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Bramwell's Lunch Beat: Pros and Cons of the ‘Cadillac Tax’

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Jul 27th 2015
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What the ‘Cadillac tax' accomplishes – and what could be lost in repeal
In an article for the Wall Street Journal, David Wessel, director of the Brookings Institution's Hutchins Center on Fiscal and Monetary Policy, wrote about why the hefty excise tax on certain health insurance plans, called the “Cadillac tax,” was included in the Affordable Care Act and what it would mean if the tax is repealed by lawmakers. Beginning on Jan. 1, 2018, the law levies the excise tax on plans worth more than $27,500 per family or $10,200 per individual, with some adjustments to thresholds to be made for hazardous jobs and other factors. His conclusion: “There's a lot of talk about wringing inefficiency and unnecessary treatment out of the health system, as well as shrinking tax loopholes, credits, exclusions, and deductions. The Cadillac tax as written into law won't accomplish either goal completely. But if it succumbs to the latest round of assaults, the prospects for major legislation on healthcare costs or tax reform would be substantially diminished.”

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Congress turns to the IRS for cash
Republicans and Democrats are both looking to the IRS as they try to pass a highway bill by the end of the month, wrote Bernie Becker of The Hill. Approving a stricter tax-compliance measure is one of the few areas of agreement between the House and the Senate when it comes to paying for an extension of transportation funding. The push to collect more taxes out of outstanding mortgages and estates also comes at a time when Republicans are seeking to slash the IRS's budget – a dynamic that isn't lost on the agency's top officials. IRS Commissioner John Koskinen suggested that implementing tax changes from the highway bill wouldn't come without some pain, after his agency absorbed more than $1 billion worth of budget cuts over the last five years. But Republicans don't see it that way, arguing the IRS is wasteful with the funding it gets.

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Appeals court says travel websites owe District $60 million in unpaid taxes
The DC Court of Appeals on July 23 upheld a $60 million payment for seven major travel websites, requiring the companies to make what could be the largest tax settlement ever paid to the District government, wrote Julie Zauzmer of the Washington Post. The District has argued since the case Expedia v. District of Columbia began in 2011 that the seven companies – Expedia, Hotels.com, Hotwire, Orbitz, Priceline, Travelocity, and Travelscape – owe millions in taxes to the city because they paid sales taxes based on the amounts they actually paid hotels for rooms in the District, rather than the higher prices they charged their customers. The travel companies appealed after the $60 million settlement was first conditionally agreed upon in February 2014.

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Chicago aldermen questioning tax break for Spike Lee's film, ‘Chiraq'
Chicago aldermen are questioning tax credits provided to Spike Lee's controversial film, “Chiraq,” which depicts the rampant gang violence on Chicago's streets, WBBM-TV reported. The $3 million tax break will be the focus of a city hearing on Monday morning. Alderman Will Burns, who called for Monday's hearing, believes the film's title could hurt tourism, which is worth hundreds of millions in tax revenue for the city. Supporters of the film say it pumped $15 million into Chicago's economy, providing jobs and generating revenue for restaurants and hotels. “Chiraq” recently wrapped shooting and is scheduled for release via Amazon in December.

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SEC official rips proposed brokerage fee limits as ‘nanny-statism'
US Securities and Exchange Commission (SEC) member Daniel Gallagher blasted a proposed US Labor Department rule that aims to make it harder for brokers who offer retirement advice from steering clients into higher-fee products, calling the plan “rampant nanny-statism,” wrote Sarah N. Lynch of Reuters. Gallagher said in a July 21 public comment letter that the Labor Department's plan would actually hurt the middle-class investors it is designed to help. The Labor Department “should scrap” the plan and “end the rampant nanny-statism” that is motivating the rule, he wrote. Last week marked the closing of a public comment period on the plan, unveiled in April by the Labor Department. It would forbid brokers who offer retirement advice from steering clients into higher-fee products, unless it serves the clients' financial interests.

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IRS technical guidance roundup (week of July 20)
The IRS issued the following technical guidance last week:

Announcement 2015-19 describes future changes to the determination letter program for qualified individually designed plans and sets forth an intended transition period for certain plans. Announcement 2015-19 requests comments on specific issues relating to the implementation of these changes. This announcement also provides that effective July 21, the IRS will no longer accept determination letter applications that are submitted off-cycle.

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