Contentious debate begins on tax reform

Republicans kicked off their markup of potentially historic tax legislation Monday, with Democrats hammering the proposal for slashing breaks for the middle-class to pay for tax cuts for wealthy individuals and corporations.

Democratic questioning zeroed in on the breaks curbed or eliminated in the bill that tend to be enjoyed by the middle class: for teachers, homeowners and others. They railed against the measure for violating a rule enunciated by Treasury Secretary Steven Mnuchin: That the legislation would not give a net tax benefit for the rich.

“This tax plan is blatant fraud being perpetrated against Middle America,” said Rep. Brian Higgins (D-N.Y.), echoing sentiments of the minority on the House Ways and Means Committee panel throughout the hours-long hearing.

{mosads}The chief of staff of the Joint Committee on Taxation, in response to a question, said the legislation doesn’t adhere to the Mnuchin rule.

 

“I would say not,” the committee’s Thomas Barthold said.  “As has been pointed out it provides for net tax reductions, particularly in the first year, up and down the income distribution.”

Mnuchin said in a CNBC interview in November 2016 that “there will be no absolute tax cut for the upper class.”

Republicans replied that the bill would boost economic growth and thus lead to lower taxes and higher wages across the income spectrum.

House Ways and Means Chairman Kevin Brady (R-Texas) said the bill is about “making America’s economy stronger than ever by delivering more jobs, fairer taxes and bigger paychecks across the nation.”

The markup is expected to span several days and wrap up no later than Thursday, when the Senate Finance Committee could release its version of the legislation.

More than five hours into the hearing, Brady offered an amendment that made a series of changes throughout the bill, prompting a new set of howls of protest from Democrats.

“You make a mockery out of this committee,” said Rep. Sandy Levin (D-Mich.).

“What are you afraid of?”

The amendment included extending the exclusion for employer-provided dependent care assistance through 2022 and makes changes to international base-erosion rules and carried interest.

Much of Monday’s session involved Barthold describing the provisions in the bill and taking questions from lawmakers.

Many of Democrats’ questions focused on who would benefit from the tax plan.

The Joint Committee on Taxation has estimated that all income groups would see their taxes go down on average in the short term, but that some income groups would see tax increases in subsequent years.

Levin noted that the committee estimated that in 2023, taxpayers making between $20,000 and $40,000 would see their taxes increase, a result of a series of tax credits in the plan that are set to expire after five years.

Barthold indicated that at that point, 38 million people would fall in those income ranges, and agreed that, on average, they would see their taxes rise.

Taxes in that income range would continue to increase through the end of the decade covered in the analysis.

Levin said those estimates show that Speaker Paul Ryan’s (R-Wis.) comments that the bill would help the middle class should get “four Pinocchios.”

Democrats also took issues with specific provisions in the tax bill.

For example, Rep. Judy Chu (D-Calif.) blasted a provision that expands 529 college savings accounts to an “unborn child.” Rep. Mike Thompson (D-Calif.) expressed concerns about the bill’s elimination of a deduction for casualty losses in the wake of fires in his home state.

Brady said he will work to ensure that victims of the fires will still be able to write off their losses.

Several Democratic lawmakers also raised concerns about the fact that the bill eliminates the deduction for state and local income and sales taxes.

“It’s double taxation and you’re taxing the success of professionals,” said Rep. John Larson (D-Conn.).

The bill’s treatment of the state and local tax deduction has been a major issue in the House GOP conference as well, because a number of GOP lawmakers in states like New York and New Jersey have argued that the deduction is important to their constituents.

As a compromise, House GOP leaders included in the bill a deduction for property taxes of up to $10,000. That provision has satisfied many of the blue-state Republicans, though several have said they’re still “no” votes.

The sole Republican from New York on the panel, Rep. Tom Reed, spoke positively about the compromise.

“When we look at the property taxes in New York, they are highly regressive in my opinion,” he said. “They hit the lower-income folks and those single parents, those seniors in a very harsh way, compared to the income taxes.”

Another concern for Ways and Means Committee Democrats is the bill’s impact on the debt. The Joint Committee on Taxation estimates that the bill would add about $1.5 trillion to the debt over a decade.

Democratic Rep. Ron Kind (Wis.) said “that $1.5 trillion is really a lowball,” because some popular provisions in the bill are set to expire after five years and Congress would likely end up extending them.

Democrats also lashed out at the process, since they weren’t involved in the drafting of the legislation and Republicans are trying to push through the bill quickly.

“One hundred percent of the economy is impacted, and people in my state in the middle class are going to get a tax increase,” Larson said. “A tax increase thanks to the myriad decisions you made behind closed doors.”

Ways and Means Committee Republicans were united in their support for the legislation, arguing that the bill would provide relief for individuals and small and large businesses, boost economic growth and create jobs.

“I’m proud I don’t have to sit here and defend a broken tax code, again and again, as my honorable colleagues on the other side of the aisle have,” said Rep. George Holding (R-N.C.).

Brady noted that in 2019, the lower-income households would have a greater percentage of their taxes cut than higher-income taxpayers.

Rep. Peter Roskam (R-Ill.), chairman of the Ways and Means panel’s tax-policy subcommittee, compared the tax debate to his wife’s oil paintings. Things could look problematic if you look at individual parts, but the bill is good as a whole, he said.

“What we’re proposing is not doing these things in isolation,” he said.

Rachel Roubein contributed.