[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]
EXPANDING ON THE SUCCESS OF
THE 2017 TAX RELIEF TO HELP
HARDWORKING AMERICANS
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HEARING
BEFORE THE
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
APRIL 11, 2024
__________
Serial No. 118-FC24
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Printed for the use of the Committee on Ways and Means
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-532 WASHINGTON : 2024
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COMMITTEE ON WAYS AND MEANS
JASON SMITH, Missouri, Chairman
VERN BUCHANAN, Florida RICHARD E. NEAL, Massachusetts
ADRIAN SMITH, Nebraska LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania MIKE THOMPSON, California
DAVID SCHWEIKERT, Arizona JOHN B. LARSON, Connecticut
DARIN LaHOOD, Illinois EARL BLUMENAUER, Oregon
BRAD WENSTRUP, Ohio BILL PASCRELL, Jr., New Jersey
JODEY ARRINGTON, Texas DANNY DAVIS, Illinois
DREW FERGUSON, Georgia LINDA SANCHEZ, California
RON ESTES, Kansas TERRI SEWELL, Alabama
LLOYD SMUCKER, Pennsylvania SUZAN DelBENE, Washington
KEVIN HERN, Oklahoma JUDY CHU, California
CAROL MILLER, West Virginia GWEN MOORE, Wisconsin
GREG MURPHY, North Carolina DAN KILDEE, Michigan
DAVID KUSTOFF, Tennessee DON BEYER, Virginia
BRIAN FITZPATRICK, Pennsylvania DWIGHT EVANS, Pennsylvania
GREG STEUBE, Florida BRAD SCHNEIDER, Illinois
CLAUDIA TENNEY, New York JIMMY PANETTA, California
MICHELLE FISCHBACH, Minnesota JIMMY GOMEZ, California
BLAKE MOORE, Utah
MICHELLE STEEL, California
BETH VAN DUYNE, Texas
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
MIKE CAREY, Ohio
Mark Roman, Staff Director
Brandon Casey, Minority Chief Counsel
C O N T E N T S
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OPENING STATEMENTS
Page
Hon. Jason Smith, Missouri, Chairman............................. 1
Hon. Richard Neal, Massachusetts, Ranking Member................. 2
Advisory of April 11, 2024 announcing the hearing................ V
WITNESSES
Senator Phil Gramm, Former Chairman, Committee on Banking,
Housing, and Urban Affairs, United States Senate............... 4
Dr. Paul Winfree, President and CEO, Economic Policy Innovation
Center......................................................... 9
Michael Ervin, Founder, Coal River Coffee Company................ 19
Austin Ramirez, CEO, Husco International Inc..................... 24
Kathryn Anne Edwards, Ph.D., Labor Economist..................... 32
MEMBER QUESTIONS FOR THE RECORD
Member Questions for the Record to and Responses from, Austin
Ramirez, CEO, Husco International Inc.......................... 138
PUBLIC SUBMISSIONS FOR THE RECORD
Public Submissions............................................... 141
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EXPANDING ON THE SUCCESS OF
THE 2017 TAX RELIEF TO HELP
HARDWORKING AMERICANS
----------
THURSDAY, APRIL 11, 2024
House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to call, at 2:05 p.m., in Room
1100, Longworth House Office Building, Hon. Jason T. Smith
[Chairman of the Committee] presiding.
Chairman SMITH. The committee will come to order.
Seven years ago, Republicans passed the Tax Cut and Jobs
Act under President Trump, delivering relief to millions of
families and small businesses, and creating the best economy in
our lifetime. In the first two years after passage of that tax
relief, real wages grew nearly five percent, the fastest growth
in 20 years; real median household income increased by $5,000,
a bigger gain than the prior eight years combined; the
officially-reported poverty rate dropped to its lowest level in
U.S. history; and Black and Hispanic unemployment reached
historic lows.
I expect my colleagues will use the same talking points
about that bill being all about tax breaks for the wealthy. But
the truth is the Congressional Budget Office found that the
2017 tax law increased the share of taxes paid by the top one
percent of households, while reducing the burden paid by lower-
income earners. As a result of the Tax Cut and Jobs Act,
Americans earning under $100,000 received an average tax cut of
16 percent. Facts are clearly facts.
