The Senate Finance Committee (SFC) held an April 24 hearing to examine early impressions of the new tax law. The Tax Cuts and Jobs Act (TCJA) (P.L. 115-97) was enacted last December.
“The new Republican tax law is shaping up to be one of history’s most expensive broken promises…,” SFC ranking member Ron Wyden, D-Ore., said during opening statements. “The ink on the new tax law is barely dry, but already there are calls for a second round of tax cuts,” he added.
The White House and top Republican lawmakers have recently been discussing a “second phase” of tax reform. According to House Ways and Means Committee Chairman Kevin Brady, R-Tex., and National Economic Council Director Larry Kudlow, making permanent the individual tax cuts in the TCJA will likely be a part of any new tax legislation, (TAXDAY, 2018/04/09, W.1). However, any new tax bill will need Democratic support under Senate rules.
The Joint Committee on Taxation (JCT), Congress’s nonpartisan scorekeeper, released distribution tables for the TCJA on April 23. The JCT estimates that approximately 400,000 higher-income taxpayers will benefit the most from the Section 199A passthrough deduction under the TCJA. The JCT released the report, Tables Related to the Federal Tax System as in Effect 2017 Through 2026, JCX-32R-18, specifically for the SFC hearing examining the new tax law.
“According to the new JCT figures, nearly half of the benefit of the new passthrough rate is going to taxpayers with incomes of $1 million or more,” Wyden said. “Once again, it’s the fortunate few reaping the benefits,” he added.
However Hatch, citing to the Congressional Budget Office (CBO), praised the TCJA’s passthrough provision for growing small businesses and the economy. “Why would we not want to get more money back to these business owners so that they can grow their businesses, hire more employees, and improve our economy,” Hatch asked his Democratic colleagues.
Professors David Kamin, New York University Law School and Rebecca Kysar, Brooklyn Law School, both criticized the TCJA, which the CBO estimates will add $1.9 trillion to the federal deficit through 2028. “With the federal budget already on an unsustainable fiscal course, this legislation makes the situation significantly worse,” Kamin testified.
Moreover, if Congress makes the expiring provisions under the TCJA permanent, the estimated deficits will increase, cautioned Kysar. This is a central focus for GOP tax writers for the “second phase” of tax reform. “The $1.9 trillion estimate will also likely be much greater if the law’s expiring provisions, or a portion of them, are made permanent,” Kysar said.
Dr. Douglas Holtz-Eakin, president, American Action Forum, also cautioned against uncontrolled spending. “Had we done a revenue neutral tax reform, my first choice, my fear is that it would have been unwound due to the pressures on the deficit that come from that,” Holtz-Eakin said. “It’s hard to do good tax reform; it’s harder to keep it. If you do not control the spending side of the budget, you will not keep it.”
However, it is still too early to accurately judge the degree to which the TJCA will improve productivity and economic growth, Holtz-Eakin added. “The likely growth effects over the long-term will fall short of the theoretical ideal but will ultimately be positive,” he predicted.
By Jessica Jeane, Wolters Kluwer News Staff