Costly provisions of the Tax Cuts and Jobs Act of 2017 (PL 115-97) set to expire in 2025 should not be extended to prevent a further widening of the wealth gap and the Tax Code’s favorable treatment of multinational enterprises, according to a policy expert.
Samantha Jacoby, senior tax legal analyst at the Center on Budget and Policy Priorities, told Checkpoint in an interview that “the tax cuts from the 2017 law disproportionately flowed to households at the very top and large corporations.” She said that while proponents of the TCJA argued that the cuts would “pay for themselves through economic growth,” what instead happened is the benefits did not “trickle down to ordinary households” and workers through increased wages.
She testified as much on May 17 before the Senate Budget Committee at a hearing titled “The Rich Get Richer, Deficits Get Bigger: How Tax Cuts for the Wealthy and Corporations Drive the National Debt” amidst stalled negotiations around addressing the U.S. debt ceiling as the threat of a first-ever default looms ever closer.
Jacoby’s opening statement called out tax cuts enacted under the George Bush and Trump presidencies for costing “significant federal revenue, adding to the federal debt, and limiting our ability to invest in policies that broaden opportunity and contribute to shared prosperity.” She added that such policies are responsible for exacerbating income and wealth inequality” and providing a windfall to the wealthy.
The TCJA’s sweeping changes included lowering the corporate tax rate from 35% to 21%; a 20% qualified business income deduction under Code Sec. 199A (also known as the pass-through deduction); lowering the top marginal income tax rate from 39.6% to 37%; and expanding estate tax exemptions. Many provisions of the 2017 reform bill are permanent, but over 20 are scheduled to sunset December 31, 2025. A coalition of over 70 congressional Republicans have introduced the TCJA Permanency Act (HR 976) to preserve those provisions.
“Permanently extending the cuts would benefit households in the top 1% more than twice as much as those in the bottom 60% as a share of their incomes-providing a roughly $41,000 annual tax cut for the top 1% compared to $500 for households in the bottom 60%, on average-at a cost of around $300 billion per year,” Jacoby testified.
The Institute on Taxation and Economic Policy (ITEP) in a recent report on the TCJA Permanency Act found that extending the temporary TCJA provisions would cost $288.5 billion in 2026. ITEP estimated that although the “net effect” of the individual and family provisions on the top 1% of taxpayers would be a $3.6 billion tax increase, this would be more than offset by the pass-through business deduction ($34 billion) and the estate tax cut ($13.7 billion). “The TCJA Permanency Act would therefore have the net effect of lowering taxes by $44.1 billion for the richest 1%,” ITEP concluded.
A day before last Wednesday’s hearing, Senate Budget Committee Chair Sheldon Whitehouse, Democrat of Rhode Island, cited a Congressional Budget Office report in a press release to reflect an estimated $3.5 trillion that would be added to the federal deficit through 2033 if the expiring TCJA provisions were to be made permanent. In his opening statement at the hearing, Whitehouse said: “What Republican tax cuts achieve without fail is (1) increase debt and deficits and (2) lavish billions worth of tax breaks on wealthy donors and large corporations. Trump’s tax cut was so loaded up for the rich that foreign investors enjoyed a larger windfall than the bottom 60% of Americans. Making those tax cuts permanent would send a full 40% of the tax benefits to the top 5%.”
Ranking Member Chuck Grassley, Republican of Iowa, countered in his remarks that CBO data shows that the Code has gotten “more progressive, not less,” over time. Grassley said that according to the CBO, “the bottom 20 percent of households have seen their average federal tax rate slashed from 7.2 percent in 2000 to only 0.5 percent in 2019. In contrast, the top 1 percent have seen theirs drop just 2 percentage points, from 32 percent to 30 percent.”
“[I]f Democrats are concerned about tax cuts for the rich and corporations, they ought to reconsider the ones they enacted in last year’s so-called Inflation Reduction Act,” he said. “Those partisan tax subsidies are now expected to cost hundreds of billions, if not trillions, more than initially expected. And they disproportionately benefit large corporations and wealthy investors.”
Jacoby, whose background includes a J.D. from the University of Pennsylvania Law School and time in practice at two international firms, also testified that the TCJA’s international tax provisions like the global intangible low tax income (GILTI) have “serious design flaws.” She expounded on this with Checkpoint, explaining that the GILTI minimum tax rate of 10.5% dwarfs the domestic corporate tax rate, creating an incentive for profit-shifting to foreign jurisdictions. GILTI also allows companies to “essentially blend the amount of tax that they pay in low tax countries with high tax countries,” Jacoby said.
She clarified that she is not advocating for a full rejection of GILTI as a whole, but rather a “stronger GILTI tax” improved with some “changes around the edges.” Such a modified GILTI could potentially—though it remains to be seen—work with the so-called Pillar Two international minimum tax regime designed by the Organization for Economic Cooperation and Development, which has the support of the Biden Administration. She said there is a “strong case that it would comply, and that would be a good thing.” For more on GILTI’s interaction with Pillar Two, see the OECD’s February guidance.
At the hearing, Jacoby and other witnesses faced pushback from some Republican members on progressive tax policy ideas. In one such exchange, Senator Ron Johnson of Wisconsin went down the line and asked each panelist what they believed should be the “maximum tax rate any American should pay on a dollar of income.” Johnson appeared frustrated when the panelists collectively answered that it is more complicated than providing certain number. When called upon, Jacoby answered that first and foremost, the Code should ensure that the wealthy—those who would be paying the supposed max rate—are paying “any” taxes. She told Johnson that the question “takes away a lot of important context.”
Johnson called her response a “cop out” and the question phase of the hearing moved on. Jacoby said she wished to elaborate that what is being taxed is equally as important as the tax rate itself, as the U.S. economy is “very complicated” given the number of different ways income can be received.
Factors to be considered are what should be included or exempted from income, and what the tax base is. Some can go a long time without paying taxes by holding onto and leveraging assets, she gave as an example.
“It just doesn’t lend itself to easy ‘yes’ or ‘no’ answers, single numbers,” Jacoby said. “If you’re only talking about the rate, you’re only talking about half the equation.”
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