On the other hand, President Biden's so-called Inflation
Reduction Act forced taxpayers to subsidize big banks and
corporations. More than 90 percent of that bill's special
interest tax subsidies for electricity go to companies with
over $1 billion in sales. They also included $7,500 tax credits
to purchase luxury EVs. More than 80 percent of those credits
are claimed by households earning six figures.
Democrats want to blame the 2017 tax cuts for adding to the
debt, while ignoring the $10 trillion they and President Biden
spent during just the first 2 years of total Democrat control
of Congress. Under the Republicans' tax law, revenues reached a
record high of $4.9 trillion in 2022, nearly $1 trillion more
than CBO's projections. Corporate tax revenues were 17 percent
above projections. In fact, in the four years following
enactment of the tax law, revenues averaged an increase of $205
billion per year above what was estimated.
The 2017 Trump tax cuts provided a critical blueprint that
Congress can build upon to make lasting improvements to our tax
code. The House has already shown strong bipartisan support for
key provisions of the 2017 law by passing the Tax Relief for
American Families and Workers Act earlier this year. But there
is still much work to be done. Unfortunately, President Biden
has shown he is willing to throw away these hard-won gains.
The President has repeatedly said that a budget is a
statement of values. His most recent budget shows that he
clearly values higher taxes and more inflationary spending over
the well-being of the American people. The current price tag on
Biden's tax hikes is five trillion, exploding to seven trillion
with his suggestion to fill the gap if middle class tax cuts
are extended.
Here is the bottom line: Congress must act soon to prevent
what will be the largest tax hike in history on workers,
families, farmers, and small businesses. If the 2017 tax cuts
expire, the average family of four earning $75,000 will see
their taxes increase by $1,500 a year starting in 2026. A
family of five with two earners making around $100,000, would
see a tax increase of nearly $7,500 a year.
President Biden and many other Democrats have called for
repeal of the Trump tax cuts. Republicans won't let that happen
because middle-income earners will be hit the hardest by the
coming tax hikes. Small businesses will also face massive
hardship with the expiration of the 199A small business
deduction. We will see even more closed-for-business signs up
and down Main Street when their Federal tax rate jumps to over
40 percent.
The hard work this committee put into doubling the Child
Tax Credit, which we reaffirmed just a couple months ago in the
Tax Relief for American Families and Workers Act, will be
slashed in half after 2025. The safeguards we put in place to
make it harder for the IRS to go after family farms and ranches
will sunset after 2025. Democrats continue to rave about the
economy, but they are forgetting one thing: you can't pay your
mortgage, feed your family, or put gasoline in your car with a
jobs report.
We need pro-growth solutions that will restore the economy
we had under President Trump. Our committee has already made
progress on pro-growth and pro-family tax policies this
Congress. Now we need to come together and look at other ways
we can strengthen our competitive edge against China and ensure
our tax code is a help, not a hindrance to workers, families,
farmers, and small businesses just trying to get by.
Chairman SMITH. I am pleased to recognize Ranking Member
Neal for his opening statement.
Mr. NEAL. Thank you, Mr. Chairman. So we don't want to
disappoint you, Mr. Chairman, in terms of the script.
[Laughter.]
Republicans have now wasted the last 16 months on chaos,
conspiracies, and, of course, talk of more tax cuts, only to
end up back where they always do, proposing to cut taxes for
wealthy and well-connected people. I have been around long
enough to know that the life cycle of this governing goes as
follows: cut taxes for special interests, the top one percent,
and then take away basic benefits for middle-income Americans
and those at the lower end of the economic spectrum, complain
about debt, complain about costs, and then demand, when there
is a Democratic president, that we should balance the budget.
I was here long enough to see the Bush tax cuts in 2001 and
2003, $2.3 trillion worth of tax cuts, while we simultaneously
fought 2 wars and witnessed the collapse of Wall Street.
