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April 19, 2023

Senate Budget, House Small Business Committees hold tax hearings

The April 18 Senate Budget Committee hearing "A Rigged System: The Cost of Tax Dodging by the Wealthy and Big Corporations" rekindled the years-long debate in Congress over whether taxes should be held at current rates under the 2017 TCJA or increased through proposals like expanding payroll taxes, enacting a "Buffett Rule" minimum tax on the wealthy, and international tax changes. Also on April 18, a House Small Business Committee hearing, "Paying Their Fair Share: How Tax Hikes Crush the Competitiveness of Small Businesses" included discussion about TCJA provisions expiring in 2025, including the Section 199A passthrough deduction, but focused more on relief from the tax code IRC Section 174 R&D amortization and IRC Section 163(j) interest deduction TCJA cliffs that took hold in 2022 and the bonus depreciation phasedown.

In an opening statement at the Senate hearing, Chairman Sheldon Whitehouse (D-RI) advocated bills he has introduced, including:

  • The Medicare and Social Security Fair Share Act to require Social Security contributions on all income above $400,000, however earned, which includes the Biden budget tax plan to extend the solvency of Medicare by 20 years (the wage base is currently capped at $160,200);
  • The Paying a Fair Share Act to codify the "Buffett Rule" with a minimum 30% tax rate on income over $1 million per year, whatever the source; and
  • The No Tax Breaks for Outsourcing Act to end the preferential tax rate for offshore profits by eliminating the deductions for global intangible low-tax income (GILTI) and foreign-derived intangible income (FDII) and apply GILTI on a per-country basis.

Witnesses at the hearing were former Treasury official Kimberly Clausing, now at the UCLA Law School, Danny Yagan of the University of California, Berkeley and William McBride of the Tax Foundation. In testimony, Clausing advocated fully taxing foreign income at the U.S. rate on a country-by-country basis and eliminating the tax-free return on foreign tangible assets. She also said extending the TCJA provisions that expire at the end of 2025 would total over $3 trillion over 10 years or $1.8 trillion if restricted to extensions for just those with income below $400,000.

Yagan coauthored research that estimated that the Forbes 400 wealthiest Americans from 2010 to 2018 paid an average Federal individual income tax rate of 8 percent on their full income, including capital gains on unsold stock.

McBride said the Code's increasing complexity adds to its burden and argued for simplicity and neutrality.

Chairman Whitehouse said the tax code allows corporations and wealthy individuals to escape tax by moving profits offshore and asked whether small local businesses are put at a disadvantage because of that. Clausing said multinational companies can take advantage of their multinational structure to shift income offshore, which gives them an advantage over small businesses.

Ranking Member Chuck Grassley (R-IA), a former Finance Committee Chairman, said research has found that the 2017 TCJA benefited US businesses and likely reduced incentives to shift earnings overseas. McBride said the TCJA helped stem inversions and the lockout effect of deferral. He said there are some very complicated features of the GILTI provision.

Asked by Senator Tim Kaine (D-VA) about carried interest, Yagan said similar income should be taxed similarly, including the labor income of hedge fund managers, or else it will induce economic distortions that raise the economic burden per dollar of revenue that Treasury brings in. McBride defended the use of carried interest in start-ups.

Under questioning from Senator John Kennedy (R-LA), Yagan called for equalizing labor and capital tax burdens at the top, possibly through the billionaire's tax, and taxing certain unrealized gains.

In response to questioning from Senator Mike Braun (R-IN), McBride said the exclusion for employer-provided health coverage creates a distortion by tying health care to employment and incentivizes insurance companies and third-party payers to have a larger role.


House Small Business Committee Chairman Roger Williams (R-TX) said in an opening statement: "In 2017, Republicans passed the most significant changes to the tax code in decades. This legislation allowed small businesses to save on tax bills and benefited families of all income brackets. Today, we will hear firsthand accounts of the many success stories from this major update to our nation's tax code for small businesses in a variety of industries. As this law ages, some of the provisions are beginning to expire or have their benefits reduced. It is imperative that we begin looking at this law and find the provisions that helped Main Street the most, such as lowering individual income tax rates that helped 70% of all small businesses that are organized as pass-through entities."


  • Lynn Mucenski Keck, Principal & National Lead, Federal Tax Policy, Withum
  • Russell Boening, President, Texas Farm Bureau
  • Warren Hudak, President, Hudak & Company
  • Anne Zimmerman, Founder & Owner, Zimmerman & Co CPAs Inc.; Co-Chair, Small Business for America's Future

Rep. Greg Landsman (D-OH) said addressing the 174 R&D and 163(j) interest deductibility cliffs should be able to garner bipartisan support. Reps. Chris Pappas (D-NH) and Nick LaLota (R-NY) also advocated for the IRC Section 174 change. Witness Mucenski Keck said some small businesses may be forced to close if R&D expensing, as opposed to 5-year amortization, is not restored.

More generally, Republican members and witnesses sought to make the case that small businesses use the money they save from tax relief provisions to reinvest in their businesses through property, plants, and equipment.

Materials from the Senate Budget hearing are available here.

Chairman Whitehouse's opening statement is available here.

Chairman Williams' opening statement is available here.


Contact Information
For additional information concerning this Alert, please contact:
Washington Council Ernst & Young
   •  Any member of the group at (202) 293-7474.