On February 27, 2019, a House Budget Committee hearing continued the partisan debate over the Tax Cuts and Jobs Act (TCJA), with Democrats asserting that the advertised effects of the law did not materialize and that benefits tilt toward the wealthy, while Republicans argued that the law helped businesses thrive and increase employee compensation.

The hearing follows a February 13 Ways and Means subcommittee hearing on how middle-class families are faring in the economy, and precedes the release of the forthcoming House budget resolution that could propose tax increases and rolling back TCJA provisions to pay for other priorities.

Among his criticisms of the TCJA, Chairman John Yarmuth (D-KY) said in an opening statement, "[D]ue to perverse international tax incentives in the law, it is possible for companies to actually reduce their taxes significantly more - or avoid paying tax altogether - by generating income overseas and moving investments abroad. This endangers more than 15 million American workers whose jobs are vulnerable to being offshored." Ranking Member Steve Womack (R-AR) countered Democratic assertions that the TCJA increased the deficit by saying the nation has a spending problem, not a revenue problem.

Witnesses at the hearing, titled "2017 Tax Law: Impact on the Budget and American Families," were:

• Caroline Bruckner (Professor, American University's Kogod School of Business)
• William G. Gale (Chair in Federal Economic Policy in the Economic Studies Program, Brookings Institution; Co-Director, Tax Policy Center)
• Chye-Ching Huang (Director of Federal Fiscal Policy, Center on Budget and Policy Priorities)
• Lana Pol (President, Geetings, Inc.)

Bruckner highlighted the impact of tax policies on women-owned businesses and health care costs of small businesses. She noted the JCT finding that 44% of the benefit of the Section 199A pass-through deduction will flow to pass-through businesses with $1 million or more of annual income, and said tax reform failed to address the tax compliance challenges of Americans working in the gig economy.

Gale said the TCJA: will have minimal impact on long-term growth; increases disparities in after-tax income by giving the largest relative and absolute tax cuts to high-income households; will make most households worse off after taking into account plausible ways of financing the tax cut; makes the government's troublesome long-term fiscal status even worse; makes the tax system more complex and more uncertain; will make it harder for policymakers to fight future recessions; and will reduce health insurance coverage, raise health insurance prices, and reduce charitable giving.

Huang said the TCJA: ignores the stagnation of working-class wages and exacerbates inequality; weakens revenues when the nation needs to raise more; and encourages rampant tax avoidance and gaming that will undermine the integrity of tax code.

Pol, on behalf of the National Federation of Independent Business, said the TCJA "allowed us to invest in our employees with raises and our businesses with a significant facility expansion and new vehicles," and also increased local and national business confidence and optimism.

Rep. Womack tweeted during the hearing, "It is telling that the 3 Dem witnesses are all bureaucrats, while the one @housebudgetGOP witness is a small business owner. Shouldn't we be hearing from job creators?" Several Republican members followed that approach, highlighting the TCJA's benefits for small businesses from their districts and asserting that the academic witnesses had no experience with job creation. Republican members also suggested that a potential carbon tax or "Green New Deal" would harm families economically. Witness Gale advocated a carbon tax with an exemption for low-income households.

Rep. Lloyd Doggett (D-TX), a long-time critic of international tax policies both pre- and post-TCJA, said multinational corporations "got a bonanza" in the TCJA and highlighted his No Tax Breaks for Outsourcing Act to eliminate deductions for global intangible low-tax income (GILTI) and foreign-derived intangible income (FDII), and to treat foreign corporations managed and controlled primarily in the United States as domestic corporations for tax purposes. Huang agreed it is important to close "loopholes" that may encourage outsourcing and that it is important to put revenue associated with such policies to better use.

Rep. Albio Sires (D-NJ) suggested the new $10,000 limitation on the state and local tax (SALT) deduction is going to hurt the real estate market in New Jersey, and Gale noted that the mortgage interest deduction will be less effective given the TCJA's increase in the standard deduction.

Ranking Member Womack asserted that Chairman Yarmuth thinks the corporate income tax rate should be increased to 28%, which was the rate proposed by President Obama alongside a reduction to 25% for certain manufacturers.

Chairman Yarmuth inquired about one potential target for Democratic tax policy in the current Congress, carried interest. Gale said it is pretty clear carried interest should be taxed as labor income, not capital gains, but noted there is not much revenue in the proposal compared to other changes like a wealth tax or taxing capital gains at death.

Testimony is here.

———————————————