In the last three decades our Republican colleagues have
skyrocketed the deficit with trillions of dollars in tax cuts,
largely for people who don't need them and, in my memory, for
people who weren't even asking for them, but always with the
same result: the top one percent will benefit, with very little
for the American worker.
The American economy right now is humming along. Three
straight years of unemployment under four percent. Even
productivity is up during the Biden Administration. I call
attention to that because the simplicity of always arguing for
tax cuts takes away from the complexity of trying to govern
beyond that.
In 2017 Ways and Means Democrats, we saw the corporate tax
cut give away for what it was, a scam. We knew that this plan
would disproportionately benefit the wealthy and the well-
connected. We knew it wouldn't pay for itself, which I hope we
will have a thorough opportunity to discuss this afternoon. We
also knew that there were large corporations and that were not
workers who would not benefit.
Six years since that tax plan was signed into law, we have
been proven right on every single count. It didn't pay for
itself, it didn't increase revenue, and it certainly did not
increase wages. A recent study, whose authors included the JCT,
a well-regarded group in this town, let this idea I am about to
offer sink in. They found that all of the corporate tax gains
from TCJA went to shareholders and high-paid executives.
If you wonder what is driving the political debate in
America right now and the populism that has engulfed the left
and the right in the base, this has been a big contributor.
There is very little that is really flowed to average workers
from those tax cuts: 56 percent of the tax cuts enriched
shareholders, the remaining 44 percent lined the pockets of
many executives, 0 percent went to workers. I repeat, zero.
Democrats took a different path, and now our economy is the
strongest in the world. And think of the recovery that we have
witnessed compared to the rest of the world. America's economic
boom continues to defy expectations. Fifteen million jobs
created during the presidency of Joe Biden. That might even get
close to the 22 million jobs that were created during Bill
Clinton's presidency. Wages and wealth are on the rise, and
consumer confidence is reaching new highs. This is no accident.
Our investments in American workers and families have powered
this record growth.
New jobs in clean energy, manufacturing, lower health care
and energy costs, and holding wealthy tax evaders accountable.
We have proof that when you use the tax code to invest in those
who need it most, we all benefit. Workers, families, and our
communities should come first. In the words of Joe Biden,
``Grow the economy because that hurts nobody.''
And our workers aren't asking for much, just a fair shot to
unlock the fullest potential of that worker. They need basic
workplace supports because it is the road that gets you not
just to work, but to success in American life. It is child care
that helps to keep you there, and it is paid leave that will
keep you employed. What if we invested in our children the way
that many on this panel would invest in the corporate salaries
of top executives?
There are 20 years of data showing trickle-down economics
doesn't work. And yet today we will see again a revisionist
history of wishful thinking on a large failure of fiscal policy
in decades. If workers and middle class are actually your
priorities, let's put them ahead of big corporations and
billionaires as we proceed.
Mr. NEAL. And with that I yield back the balance of my
time.
Chairman SMITH. Thank you, Ranking Member Neal. I will now
introduce our witnesses.
Senator Phil Gramm is senior advisor to U.S. Policy
Metrics, and former chairman of the Committee on Banking,
Housing, and Urban Affairs in the United States Senate.
We have Dr. Paul Winfree as president and CEO of the
Economic Policy Innovation Center, and the former Deputy
Assistant to the President for Domestic Policy.
We have Michael Ervin as the founder and co-owner of Coal
River Coffee Company in Saint Albans, West Virginia.
We have Austin Ramirez as the president and CEO of Husco
International, based in Waukesha, Wisconsin.
And then Dr. Kathryn Anne Edwards is a Ph.D. labor
economist and public policy consultant.
Thank you all for joining us today. Your written statements
will be made part of the hearing record, and you each have five
minutes to deliver remarks.
Senator Gramm, you may begin when you are ready.
STATEMENT OF PHIL GRAMM, FORMER CHAIRMAN, COMMITTEE ON BANKING,
HOUSING, AND URBAN AFFAIRS, UNITED STATES SENATE
Mr. GRAMM. Thank you, Mr. Chairman and Ranking Member Neal.
I appreciate having an opportunity to be here today. I am
afraid I talk slow, so I better get moving.
