As the lobbyists who had formed a long line outside the Ways and Means Committee hearing room found their seats on Monday morning, they caught up with each other and with the congressional staffers who have yet to make the lucrative leap to K Street. “I didn’t know you did tax!” one suit said to another. Right now, everyone does tax.
So began the first day of markup on House Republicans sweeping tax reform plan, a process expected to take all week. If the lobbyists were merely spectators, then Democrats on the committee weren’t much better. Republicans have no interest in accepting Democratic amendments on a process procedurally designed to be strictly partisan. It is “THEATER,” as one red-faced, white-haired Democratic committee member, Connecticut Rep. John Larson, bellowed at the committee chairman, Texas Rep. Kevin Brady, early in the hearing. Larson had already knocked a stack of books off of his desk in a fit of prepared pique.
The markup does, however, give Democrats an opportunity to workshop the talking points they’ll use to try to kill the bill.
The first hours of the hearing were devoted to quizzing Tom Barthold, chief of staff of the Joint Committee on Taxation—sort of like the Congressional Budget Office for tax policy—about the particulars of the Tax Cuts and Jobs Act that Republicans unveiled last week. Except for the nerdiest of tax nerds, it was a dry affair. Texas Rep. Sam Johnson, the retiring 87-year-old veteran of the committee seated just to Brady’s right, appeared to doze off for much of it.
Several Democrats asked Barthold how much money the Trump family might make off of the bill, which would eliminate the alternative minimum tax and the estate tax and dramatically lower the top tax rate on “pass-through businesses,” hundreds of which comprise the Trump Organization.
“My colleagues are extremely capable,” Barthold said in response to one such query, “but they are not auditors.” Much of Barthold’s afternoon was spent avoiding partisan traps.
Democrats also made much hay of the bill’s elimination of the state and local income tax deduction and tightening of the mortgage interest tax deduction, their greatest pressure point against GOP members from the New York, New Jersey, Illinois, and California delegations. Several members also homed in how the bill’s proposed use of “chained CPI,” a slower-growing inflation index, would mitigate the plan’s middle-class tax benefits. (New York Rep. Joe Crowley surmised that Republicans would move to index Social Security cost-of-living adjustments to chained CPI next, amounting to a benefit cut.) Georgia Rep. John Lewis pointed out how the bill would end the historic preservation tax break, a boon to developers revitalizing the downtown areas in major cities. Poke, poke, poke.
Democrats’ most fruitful period of questioning, though, came from Michigan Rep. Sander Levin, a former chair of the committee and, until late last year, the Democratic ranking member. Using the tables the JCT had prepared showing the bill’s distributional effects—which income levels get how much of tax cut or increase—Levin moved to the bill’s effects in 2023, when much of the middle-class tax cut suddenly disappears.
“It would appear that beginning in 2023, people making $20,000 through $40,000 would be paying more income taxes,” Levin said. “Is that correct?” That’s what the column showed, Barthold confirmed.
“Do you know how many Americans in those categories are included?” Levin continued. Barthold’s projections showed that 22 million “tax filing units” would be in the category of $20,000 to $30,000 in income by 2023, and another 16 million between $30,000 and $40,000.
“38 million, beginning in 2023, would be paying higher taxes,” Levin stated.
“On average, sir,” Barthold said.
Democrats can pick away at all sorts of individual provisions that might harm certain constituencies and interest groups. As far as a big unified message to harp on constantly, though, “38 million low- and middle-income people would be paying higher taxes” would seem like the winner. Other estimates, including the Tax Policy Center’s distributional analysis released Monday, showed roughly the same breakdown.
What makes this tricky for Republicans is that the tax cuts for certain “tax filing units” turn into tax increases in 2023 largely because of a budget gimmick they’re using to keep the cost of the bill down.
In order to offset much of the bill’s permanent corporate tax cut, Ways and Means Republicans decided the night before the bill was released to eliminate one of the bill’s new offerings—a $300 “family flexibility” tax credit for adult filers—after five years. Because of that and a couple of other sneaky details in the bill, there’s suddenly a benefit cliff facing taxpayers at the end of 2022.
Republicans on the committee say they have no intention of letting these $300 credits expire after 2022. They’re making the bet that future Congresses will reauthorize this broad benefit for the middle class when the time comes. Congress could extend it down the road, on a bipartisan basis, and not have those extra five years in the 10-year window count against their score in the Tax Cut and Jobs Act. But that assumption can’t actually be built into the bill.
If Democrats can draw blood on the idea that millions of low- and middle-income people are facing a tax increase, then Republicans will be forced to make a choice. They can either open up to the public about how there’s not really a tax hike coming and that the legislation only says that because they’re trying to mask the true cost of their bill. Or they can cede that the talking point is too damaging and change their proposal—requiring new, difficult choices about which other provisions to pare back to cover the cost of extending those family tax credits. Maybe the estate tax, which will be fully repealed a couple of years after the family tax credit evaporates, would have to stay on the books? We’ll leave it to them to entertain such traumatizing possibilities.