The House Ways and Means Committee on March 27, 2019, devoted an entire hearing to the topic that has dominated their public meetings for some time: re-litigating the benefits of the Tax Cuts and Jobs Act (TCJA). The hearing did not break much new ground, and members continued to debate the TCJA's international provisions, $10,000 state and local tax (SALT) deduction cap, and effect on the deficit.

In opening the hearing, "The 2017 Tax Law and Who It Left Behind," Chairman Richard Neal (D-MA) said, "More than a year after the passage of a 2.3 trillion-dollar tax giveaway, this will be the first time we will have a thorough review of the new law and its impact on American families and the economy." He added that the law missed opportunities to improve the lives of working people by doing nothing "to help working families afford childcare, pay for their child's college education, or pay down their own student loan debt."

Ranking member Kevin Brady (R-TX) said, "Repealing the Tax Cuts and Jobs Act, as Democrats have pledged, will not only damage the US economy, kill jobs, reduce paychecks, and send American jobs overseas — it will most hurt women, minorities, individuals with disabilities, and workers without a high school education."

No changes to the TCJA, large or small, are expected to be enacted anytime soon, though members have introduced bills addressing some high-profile technical corrections, and Democrats have introduced bills to dismantle parts of the law like the SALT deduction cap and portions of the new international regime. TCJA rollbacks had the potential to be part of the FY2020 budget debate, though House Budget Committee Chairman John Yarmuth (D-KY) was cited in the Washington Post as saying he is "not hopeful" Democrats will even produce a budget resolution, and, if they do, it will not call for specific tax increases, only higher revenues.

In the near term, Ways and Means is expected to consider IRS reform and retirement security measures next week, though its approach to a third issue, the tax extenders, is currently undecided.

Witnesses at the hearing were:

• Elise Gould, Ph.D., Senior Economist, Economic Policy Institute
• Jason Oh, Professor of Law, University of California Los Angeles School of Law
• Christopher M. Shelton, President, Communications Workers of America
• Nancy Abramowitz, Professor of Law and Director of the Janet R. Spragens Federal Tax Clinic, American University Washington College of Law
• Douglas Holtz-Eakin, President, American Action Forum

Gould focused on income inequality. Oh argued that the TCJA disproportionately benefits the rich. Shelton expressed support for Democratic bills to: repeal the global intangible low-taxed income (GILTI) deduction and deemed return on tangible investments, which he said "creates a direct tax benefit for building a factory or call center or investing in equipment overseas;" tax carried interest as ordinary income; and impose a financial transactions tax. Abramowitz summarized, "To the extent the TCJA dangled the prospects of eased tax liability, tax simplicity, and improved job prospects, we have not seen any real evidence of results for the working poor."

Only Holtz-Eakin spoke in favor of the law, saying "economic performance has improved meaningfully since the passage of the TCJA, including objectives like top-line economic growth, business investment and wage growth," but cautioning that it is simply premature to pass judgement on the TCJA.

Q&A

Rep. Brady asked whether repealing the TCJA's international tax reforms, as Democrats advocate, would help growth in the United States. Holtz-Eakin said it would be unwise to return to the previous system. Similarly, Rep. Adrian Smith (R-NE) gained agreement with the witnesses that no one wants to return to the previous corporate rate and worldwide tax system.

Rep. Lloyd Doggett (D-TX), who sponsors the No Tax Breaks for Outsourcing Act (H.R. 1711) to eliminate GILTI, said the TCJA allows companies investing abroad to pay at most half the statutory corporate rate. Shelton said that is true and that companies are moving jobs overseas as a result and agreed with Doggett that Republican claims that the law would lure companies into coming back to the United States were false.

Doggett also asked about Opportunity Zones under the TCJA. Abramowitz said, if the goal was to aid low-income areas, reports also suggest that some investment is going into areas that are already gentrified.

Rep. Suzan DelBene (D-WA) discussed her bill (H.R. 1560) to make the child tax credit fully refundable, which is intended to benefit children with parents in the lowest income brackets. She reminded the Committee that she introduced an amendment during the TCJA markup to repeal the Cadillac tax, and that doing so has bipartisan support but was nonetheless not included in the bill. She asked Shelton which workers are hurt most by the tax, to which he replied teachers, public officials, telecom workers etc. DelBene observed that those are middle-class earners and repeated that Republicans were not willing to consider repealing the tax in the TCJA, which is "another place we could have done better."

Rep. Mike Thompson (D-CA) suggested that the tax cuts will eventually be funded by cutting Social Security Medicare and Medicaid benefits. Rep. John Larson (D-CT) — who sponsors the Social Security 2100 Act (H.R. 1902) to increase benefits and cost of living adjustments, gradually increase the payroll tax rate to 14.8% from 12.4% and impose the tax on earnings over $400,000 a year — asserted that Social Security and Medicare are not entitlements, rather benefits for which people have paid.

The SALT deduction cap was also revisited. Rep. Bill Pascrell (D-NJ), who has introduced a bill (H.R. 1142) to repeal the SALT limitation and restore the 39.6% individual income tax rate bracket, asserted that the cap was used to pay for everything else in the bill and that Republicans went against their initial indications that they would not reduce the top individual rate. Rep. Tom Reed (R-NY) highlighted the biggest criticism facing Democrats who want to repeal the SALT cap, that it would benefit the wealthiest individuals.

Opening statements are attached. Testimony is here.

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ATTACHMENTS

Brady Statement

Neal Statement