Any discussion of the merits of the 2017 tax cut has got to
begin with talking about the corporate tax cut which took
America from the highest corporate rate in the world to a 21
percent rate, which was roughly the average rate of all
developed countries in the world. All available evidence
suggests that the tax cut and reductions in regulatory burden
that occurred at the same time that the tax cut was implemented
caused real gross national product to rise by three percent in
2018, the highest growth rate in 13 years.
Now, there was no big deal about a three percent rate of
growth since it had been the average prior to 2008. What was an
extraordinarily big deal, and one that I hope this committee
will recognize, is that there was a dramatic change in median
household income, which soared, and the poverty rate, which
plummeted.
As a longtime student of tax policy and a former member of
the Senate Finance Committee, I was astonished at the
unexpected depth and breadth of the benefits that flowed from
the 2017 tax cut.
According to the Census Bureau--and I want to put this
information in the record so people have it--real median
household income surged the year after the tax cut by $5,220.
That is almost 50 percent larger in inflation-adjusted dollars
than the next highest income gain, and 11 times the average
annual gain since 1967. Every quintile of earners saw their
income go up by a record amount in the last 50 years. The
bottom quintile saw their income rise by 9.4 percent in real
dollars. The second quintile saw their income rise by 7.4
percent, the third quintile 6.9 percent, the fourth quintile
7.8 percent, and the top quintile by 7.2 percent. And those
figures are from the Census Bureau.
The poverty rate plummeted by the most in half a century,
hitting a new low. Now, this is a startling statement, and I
would appreciate it if everybody listened to it: No tax change
or spending increase in over 50 years by the United States
Government delivered so great an impact on median income and
poverty.
Now, how did that happen? Obviously, owners of public
companies benefited. Stock markets soared in 2017 in
anticipation of the tax cut and in 2018 and 2019 in response to
it.
But who owns these stocks? According to the Tax Notes, 72
percent of the value of all domestically held stocks are owned
by pension plans, 401(k)s, IRAs, and charitable organizations,
or held by life insurance companies to fund annuities and
benefits.
Corporate tax rates receive less attention than personal
income tax rates only because Americans don't understand that
corporations pay no taxes. A corporation is just a pass-through
legal structure, a piece of paper generally filed in a filing
cabinet in Delaware. That is what a corporation is. When the
corporate tax rate is increased, corporations try to pass the
cost onto the consumer. To the degree that the entire cost is
not passed to the consumer, the tax increase is then passed to
workers and investors.
Now, economists have studied this in great detail, and most
economic studies suggest that 50 to 70 percent of the corporate
tax increase is borne by workers, and 30 to 50 percent is borne
by investors. If you consume, the corporate tax rate hits you
at least once. If you consume and work for a corporation, it
hits you twice. If you consume, work, and invest your
retirement funds in corporate equities, it hits you three
times.
Many Americans don't pay individual income taxes, but all
Americans pay corporate taxes. In fact, a recent Treasury study
done by the Obama--I mean by the Biden Treasury confirms that
92.6 million families, 49.5 percent of all families in this
country, pay more corporate taxes than they pay individual
income taxes. All this suggests to me is that Congress
consistently under-appreciates the burden of the corporate tax
rate, and doesn't pay enough attention to it.
Now, let me sum up since I am running out of time.
Chairman SMITH. Senator Gramm, we are over a minute, almost
a minute-and-a-half over.
Mr. GRAMM. Oh, I am sorry. Well, I will stop, then.
Chairman SMITH. We will get to you in questions.
[The statement of Mr. Gramm follows:]
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Chairman SMITH. Dr. Winfree.
Mr. WINFREE. Thank you so much. I was thinking about
yielding some time there to Gramm, because he was on a roll.
[Laughter.]
STATEMENT OF PAUL WINFREE, PRESIDENT AND CEO, ECONOMIC POLICY
INNOVATION CENTER
Mr. WINFREE. Chairman Smith, Ranking Member Neal, members
of the committee, thanks for having us to testify today.
Wonderful opening remarks, and very interesting comments,
Senator Gramm.
