Republicans are signaling a determination to protect their 2017 tax-cut law and prevent President Biden from making good on campaign pledges to partially undo the measure.
The tax law, enacted after GOP lawmakers sought for years to slash rates for individuals and businesses, was one of former President Trump’s biggest legislative accomplishments. But with Democratic control of Congress, Biden has new avenues for delivering on his 2020 promises.
Biden has called for rolling back the Trump tax cuts on people making above $400,000 a year and to partially reverse the reduction in the corporate tax rate. And even though he has indicated tax increases are not his most immediate priority, Biden has noted they could be a way to finance his spending priorities down the line.
GOP lawmakers are nevertheless starting their campaign now to keep the tax cuts intact, arguing that it would be particularly harmful to reverse them during the coronavirus-related downturn.
“That’s going to have a significant impact in a bad way on our economy,” Rep. Kevin Brady (Texas), the top Republican on the House Ways and Means Committee, said in a CNBC interview Monday.
His comments are just the latest public remarks from GOP lawmakers looking to lower the odds that Democrats will enact reversals of the Trump tax cuts.
During last week’s confirmation hearing for Janet Yellen, who was confirmed by the Senate on Monday to serve as Treasury secretary, Senate Republicans repeatedly drew attention to the 2017 law and raised concerns about Biden’s proposals to increase taxes.
“I think it would be a big mistake to raise taxes on individuals and businesses as they struggle through an economic recovery and a pandemic,” said outgoing Senate Finance Committee Chairman Chuck Grassley (R-Iowa).
Republicans have particularly focused on the 2017 law’s reduction in the corporate tax rate from 35 percent to 21 percent. Biden has called for raising the rate to 28 percent.
Sen. Mike Crapo (R-Idaho), who is poised to become the top Republican on the Finance Committee once Senate committees are organized in the current Congress, argued during Yellen’s confirmation hearing that Biden’s proposal to raise the corporate rate would “hit already vulnerable businesses and put U.S. companies once again at a strong competitive disadvantage with the rest of the world.”
Yellen said Biden is not proposing to raise taxes immediately while the pandemic is hurting the economy but wants to repeal parts of the 2017 tax law that benefit wealthy Americans and large companies as part of a larger package that includes significant federal spending on infrastructure and manufacturing. She also said Biden wants to undo portions of the law that he thinks incentivize businesses offshoring operations.
“Although the corporate tax cuts, I think, did improve the competitiveness of American businesses … it’s very important that corporations and wealthy individuals pay their fair share,” she said.
She also said that the administration looks forward to working with other countries to try to stop a “race to the bottom” on corporate taxes.
Brady said on CNBC that Republicans lowered the corporate tax rate to encourage companies to bring jobs and manufacturing to the U.S. and that there are several countries that have lowered their corporate tax rates since the enactment of the 2017 law.
“If the president thinks the rest of the world is sitting around while we try to become competitive, they aren’t,” he said.
Republicans are also emphasizing they want to preserve a provision in the 2017 law that is strongly disliked by politicians and residents in a number of Democratic-leaning states: the $10,000 cap on the state and local tax (SALT) deduction.
Repealing the SALT deduction cap is a priority of Senate Majority Leader Charles Schumer (D-N.Y.) and many Democrats in high-tax states such as New York, New Jersey and California. There is also some interest in rolling back the cap from some GOP lawmakers in those states.
Those who want the full deduction restored argue that the deduction helps states provide robust public services to their residents.
But most Republicans, and some progressives, do not think the cap should be repealed, arguing that doing so would primarily benefit high-income households.
Several GOP senators asked Yellen about the SALT deduction cap leading up to her confirmation.
Yellen said that before making a decision on the deduction cap, the Biden administration should evaluate the impact it has had on state and local governments.
Republicans are further pressing for the tax cuts for individuals in the measure to be made permanent. The law’s individual tax provisions are generally set to expire after 2025.
Yellen said in her written responses to follow-up questions that she “will work with members of Congress to address the expiration of various aspects of the 2017 tax law, including in particular those that impact middle-class taxpayers and families with incomes below the $400,000 threshold.”
Kyle Pomerleau, a resident fellow at the right-leaning American Enterprise Institute, said that compared to the tax cuts for corporations, “Republicans are going to have an easier time defending the individual tax cuts.”
The 2017 tax law made changes to the individual code across the income spectrum, and Biden is targeting individuals and businesses with high incomes, he said.
Conservatives argue that Republicans’ efforts to make the case against undoing the 2017 law could help chip away at Democratic support for rolling back the tax cuts. Even a slight erosion of Democratic support for tax increases could doom their fate given the party’s narrow majorities in the House and Senate.
But in addition to the new Democratic majorities in Congress, Republicans also have to contend with the fact that the Trump tax cuts never achieved the kind of widespread popularity many GOP lawmakers expected.
Ryan Ellis, president of the Center for a Free Economy, said he hopes Republicans can try to make the case to Democrats who face competitive reelection races in 2022 that raising taxes as employment is recovering from its low point in the pandemic would be bad for the economy.
“As far as fights go, it’s not a bad one,” he said.
Americans for Tax Reform President Grover Norquist said Republicans should argue that pre-pandemic economic gains that occurred after enactment of the 2017 law would be reversed if the tax cuts were rolled back.
He said Republicans should either convince some Democrats to not reverse the tax cuts or “make it painful” for Democrats at the ballot box if they pursue tax increases.