June 14, 2023
Ways & Means approves tax bills on TCJA cliffs, clean energy rollbacks
The House Ways & Means Committee approved three separate tax packages during a lengthy markup June 13, the "Tax Cuts for Working Families Act," "Small Business Jobs Act" and "Build It in America Act" that, when combined into the "American Families and Jobs Act," fulfill Chairman Jason Smith's (R-MO) commitment to develop a tax-based economic package springing from field hearings the committee held earlier this year in West Virginia, Oklahoma and Georgia. The final votes on the bills along party lines came after Republicans defeated a host of Democratic amendments addressing issues such as wage requirements and international tax.
The tax bills released by Chairman Smith wouldn't be expected to be enacted as-is, given that the TCJA "pre-cliffs" relating to expensing of R&D costs, interest deduction limitations under IRC Section 163(j), and 100% expensing, remain mired in a partisan standoff over a child tax credit (CTC) expansion sought by Democrats, who are also opposed to rolling back clean energy provisions from the Inflation Reduction Act (IRA) that Republicans want to use as revenue offsets. However, the bills could represent the House GOP's negotiating position for talks later this year aimed at constructing a year-end tax extender package.
Democrats gave indications of their positions through amendment votes and inquiries during the markup. At the start of debate on the Tax Cuts for Working Families Act, Ranking Member Richard Neal (D-MA) said he would like to begin serious negotiations on a package that could gain bipartisan support. He suggested the bills reported out of the Committee aren't likely to be taken up on the House floor in the immediate future and may amount to messaging bills. "There's opportunity here to find a path forward for all of us," Rep. Neal said.
As was alluded to, consideration of the bills on the floor could be controversial. The Washington Post said the tax effort "could become a major liability for Republicans and another headache for Republican leadership," because Freedom Caucus members — who have already held up recent floor activity over opposition to the debt limit bill — "are criticizing the idea of moving forward with hundreds of billions of tax cuts shortly after House Republicans demanded major cuts to spending in exchange for lifting the debt limit."
The basic contents of the bills and amendments to each are as follows:
Also included in the markup was the bipartisan, bicameral United States-Taiwan Initiative on 21st-Century Trade First Agreement Implementation Act (H.R. 4004), which would approve the Agreement between the American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States regarding Trade between the United States of America and Taiwan, done on June 1, 2023. The bill was approved 42-0 after members widely expressed support.
H.R. 3937, Small Business Jobs Act
Rep. Don Beyer (D-VA) said the exclusion for gain on sale of qualified small business stock provision could be an unnecessary boon to high-income individuals.
Rep. Greg Murphy (R-NC) defended the establishment of rural opportunity zones as encouraging companies to go into areas they otherwise might not and provide jobs.
H.R. 3938, Build It in America Act
Chairman Smith suggested that clean energy provisions mostly benefit the wealthy, while Ranking Member Neal suggested the bill's tax provisions are a windfall to corporations and said the focus should instead be on expanding the Child Tax Credit.
Rep. Gwen Moore (D-WI) said there should be no mistake that addressing the TCJA cliffs costs money and that businesses would have been satisfied with a corporate tax rate higher than the 21% set under the TCJA.
Regarding the TCJA cliff on R&D expenses, Rep. Lloyd Doggett (D-TX) said the TCJA cliffs were of the Republicans' own making and were made in exchange for a corporate tax cut. He said the cost of the legislation must be paid for by increasing the corporate rate.
Rep. Ron Estes (R-KS), who sponsored the bill to restore prior law (before 2022) in R&D expensing, said jobs and economic opportunities follow favorable R&D tax policy.
Rep. Estes later cited the Joint Committee on Taxation as saying global implementation of Pillar Two of the OECD-led global tax agreement would cost the US Treasury $120 billion in lost tax revenue, and, if the US is forced to change its tax code to comply with Pillar Two provisions, it would still cost $52 billion. He said the global minimum tax would result in the egregious undertaxed profits rule (UTPR) and Chairman Smith has introduced legislation to combat such taxes, but Estes wants to go further.
Rep. Judy Chu (D-CA) expressed concern that the excise tax on purchase of farmland by countries of concern is discriminatory.
Regarding repeal of certain Inflation Reduction Act clean energy credits, Rep. Drew Ferguson (R-GA) said clean energy credits could be used to lower a corporation's tax, making Democrats' argument about other provisions in the bill unfairly aiding corporations hypocritical.
H.R. 3936, Tax Cuts for Working Families Act
Ranking Member Neal said the bill includes significant spending, which Republicans have roundly criticized Democrats for in the context of other bills.
Materials from the hearing are at available here.