In 2017 Congress and President Trump enacted monumental tax
legislation that reduced the tax burden on Americans and
American businesses. At the time of enactment, the Tax Cuts and
Jobs Act was estimated by a wide range of economists to
increase investment by reducing the cost of capital while also
lowering marginal tax rates. These effects were estimated to
increase the size of the economy, generate additional
opportunities, and increase disposable incomes for Americans at
every level of the income distribution.
Estimates of the TCJA's effects on economic growth range
from about 0.3 percent of GDP on the low end to over 2 percent
of GDP on the high end. Any extent to which the TCJA was
anticipated to depress output was associated with the fiscal
effects of deficit financing, and could have--that could have
triggered higher interest rates, and thus created a drag on the
economy.
One of the issues that limited the growth potential of the
TCJA was the expiration of provisions that reduce taxes on
investment. Under current law, many of the components of the
TCJA will expire at the end of 2025. That is what we are
talking about today. However, we cannot view the expiration of
these provisions without also considering what has changed
about the broader economy, as well as the nation's fiscal
position since 2017.
The nation's fiscal position has deteriorated over the past
several years. Since 2020, debt held by the public has
increased by $9.1 trillion. This year, roughly $8.9 trillion in
Treasury bonds will mature, and the deficit is projected to be
about $1.5 trillion. Between the beginning of 2020 and the end
of 2023, new bonds paid for 76 percent of all new spending,
money creation paid for 14 percent, and tax revenues paid for
about 7 percent. The Federal Government has not relied so
heavily on debt and money creation to finance new spending
since the Civil War.
The increase in debt associated with the pandemic-era
spending means that the Department of Treasury will need
roughly $10 trillion in additional borrowing authority in 2024
alone to roll over existing debt and to pay for new debt during
a period when the Federal Reserve is reducing the size of its
balance sheet to reduce inflation.
Under CBO's baseline--that assumes no new wars, recessions,
pandemics, relatively high potential growth, and relatively low
interest rates--the rate at which debt is expected to grow will
soon become so significant that it could cause the U.S.
Government to enter what is called a debt spiral. At that
point, interest rates will increase, fiscal space will
evaporate, and it will become necessary to reduce the deficit
to achieve a primary surplus. In a recent paper I estimate that
this could begin happening around 2035 under current law, or
2032 under current policy.
In other words, extending the current policy baseline,
including tax cuts, only pulls the debt spiral forward by three
years. This highlights the underlying problem of the Federal
budget being spending growth, or the unsustainable growth in
spending. My estimate suggests that to delay the debt spiral
from happening over the next 20 years, the Federal Government
would need to implement a primary deficit reduction--that is
not including interest--of about $2.1 trillion before 2035
without compromising economic growth, and that is an important
point.
These broader fiscal challenges also have effects on
American households. Given the reliance on debt and money
creation, it is no wonder that the hidden tax of inflation has
put pressure on American budgets. Between June of 2021 and May
of 2023, inflation grew considerably faster than average
earnings. That difference, or the wedge between the cost of
living and earnings, remains a significant economic challenge.
Households have lost real purchasing power, even as
inflation has slowed down. Therefore, any policy that puts
additional pressure on household budgets or small businesses
would be unwarranted. This includes allowing the tax cuts to
expire, which would reduce take-home pay and investment.
Policymakers are going to face a number of challenges over
the next several years. It will be necessary to implement a
balanced approach that does not raise taxes on the middle class
and does not put additional pressure on the debt. Congress can
accomplish this by pairing legislation to prevent tax increases
with provisions that broaden and correct the tax base,
reductions in the growth in spending, and other policies such
as removing regulatory burdens that grow the economy.
In essence, you cannot look at the tax question in a silo.
You have to look at it with everything else that the Federal
Government is doing.
With that, I will yield back the remainder of my time and
look forward to your questions.
[The statement of Mr. Winfree follows:]
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Chairman SMITH. Thank you.
Mr. Ervin, you may proceed.
STATEMENT OF MICHAEL ERVIN, FOUNDER,
COAL RIVER COFFEE COMPANY
Mr. ERVIN. Good afternoon, Chairman Smith, Ranking Member
Neal, and members of the House Committee on Ways and Means. My
name is Michael Ervin. I am the founder of Coal River Coffee
Company in Saint Albans, West Virginia. Thank you for having me
here today.
