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Saturday July 4, 2015

Washington News

Washington Hotline

Premium Tax Credit Approved

In a 6-3 decision published on June 25, the Supreme Court upheld the Premium Tax Credit Plan under the Affordable Care Act. The King v. Burwell decision considered the question, “Does the Affordable Care Act (ACA) provide a premium tax credit for both federal and state exchanges?”

Chief Justice John Roberts wrote the majority opinion. The plaintiffs in the case pointed to Sec. 36B of the Internal Revenue Code, which states that exchanges are qualified if “established by the State.” Some states did create their own healthcare exchanges, but many states relied on the Federal Government site www.healthcare.gov to provide their exchange.

The Department of Treasury published a regulation under Sec. 36B. This regulation interpreted the ACA provision to allow premium tax credits for both the state and federal exchanges.

Several lower courts attempted to interpret the ACA language and determine whether or not Congress intended “State” to mean “State and Federal.”

Chief Justice Roberts determined that language was ambiguous when the complete statute was considered. He noted, “The Affordable Care Act contains more than a few examples of inartful drafting.”

Because rejecting the premium tax credits for the federal exchange “would destabilize the individual insurance market and any state with a federal exchange, and likely create the very death spirals that Congress designed the act to avoid,” Roberts concluded that the act covered both federal and state exchanges.

Justice Scalia read a very strong dissent when the decision was released. He noted “under all the usual rules of interpretation” there would be no question but that the language specifically included only the state exchanges as qualified for the premium tax credit. He claimed the majority interpreted the “exchange established by the State” to also include “exchange not established by the State.”

Referring to the term for the Supreme Court of the United States (SCOTUS), he drew a laugh from the audience by quipping, “We should start calling this law SCOTUScare.”

Washington Comments on Premium Tax Credit

Following the Supreme Court decision upholding the premium tax credit for both state and federal healthcare exchanges, members of both parties in Washington offered opinions on the case.

Treasury Secretary Jacob Lew had initially approved the regulation that concluded both federal and state exchanges qualified for the premium tax credit. He commented, “The Affordable Care Act is working. Since the law was passed, more than 16 million uninsured people have gained health coverage, and evidence shows that families and businesses are benefitting from improved affordability, access and quality of care.”

House Ways and Means Chair Paul Ryan (R-WI) has expressed concerns about ACA. He responded, “We need a system that makes coverage more affordable and puts patients – not Washington – in charge of healthcare decisions.”

Sen. Orrin Hatch (R-UT) is co-author of a proposed new healthcare plan that is titled the “Patient Care Act.” He stated, “Moving forward, we will continue to seek input on our legislative proposal – the Patient Care Act – and use every opportunity available to give both states and patients more freedom and flexibility. We will continue to work toward real reform that lowers costs and helps Americans access high quality healthcare.”

The Ranking Member of the Senate Finance Committee is Ron Wyden (D-OR). He commented, “The ACA’s core purpose – which has been clear from the outset – is to help as many people as possible get affordable, high-quality health insurance. Tax credits are key to making that work. And today the court has affirmed Congress and the majority opinion of Americans.”

Editor’s Note: Your editor understands that many Americans hold strong opinions on the Affordable Care Act. This summary of the Supreme Court case and responses by Washington officials is offered as an educational service to our readers.

No Bills from Senate Tax Reform Groups

In January, Senate Finance Committee Chair Orrin Hatch (R-UT) appointed bipartisan working groups of senators to study personal, corporate and international tax law options.

The five groups and their co-chairs are as follows:

Individual Income Taxes – Sens. Chuck Grassley (R-IA), Mike Enzi (R-WY), Debbie Stabenow (D-MI).

Business Income Tax – Sens. John Thune (R-SD), Ben Cardin (D-MD).

Savings and Investment – Sens. Mike Crapo (R-ID), Sherrod Brown (D-OH).

International Taxation – Sens. Rob Portman (R-OH), Chuck Schumer (D-NY).

Community Development – Sens. Dean Heller (R-NV), Michael Bennet (D-CO).

All of the working groups expect to conclude their work by the end of June. Most of the five groups will publish reports of their discussions. None are expected to offer legislation.

Sen. Rob Portman indicated that the International Tax Reform group was waiting for scoring on their various provisions from the Joint Committee on Taxation. Sen. Sherrod Brown suggested that there may be some “efforts to boost access to savings among middle-income Americans” in their report.

Sen. Ron Wyden noted that the International Tax Reform discussions have lead him to a new openness to consider patent and innovation boxes. Sen. John Thune mentioned the concept of tax reform with revenue from reform being used to fund the current highway bill. Thune stated, “I do not think we are going to get to any kind of full-blown tax reform in time to do the pay-fors for the highway bill.”

Finally, Sen. Ben Cardin indicated that the business tax group discovered that, “It is expensive to lower rates because you have to deal with the business aspects of personal income tax as well as the corporate tax.” Cardin concluded, “Getting a major bill or any bill done in this political climate will be a challenge.”

Editor’s Note: Both the House and Senate taxwriting committees now have placed tax reform legislation on hold. The focus is shifting to tax extenders such as the IRA charitable rollover. Will the tax extenders be for one year or two years? Will some of the extenders be made permanent? When will the bill pass? Stay tuned for further developments.

Applicable Federal Rate of 2.2% for July -- Rev. Rul. 2015-15; 2015-27 IRB 1 (19 June 2015)

The IRS has announced the Applicable Federal Rate (AFR) for July of 2015. The AFR under Section 7520 for the month of July will be 2.2%. The rates for June of 2.0% or May of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2015, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here.

Published June 26, 2015

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