge any administration efforts to circumvent Congressional approval of Pillar One, and work with the administration to ensure any statutory changes to comply with Pillar Two are as close to revenue-neutral as possible. Throughout this implementation process, lawmakers in both parties should insist on regular updates and transparency from administration officials.
Finally, we hope lawmakers demand regular reporting from the administration on implementation of the book minimum tax. Public reporting indicates many companies are confused about book minimum reporting and compliance even as the new tax has already gone into effect.
Potential hearings in the new Congress include, but are not limited to:
- Hearings with a variety of IRS officials and non-government IRS experts covering topics such as IRS modernization, the tax gap, improving taxpayer/customer service at the IRS, and expanding taxpayer rights;
- Hearings with a variety of Treasury officials and non-government international tax experts on the impacts implementation of Pillars One and Two would have on U.S. businesses, the global competitiveness of the U.S. tax code, and the federal fisc;
- Hearings on the expiry and/or phasedown of full expensing provisions such as R&D expensing and 100 percent bonus depreciation, and the impact these provisions have on U.S. economic and job growth; and
- A hearing on the impact the new $600 1099-K reporting threshold, recently delayed for one year by the IRS, will have on taxpayers and the IRS.
NTU would gladly submit written comments on any of the above hearing topics and more, and should you wish to consider one or more of our experts as witnesses at public hearings in the 118th Congress we are at your service.
Health Care
We encourage the Committee to hold hearings (and/or Subcommittee hearings) on a variety of topics in the 118th Congress, including but not limited to:
- The impending insolvency of the Medicare Hospital Insurance (HI) trust fund, and how Congress can work in a bipartisan fashion to put the program on the path to solvency and prevent drastic provider payment cuts in just a few short years;
- The effect of the IRA on prescription drug R&D in the years ahead;
- Whether or not additional carve-outs for the IRA’s drug pricing negotiations in Medicare are warranted;
- How Congress can expand HSA access to low- and middle-income workers and families; and
- How Congress can be working to advance consumer-oriented, taxpayer-friendly health coverage rules and options in 2023.
International Trade, Customs, and Global Competitiveness
NTU is concerned about the Biden administration’s recent disregard for U.S. trade commitments. In particular, the Biden administration has asserted that the World Trade Organization may not review tariffs imposed on steel and aluminum from U.S. allies because those imports represent a national security threat. This position means that any of our trading partners may freely restrict U.S. exports of goods and services by making a claim of “food security” or “digital security,” to name just two potential examples. Is this the Biden administration’s intent?
In addition, with respect to the Indo-Pacific Economic Framework for Prosperity and similar discussions, is there a reason the Biden administration refuses to pursue market access, and does the administration intend to bypass Congress? We encourage the Committee to examine these questions further in hearings and through oversight initiatives.
- Contact Information
Should you have any questions about the recommendations in this memo, please do not hesitate to reach out to us at alautz@ntu.org and briley@ntu.org.