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TCJA Extension Battle Lines Emerge Among House Taxwriters  

Posted on Apr. 12, 2024

Republican and Democratic taxwriters sparred over whose tax policies had boosted the economy the most as the formal debate over extending the Tax Cuts and Jobs Act started in the House Ways and Means Committee.

This initial hearing — the first of likely many — mirrors what is already happening at Washington’s think tanks, where the 2025 tax cliff is a hot topic. One thing economists and others agree on: If the TCJA expires, taxes will go up.

That fact was behind recent comments from Treasury Secretary Janet Yellen that President Biden would oppose tax increases that would hit those with incomes below $400,000 if the TCJA’s individual income tax provisions aren’t extended.

“Congress must act soon to prevent what would be the largest tax hike in history on workers, families, farmers, and small businesses,” said House Ways and Means Committee Chair Jason Smith, R-Mo. He added that by 2026 the average family of four with $75,000 in income would see a tax increase of $1,500 if the TCJA’s individual income tax provisions expire.

Despite some areas of agreement over the TCJA, Democrat after Democrat has referred to the 2017 law as a tax scam that benefited the wealthy. The parties are far apart on approach, with Democrats pushing for higher corporate income tax rates, a global minimum tax rate, and generally higher taxes on the wealthy and their trusts.

Republicans credited surging tax collections in recent years to the 2017 tax code overhaul, while blasting Democrats’ Inflation Reduction Act as largely benefiting big corporations and high-income electric vehicle drivers. Democrats credited a surging GDP — up 3.4 percent after inflation in the fourth quarter of 2023 and 4.9 percent in the third quarter — to their policies, while continuing to describe the TCJA as a giveaway to the rich and large corporations.

Smith credited the TCJA with raising tax collections and boosting wages across the income scale. He asserted that the law “provided a critical blueprint that Congress can build upon to make lasting improvements to our tax code.”

Republicans’ star witness at the hearing was former Sen. Phil Gramm, a onetime Democrat who served as a Republican on the Senate Finance Committee. Gramm credited the lower corporate income tax rate set by the TCJA with boosting the economy. “It created an environment in which people invested more money and created more jobs,” he added.

“The TCJA flat out was good tax policy,” said Ways and Means Committee member Lloyd Smucker, R-Pa., who referred to the hearing as the “official kickoff” of the debate on extending the tax law.

Temporary vs. Permanent

Smith used analysis from the Joint Committee on Taxation to help frame Democrats’ IRA clean energy and EV tax credits as subsidies for large corporations and high-income taxpayers. He pointed to an analysis that found C corporations with over $1 billion in gross receipts received more than 90 percent of the benefits from both the section 48 energy credit and the section 45 credit, as well as data showing taxpayers with income of more than $100,000 represented 22 percent of all filers of the sections 30D and 45W tax credits in 2021 and received 84 percent of the credits’ benefits.

Meanwhile, the permanent cut of corporate rates from 35 percent to 21 percent is at the heart of Democrats’ complaints.

“The heart of the Trump tax scam was a massive budget-busting 40 percent cut in the corporate tax rate,” said Ways and Means member Lloyd Doggett, D-Texas, who added that President Trump and Republicans prioritized making the corporate tax cut permanent “and left everybody else hanging in temporary.”

An analysis by the Urban-Brookings Tax Policy Center estimated that in 2019, 63 percent of the TCJA’s benefits would go to the top 20 percent of income earners, with the rest spread over the other quintiles. By 2027, if the temporary parts of the TCJA expire, leaving permanent features — particularly the 21 percent corporate income tax rates — 90 percent of that remaining benefit would flow to the top 20 percent of income earners and 62 percent would go to the top 1 percent.

“The cake went to big business, and we know where the crumbs went,” said Ways and Means member Bill Pascrell Jr., D-N.J.

If the TCJA expires, tax rates across tax brackets would rise, the child tax credit would go back to $1,000, the standard deduction would be cut by 50 percent, as would the estate and gift tax exemption, and the section 199A passthrough deduction would evaporate.

Gramm, however, countered estimates that the TCJA’s tax cuts went mainly to higher-income Americans by saying that half of households don’t owe anything on their federal taxes.

“Tax cuts are for taxpayers,” Gramm said.

Bye-Bye Tax Breaks

A straight extension of the TCJA’s individual tax provisions would cost $3.5 trillion over 10 years, according to the Congressional Budget Office. Extending corporate tax breaks from the TCJA would likely add another $1 trillion. Allowing offsets, such as the state and local tax deduction limitation, to expire would drive the cost higher.

The TCJA was the first overhaul of the tax code since 1986. Initially scored by the CBO at adding $1.5 trillion to the deficit over 10 years, the bill included $5.5 trillion in tax breaks and $4 trillion in offsets, or tax increases.

Two of the provisions — cutting tax rates across the income brackets and reducing the corporate income tax rate from 35 percent to 21 percent — were estimated to cost more than $1 trillion each. The cut in the corporate rate is permanent, but the lower individual rates expire at the end of 2025, along with much of the rest of the TCJA’s tax provisions.

One of the lesser-known individual income extenders expiring in 2025 is the other dependent credit, which allows claimants to take a $500 credit for each dependent who is ineligible for the child tax credit.

Other expiring provisions are hyperspecific. A provision requiring itemizing gamblers to combine gambling losses and related expenses — with the total deductible limited to their total winnings — is scheduled to sunset, as is a bicycle commuter reimbursement provision, which requires the entirety of employer reimbursements for bicycle commuting expenses to be subject to income and payroll taxes.

Ways and Means Committee member Earl Blumenauer, D-Ore., reintroduced the Bicycle Commuter Act this Congress. It would exclude up to 30 percent of the employer benefit from taxation and expand the provision to include bike-share and e-bike expenses.

The gambling provision was estimated to raise about $100 million, and the bicycle reimbursement provision was estimated to raise less than $50 million over a 10-year budget window, according to the JCT.

TCJA Impacts

After its initial estimate, the CBO later upped its estimate for the 10-year impact on deficits to $1.9 trillion before lowering it to $1.6 trillion. CBO Director Phillip Swagel has said that because of the economic gyrations from the COVID-19 pandemic, his agency has no plans to revisit the score.

Republicans credited the TCJA with contributing to the biggest surges since the Korean War for individual tax collections in 2022 and corporate tax collections in 2021. Both corporate and individual tax collections surged in 2021 after pandemic declines, while taxes paid by individuals rose even more sharply in 2022, fueled largely by capital gains taxes.

While tax collections can increase following a cut in tax rates, the increase is typically less than projected under the previous higher tax rates. In the first two years after the TCJA became law, tax collections fell compared with projections. The CBO found that tax collections in 2018 and 2019 were lower than it had projected before the TCJA, although the decline in both years was less than 1 percent.

GDP grew at a 2.65 percent annual average rate during the two years following the TCJA’s enactment, more than the 2.52 percent average rate during the preceding five years but less than 2017’s 3.05 percent rate.

While costly, if the TCJA’s individual and estate tax provisions were made permanent, that would have a positive impact on the economy. The Tax Foundation estimates permanence would boost GDP by 0.5 percent and employment by 686,000 in full-time equivalent jobs.

The hearing lasted 4 hours and 15 minutes, and Smith made it clear there would be more.

“This is the beginning of what we are going to see over the next 20 months with the expiration of $4.3 trillion worth of tax cuts on all Americans,” Smith said. “So we have a lot of work before us.”

Cady Stanton contributed to this article.

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