Back to School: Congress Edition

When weather apps read anything below 60 degrees, everyone knows that the end of summer is sadly here. Lawmakers have charged up the Ring cameras on their summer villas, dry cleaned all their $3,000 suits, packed their backpacks (suitcases), and made their way back to Washington, D.C. for a busy September and fall.  And there’s a lot of work to be done on Capitol Hill, ranging from tax reform to spending cuts to regulatory revamps. The clock is ticking, and the to-do list is a mile long. But fear not, the Taxpayers Protection Alliance (TPA) is here to ensure that members of Congress have their priorities straight and homework reading completed as they get back to business for the American people. Without further ado, TPA presents Back to School: Congress Edition.

First on the list for September is ensuring that there is no government shutdown. To do that, Congress must pass all appropriations bills (not likely to happen) or pass a continuing resolution before October 1 in the very few legislative days it has. Any short-term spending bill must last until after the new year, be clean (meaning a straight funding of the federal government without any policy riders), and critically, not include earmarks.

Past this basic baseline, there are myriad opportunities for reform.

In a recent article for The Hill, Tobias Burns reports, “President Trump and Republican lawmakers passed their major tax-and-spending cut bill earlier this summer, faster than almost anyone else in Washington, D.C., was expecting. Now, they’re planning their second act.” Possible reforms, “include major changes to gambling loss deductions … and the exclusion of changes to tax rules for Americans living abroad.” These changes are critical to a fair and well-functioning tax code that doesn’t bilk taxpayers.

Writing about the One Big Beautiful Bill’s (OBBB) treatment of gambling losses, Reason Foundation Managing Director Michelle Minton notes,

Until now, the tax system imposed on gambling mostly made sense: If you won money, you paid taxes on your net winnings—the money you made after subtracting the amount spent on losing bets. But, under the new rule, gamblers will no longer be able to deduct the full value of their losses, capping such deductions at 90% of reported winnings. This creates a tax on phantom income—forcing gamblers to pay federal income taxes on up to 10% of their winnings even if they end up losing all of it and more by year’s end. 

Minton further notes that, “Underreporting of gambling winnings is already a known and longstanding problem” and the new tax provision will only make the problem worse. Any “Tax Reform 2.0” can and must end this nonsensical tax on phantom income.

Any renewed attempt at tax reform should also lend a helping hand to the millions of American expats who face an onerous system of double taxation. Back in 2018, TPA Senior Fellow Ross Marchand described the ridiculous global tax regime that persists to the present day:

Under American law, citizens working abroad must report their income to the Internal Revenue Service (IRS) and pay their “fair share” to Uncle Sam in addition to host country government levies. This global assertion of US taxation power puts America in league with Eritrea as one of the only countries to subject citizens to taxation regardless of location. … A majority of Americans pay income tax for military expenditures that will protect the country. But for Americans living abroad, little to no benefits accrue from American tax dollars. 

Joining the vast majority of other countries and switching to a territorial system of taxation—as President Trump has called for—would be the fair approach and bolster American prosperity worldwide.

It’s also critical for lawmakers to cut spending and make a meaningful dent into the $37 trillion national debt. One key area of focus needs to be Medicaid, the federal health insurance program that costs Americans nearly $1 trillion annually. The OBBB stipulates that, to receive Medicaid benefits, individuals must be working, engaged in community service (e.g., volunteering) or receiving education or work training at least 80 hours per month. Taxpayers will save about $30 billion per year from the enactment of Medicaid work requirements, and about $100 billion per year once other Medicaid provisions of the bill (e.g., more frequent eligibility checks, curtailing state-directed payments) are taken into account.

Even more ambitious reforms could add significant savings to these welcome reforms. One approach would be a means-tested, refundable tax credit of approximately $550 per month for individuals to go out and purchase the private healthcare plan of their choice. This would allow households to purchase mid-tier “silver” health insurance plans (which typically cost less than $550 monthly in low-income states such as Mississippi). Assuming a beneficiary population base of 75 million, this would save taxpayers $300 billion per year. Even if Congress used half of those annual savings to reimburse miscellaneous expenses (e.g., high co-pays, out-of-pocket medication costs), taxpayers would still save $150 billion annually on top of OBBB savings.   

Alternatively, policymakers could pursue some combination of lower tax credit subsidies (say, $400 per month) and direct reimbursements to hospitals providing free care. These alternative policies would not only be better for taxpayers but would also give low-income households a far better (private) insurance product.

Budgetary savings need not be limited to Medicaid. When Sen. Chuck Grassley (R-Iowa) tried to insert an amendment into OBBB that would have introduced limits on income for farmers receiving federal farm subsidies, pushback was swift, and Sen. Grassley was forced to table the amendment. Surely, it isn’t too much to ask Congress to ensure that millionaires aren’t nabbing billions of taxpayer dollars’ worth of farm subsidies.

As members of Congress go “back to school,” they have their work cut out for them. TPA will be calling for tax and spending reform every step of the way.