Treasury Secretary Steven Mnuchin testified before the House Ways and Means Committee and Senate Finance Committee on March 14, 2019, in hearings that featured partisan debate over the Tax Cuts and Jobs Act (TCJA). Republicans maintain the law has been beneficial to the economy and to taxpayers, while Democrats charge that provisions like the $10,000 state and local tax (SALT) deduction cap were used to offset rate cuts for the wealthy, and that proposed spending cuts in the President's FY2020 Budget would impact children and seniors and are being used to compensate for the revenue loss from the TCJA. Numerous other tax issues also came up during the hearings.

Ways and Means Committee

During a morning Ways and Means hearing, Democrats expressed interest in working with the Administration on infrastructure investment, which Secretary Mnuchin reciprocated, and the two sides signaled an agreement that a multilateral digital tax should not target US technology companies.

In an opening statement, Chairman Richard Neal (D-MA) said, "In this budget, the [President] wants to pay for [tax] cuts on the backs of working families. I want to be clear that … these tax cuts have not had the miraculous economic effect that we have been told to believe." He said infrastructure tops the list of shared priorities between House Democrats and the Administration, and that repairing roads and bridges and investing in a modern infrastructure system "is a win for everyone." Chairman Neal also encouraged Treasury to keep in close contact regarding digital taxation, which has been discussed in an OECD consultation over the past two days and was the subject of a recent unilateral proposal in France.

Ranking Member Kevin Brady (R-TX) also mentioned infrastructure as a shared priority, in addition to retirement issues and reforming the IRS.

During questioning, Secretary Mnuchin said he and the President remain committed to a $1.5 trillion infrastructure package and, "I've appreciated the opportunity that you and I have spoken on the phone and had the opportunity to meet and talk about this. And we very much look forward to working with Congress on a bipartisan basis to pass infrastructure quickly." Other Democrats inquiring about the prospect for an infrastructure agreement included Reps. Brian Higgins (D-NY) and Earl Blumenauer (D-OR), who asked whether a 25-cent gas tax increase is "in the realm of possibility" and whether the Administration has specific revenue proposals in mind. Mnuchin said he has heard the President talk about the gas tax but doesn't believe a decision has been made, and that he wants to sit down with lawmakers and listen to ideas.

Rep. Lloyd Doggett (D-TX) asked the Secretary whether he has received any instruction or guidance about how to handle congressional requests for President Trump's tax returns. Secretary Mnuchin said in part, "I haven't received the request. If you have the request for me today, I'm happy to accept it. If not, if you decide in the future to deliver this, we will receive it. I can't speculate on the request until I see it."

Rep. Adrian Smith (R-NE) said he continues to hear concerns about TCJA implementation, particularly international provisions — that global intangible low-tax income (GILTI) and base erosion anti-abuse tax (BEAT) provisions are not easy to comply with and "are capturing long-standing legitimate transactions, which no reasonable person would consider tax avoidance strategies, as newly taxable events, which is not and certainly was not our goal."

Mnuchin said he can assure the Committee the law is being implemented as intended and that the Administration has been reaching out to try to make sure there are proper interpretations of these issues. He thanked IRS and Treasury staff for their work, said there were many regulations left to the Administration to draft, and that the Administration wants to make sure it does so carefully to protect companies and implement the law. "The GILTI and BEAT issues are things we are looking at very carefully," he said.

Members including Reps. Brad Schneider (D-IL) and Tom Suozzi (D-NY) inquired about the SALT deduction cap, and how to respond to middle-class families whose expectation of a tax cut from the TCJA was compromised by the limitation. Mnuchin said the Administration is carefully looking at the economic impact of the SALT limitation on states.

Rep. Ron Estes (R-KS) inquired about digital tax proposals. Mnuchin said he has raised the issue with French officials and has made clear that digital taxes aimed at US companies are unfair. He said Treasury is working very closely with the OECD and hopefully can come up with an agreement.

Rep. Devin Nunes (R-CA) inquired about the United States-Mexico-Canada Agreement (USMCA), which Secretary Mnuchin said is one of the most important economic issues currently and should be considered in Congress quickly. In his testimony, Secretary Mnuchin said: "The USMCA will create the highest standards to protect intellectual property rights, support small and midsize businesses, open markets for agricultural products, spur manufacturing. I encourage all members of Congress to support its passage because it will have a positive impact for American workers, business owners, farmers and families."

Senate Finance Committee

An afternoon hearing in the Senate Finance Committee continued the debate over the TCJA and some other tax issues, but also saw the Republican Majority drawing attention to progressive ideas like the "Green New Deal."

Chairman Chuck Grassley (R-IA) said "strong economic numbers mean that hardworking Americans and their families are clearly benefiting from tax reform," and that the budget contains "some relatively minor tax proposals" along with spending cuts to help achieve budget savings of around $2.8 trillion over 10 years. "Those savings are significant, even if they come to only a fraction of what some recent proposals from the other side would cost, such as Medicare-for-All or the Green New Deal," Chairman Grassley said. "Those socialist-leaning proposals would easily cost tens of trillions of dollars over a decade, force Americans out of employer-provided health insurance that they like, and radically restructure the American economy. And they'd add tens of trillions to our deficits."

Senator Tim Scott (R-SC) said he would like to see a hearing to contrast the TCJA with the Green New Deal. Senator Steve Daines (R-MT) said Democratic ideas include a Green New Deal to "wipe out oil and coal industries" and cancelling private health coverage, and would be financed by tens of trillions of dollars in tax increases. Mnuchin said those tax increases would "grind the economy to an absolute halt."

In his opening statement, Ranking Member Ron Wyden (D-OR) said, "This isn't a budget as much as it's an economic smash and grab perpetrated on the American people," with cuts to Medicare, Medicaid, and Social Security. He also said the TCJA "kicked off a stock buyback bonanza."

During his questioning, Chairman Grassley said for TCJA tax cuts for individuals and small businesses — including provisions regarding the child tax credit, standard deduction, and lower rates — anything less than permanence would be a tax hike. Mnuchin said if those provisions are not made permanent, it would reverse tax cuts to middle-class families and have a negative impact on the economy.

Senators also asked the Secretary about a second round of Opportunity Zone regulations that have recently come under review by the Office of Management and Budget (OMB) Office of Information and Regulatory Affairs (OIRA). Mnuchin thanked Senator Scott for his role in the Opportunity Zone program and said Treasury is working closely with OIRA to get the regulations out as soon as possible. He later said he expects them out within a month. In general, he said he is pleased with the process since OMB was provided a role in the tax regulatory review process in April 2018, though Treasury always wants to get out regulations out as quickly as possible.

Senator Rob Portman (R-OH) said the TCJA fulfilled the vision of the 2015 Finance Committee international tax working group he co-chaired — which called for a lower corporate rate and broader tax reform for all businesses — and noted that Secretary Mnuchin "worked with us on some issues, including the expense allocation issues under GILTI, and other things, to try to be sure that we are getting these benefits broadly." He asked whether increasing the corporate tax rate would resume the pre-TCJA pattern of foreign acquisitions and inversions. Mnuchin said either that or a slowdown in the economy.

Portman also expressed an interest in action on IRS reform and retirement security, including the Retirement Enhancement Savings Act (RESA) "that we got so close to passing" last year. Mnuchin agreed that retirement savings is an important issue.

Opening statements are attached.

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ATTACHMENTS

Grassley Statement

Neal Statement

Wyden Statement