Less than 10 years ago I was, like many average Americans,
a man with a dream to start a small business. I started
roasting coffee as a hobby in my garage, and my wife thought it
was really delicious, and thought maybe someday someone might
want to buy it. So we took a chance and founded Coal River
Coffee Company in 2018 not only to make money, but also to
hopefully spark a revitalization, an economic revitalization in
small town America, in particular Appalachia, and to prove that
a thriving Main Street business is possible.
Currently, we are accomplishing this goal and hope to see
more growth in the future. Right now we employ over a dozen
people in our community. Additionally, I coach and train other
Main Street business owners throughout my region.
Twenty-eighteen was a landmark year not only for small
business, but also for the tax code. After the passage of the
Tax Cuts and Jobs Act, LLCs and other pass-through businesses
like mine were able to benefit from the newly-minted small
business deduction, also known as 199A deduction. This
provision has allowed me to deduct up to 20 percent of my
business income, which has let me invest in my business, my
employees, and in my community. We have been able to increase
my employees' hourly wages, invest in equipment, grow from a
single location to four iterations, create a mobile location,
and sell my Main Street roasted coffee internationally.
However, in less than two years our business will be facing
a huge, significant tax hike unless Congress acts to extend and
make permanent the small business deduction. Not only will my
20 percent small business deduction go away, but my marginal
tax rates will increase if Congress fails to act.
These tax increases do not exist in a vacuum. My larger
competitors, like Starbucks and Tim Hortons, are organized as C
corporations and pay a rate of 21 percent Federal corporate
rate, which is permanent. If small business deduction lapses
and the marginal rates increase, I could be staring at an
effective tax rate of nearly 45 percent when you combine
Federal and state income taxes.
This 45 percent tax is not on my take-home pay like high-
wage W-2 employees. This is the tax on my business income. With
a pass-through business like mine, I am taxed on business
income whether I reinvest that money in my business and create
new jobs or take it home as profits.
Down the street from my location is a larger competitor,
Tim Hortons. In 2 years, if my taxes go up, the corporate rate
will remain 21 percent. Tim Hortons will be paying a 21 percent
Federal rate and a 6.5 percent state corporate rate, for a
total combined of 27.5 percent, while my total combined rate
will be closer to 45 percent. This disparity will make it
extremely difficult for me to complete our mission.
I am not asking for special treatment, but I am asking that
small businesses get treated equally with big businesses, and
not be placed at a competitive disadvantage by the tax code.
The tax code was meant to incentivize the economy, incentivize
entrepreneurs like myself and other like-minded small business
owners in America, not to penalize us. And in two years we are
looking at a major penalty. We won't be able to reinvest in our
community and create a thriving, revitalized Main Street.
How many of you want to see a Main Street with more
``closed'' signs on their doors? We all love our hometowns. We
all love our home states, and every one of our little small
towns are struggling. And what we have been able to prove since
2018 because of this deduction is that it is possible to have a
thriving mom-and-pop shop that not only is successful
financially, but can inspire other entrepreneurs to do the same
thing right where they are from.
Congress still has time to act and help small businesses
like mine. The small business deduction does not expire until
the end of 2025. Bipartisan legislation introduced by
Representative Smucker on this committee exists to make this
legislation permanent. His legislation is appropriately titled
the Main Street Tax Certainty Act. While the end of 2025 sounds
far away, I will soon have to make long-term decisions based on
the future expectations.
Thank you for allowing me the opportunity to share my story
with you guys today. I look forward to answering any questions
that you might have.
I yield the rest of my time.
[The statement of Mr. Ervin follows:]
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Chairman SMITH. Thank you.
Mr. Ramirez.
STATEMENT OF AUSTIN RAMIREZ, CEO,
HUSCO INTERNATIONAL, INC.
Mr. RAMIREZ. Good afternoon, Chairman Smith, Ranking Member
Neal, and members of the committee. My name is Austin Ramirez,
and I am the president and CEO of Husco, a privately held,
family-owned business located in Waukesha, Wisconsin.
