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Yellen Hints at White House Support for Some TCJA Extensions

Posted on Mar. 22, 2024

Republicans were practically gleeful over comments from Treasury Secretary Janet Yellen on March 21 about likely administration support for the extension of large swaths of the 2017 tax overhaul and her agreement that “congressional action” would be needed to implement both pillars of an international tax agreement.

“The president has made clear he would oppose raising back the taxes for working people and families making under $400,000,” Yellen said during a Senate Finance Committee hearing when asked if President Biden supported extending the Tax Cuts and Jobs Act’s individual tax rates.

The TCJA lowered tax rates in all brackets and, unless extended, they will return to their higher pre-2018 levels on January 1, 2026. Republicans and Democrats worry that without action, individual taxes will go up across the board in 2026. It appears likely that Democrats will take the same tack as they did in 2010 and 2012 on the Bush tax cuts, and push to maintain lower rates for all but the top tax bracket.

Across Capitol Hill, Yellen also faced questions from House appropriators about the president’s budget, including expanded IRS funding, Biden’s proposed higher corporate tax rate, and the implementation of clean energy credits from the Inflation Reduction Act.

Yellen repeated the $400,000 pledge when Finance Committee ranking member Mike Crapo, R-Idaho, asked if Biden would likewise support other individual tax features of the TCJA.

“I can’t give you details other than saying that whatever agreement is reached, he’s committed to not raising taxes on households making under $400,000,” Yellen said when asked whether Biden supports keeping the doubled standard deduction, another expensive feature of the TCJA.

Asked if the president would support maintaining the TCJA’s doubling of the child tax credit to $2,000, Yellen said: “He’s committed to not raising taxes on households making under $400,000 and has expressed a commitment to the importance of the child tax credit, which has dramatically lowered child poverty.”

“Well, this is good news,” Crapo responded.

“I was actually surprised that she agreed with that,” Crapo said after the hearing. “I’m not even going to try to put a number on it, but it’s a sizable piece of TCJA.” Those three features alone were scored at the time of the TCJA’s adoption as costing a combined $2.6 trillion (JCX-67-17) — and that’s in 2017 dollars.

Extending those three features and other provisions, including the 20 percent qualified business income deduction, would cost $3.5 trillion over 10 years, according to the Congressional Budget Office.

The agreeable mood dissipated as Crapo turned to blasting key features of Biden’s tax policies, including the clean energy credits in the IRA and a proposal to boost corporate income tax rates from 21 percent to 28 percent, eliminating half of the TCJA’s corporate rate cut.

Senate Finance Committee Chair Ron Wyden, D-Ore., said he is aware of the Biden administration’s stance on renewing aspects of the TCJA. He noted that the TCJA was criticized for cutting taxes on the wealthy and big companies, and that it passed in both chambers without a single Democratic vote in favor, and he called it “a flawed bill.” He advocated bipartisanship for legislation that would address the late 2025 expirations.

“You’ve got to work at it to not get a single Democratic vote on a tax bill,” Wyden said after the hearing. ”Because guess what? We all love cutting taxes — it’s like having another scoop of ice cream on your pie.”

The Two Pillars

Another Republican happy with Yellen’s comments was Finance Committee member James Lankford, R-Okla., who asked if the pillar 1 and pillar 2 international tax agreements would be implemented by “an executive agreement only, or is it planned to be able to come through this committee?”

“I believe a pillar 1 agreement would involve congressional action,” Yellen said. “It’s not something that could be just signed into law and effective with an executive order. Pillar 2 also needs to be adopted by Congress.”

Lankford said that American businesses are operating under the uncertainty of how they would be affected by those agreements and whether they would come through the Finance Committee.

“We will bring it to Congress, and we have tried to keep this committee informed on a bipartisan basis,” Yellen said.

House Ways and Means Committee member Ron Estes, R-Kan., said in a statement to Tax Notes that the Biden administration should have done more to consult with congressional taxwriters before negotiating the agreement in the first place.

“The House Ways and Means Committee has jurisdiction over tax policy, and if the OECD-negotiated tax changes come before our committee, they would face extreme scrutiny and should be rejected,” Estes said. “Secretary Yellen is well aware that any changes to U.S. tax law must originate in the House of Representatives, and Treasury should have consulted with those of us who represent the American people before attempting to give away our tax base to foreign countries.”

House Gripes for Yellen

Yellen also made an appearance at the House Appropriations Subcommittee on Financial Services and General Government hearing March 21, where senior Democrats on the panel spoke in support of the requested expanded IRS budget. House Appropriations Committee ranking member Rosa L. DeLauro, D-Conn., said she was glad to see Yellen’s request for increased funding for Treasury to “ensure the wealthiest Americans and large corporations pay their taxes.”

“The chronic underfunding of the IRS has allowed tax cheats and evaders to get by with limited scrutiny,” DeLauro said. “I will continue to fight to ensure the IRS has the resources it needs to protect honest American taxpayers from those who skirt the law.”

Republicans also voiced concerns with in-process work of the IRS and Treasury on implementation and regulations, and with the Biden administration’s efforts to audit high-income taxpayers. Appropriations Committee member John R. Moolenaar, R-Mich., told Yellen he was concerned that Chinese companies operating in the United States could benefit from the section 45X advanced manufacturing production credit despite intentions to promote domestic benefits from the credits.

Moolenaar introduced the No Official Giveaways of Taxpayers’ Income to Oppressive Nations Act (H.R. 6175) in November 2023, which would prohibit companies affiliated with the Chinese Communist Party from receiving green energy production tax credits.

Yellen agreed that the credit doesn’t preclude Chinese companies from participating — unlike the foreign-entity-of-concern restriction for the section 30D credit — but noted that it is intended to onshore energy supply chains with requirements on domestic component production.

“It doesn’t sound like there are any current restrictions under current law that would prevent a subsidiary of a Chinese company that receives IRA tax credits from sending those payments back to China,” Moolenaar said.

Yellen replied that the credit helps to defray the cost of production in the United States versus in China, given the domestic component production requirements.

Rep. Chuck Edwards, R-N.C., told Yellen that he disagrees with Biden’s proposal to raise the corporate tax rate to 28 percent, and he said he was concerned the administration is using high-income taxpayers and corporations too interchangeably.

“I think we have a philosophical difference on exactly who is the rich — I’m referring to a corporate tax rate increase that is in the budget. A corporation is not a rich individual,” Edwards said. “When we’re talking about a corporate tax entity, I very much believe we are placing American workers at risk by not being as competitive worldwide.”

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