At Husco we produce critical hydraulic components for both
passenger cars and off-highway vehicles. Husco is a uniquely
American success story. My dad came to the States from Puerto
Rico as a six-year-old, and grew up to earn a master's degree
in aerospace engineering and an MBA from Harvard. He started
working at the Husco division of a larger conglomerate in the
1980s before eventually leading a management buyout to
establish Husco as a standalone business. At the time, my mom
complained to the neighbors that he had mortgaged the house and
burned through our college funds to make his vision for Husco a
reality.
I took on the mantle of CEO in 2011 after 26 years of his
leadership. Since my dad founded Husco in 1985, our revenues
have increased from 20 million to over 500 million. This
success has allowed us to give back to the community. We
provide family-supporting careers for hundreds of workers. We
found it K-through-12 school on the south side of Milwaukee
that is now the top-rated school in the state. And we are the
top corporate philanthropic donor in all of Wisconsin.
In short, our story is the embodiment of the American
dream. But it was made possible by American reality. The laws
that all of you write in this very room have a direct, concrete
impact on our ability to succeed. This is especially true when
it comes to the tax code. Pro-growth tax policy allows Husco to
create jobs, invest in R&D, and compete globally.
In 2017 the Tax Cuts and Jobs Act reduced taxes for job
creators throughout the economy. At Husco the new pass-through
deduction and the reduced individual tax rates allowed us to
invest nearly $50 million in the most significant renovation of
our headquarters in 70 years. Tax reform was unquestionably a
success, dramatically increasing the capital that manufacturers
had available to invest in growth and job creation.
But passing the 2017 tax reform was only the first part of
the story. Now critical tax reform provisions have begun to
expire. Husco now has to amortize our R&D expenses, making it
far more costly for us to design customized proprietary
products for our customers. Debt financing is now more
expensive for companies like many manufacturers that have
significant depreciable assets, and we can no longer
immediately expense the full cost of our capital equipment
purchases, forcing Husco to make smaller investments spread out
over many years.
Fortunately, the Ways and Means Committee is leading the
effort to reverse these damaging changes. I want to thank each
of you for passing the Tax Relief for American Families and
Workers Act, and I hope the Senate will soon follow your lead.
But your work is not yet done. We are rapidly approaching
the final act of the tax reform story. In just 20 months, small
manufacturers in America will experience a series of damaging
tax increases. At the end of 2025 individual tax rates will
increase and individual tax brackets will decrease. These
changes mean that pass-through businesses like Husco will have
more of our income subject to a higher rate of tax.
At the same time, the pass-through deduction will expire
completely, doubling down on the tax hikes that we face. We
will also see an increase in the estate tax, making it more
difficult for family-owned manufacturers to pass their business
on to the next generation, and R&D expensing, interest
deductibility, and accelerated depreciation will be back on the
chopping block.
Twenty-twenty-five will be nothing short of a tax
reckoning, as Congress decides how to end the tax reform story.
And the stakes are high. Allowing tax reform to sunset will
undermine much of the progress we have made since 2017. At
Husco, tax hikes will slow our growth and prevent us from
investing in job-creating projects that support our community
and our economy.
Tax reform was a historic step towards a competitive tax
code for manufacturers in America, but it was only the first
step. Congress must act now to restore expired provisions and
be prepared to act in 2025 to forestall even more damaging tax
increases. Only by preserving the Tax Cuts and Jobs Act can
Congress ensure that uniquely American stories like Husco
remain possible, and that companies like ours can prosper here
at home and compete on the world stage.
Thank you for having me today, and I look forward to your
questions.
[The statement of Mr. Ramirez follows:]
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Chairman SMITH. Thank you.
Dr. Edwards.
STATEMENT OF KATHRYN ANNE EDWARDS, PH.D.,
LABOR ECONOMIST
Ms. EDWARDS. Thank you, Mr. Smith and Mr. Neal, for having
me.
Policy evaluation comes down to three questions: What did
the policy intend to do? What did it actually do? And what did
it cost?
So let's start with what the policy intended to do. The
2017 tax law was billed as a way to increase wages, income, and
the U.S. economy. It cannot be credited with achieving either
of those things.
What did it actually do? The primary achievement of the
2017 tax law was that it was timed with full employment and
economic recovery. Those statistics that you cite of a growing
economy, of growing wages, and growing income are all on trend
from where they had been growing from the 2008 recession
recovery. Otherwise, it was a designed tax transfer to the
richest. The Tax Policy Center estimates that, in absolute
terms, the after-tax increase in income was 67 times larger for
the top 1 percent than it was for the middle 20 percent, the
difference between a lower tax bill of $61,000 for the top 1
percent and $900 for the middle.
That is not to say that taxes weren't court cut for
everyone, but they weren't cut by the same amount or to the
same degree. Even in percentage terms, the top 1 percent saw a
3 percent raise from the tax cut, the middle saw a 1 percent
raise, and the bottom 20 percent saw a 0.4 percent raise from
the tax cut.
It didn't spur economic growth by much. The Congressional
Research Service concluded that the tax law increased output by
0.2 percent in the year after enactment, the year in which the
effect would be the largest. That was below expectations of 0.3
to 0.8 percent, but was still a fraction of the over 7 percent
needed to generate growth to pay for itself.
It is not a mystery why it didn't increase growth the way
that you perhaps wanted. Tax cuts are but an arrow in the
economic policy quiver, a way to boost aggregate demand. To
work effectively, they must be limited in scope, well targeted,
and perfectly timed, short-term relief that goes to the people
who are most likely to spend it at a time when demand is
faltering, like during a recession. The law is off on all three
marks.
Corporate tax cuts are similarly an arrow in the quiver,
one aimed at supply, increasing the after-tax income of
businesses so that they can invest more in labor and capital.
But unfortunately for workers, the labor investment that was
made after the tax cut was concentrated amongst managers and
executives, with no discernible wage increase for the bottom 90
percent.
And then there is the final question of what did it cost?
The 10-year estimate for the 2017 tax law was between 1.9 and
$2.25 trillion, according to the Congressional Budget Office. A
quarter of that estimate was debt servicing. Even for the
Federal Government, $2 trillion is a lot of money. For
comparison, that is the equivalent of two-thirds of what
Congress owes the Social Security Trust Fund. It is 25 percent
higher than the fully refundable and expanded Child Tax Credit
that halved child poverty in a year, and it is enough to create
a universal child care and preschool program in the U.S. five
times over. It is enough to have universal paid family leave
and medical leave for every worker in the U.S. eight times
over.
In addition to the opportunity cost, there is the pattern
of sacrificing fiscal health. In the last three years of the
20th century, revenue as a share of GDP was over 19 percent.
After the tax cuts in 2001, 2003, extensions in 2012, more cuts
in 2017, CBO projected that revenue will be around 16 percent
through 2026. To put that in comparison, had the Federal
Government been collecting revenue at the rates that it had at
the end of the 20th century, you would have $850 billion more
each year. Bad policy, bad precedent with serious and
accumulating consequences. There is no justification for
extending it.
I will end with the reminder that even bad policy creates
winners. But that is not the job of policy. The job of policy
to be effective at its aim and the barometer of success for
economic policy is much higher. It has to be effective at
addressing economic needs.
So if I were to pretend for a moment that I was a nominee
for the Federal Reserve Board of Governors, which is not
something I am aspiring to do, and I told you that, no matter
what, I was going to lower interest rates because people like
paying less for houses and they like paying less for borrowing,
you wouldn't let me have a seat at the table because that is
not the job. The job is effective economic policy. And it is
not your job, either. The Federal Government needs to raise
revenue, and that is the most important conversation to have.
[The statement of Ms. Edwards follows:]
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Chairman SMITH. Thank you. We will now proceed to the
question-and-answer session. Mr. Buchanan is recognized.
Mr. BUCHANAN. Thank you, Mr. Chairman. I want to thank our
committee folks being here today, especially the Senator. I
followed his expertise over a lot of years. Let me start out
quickly with Mr. Winfree.
You touched on--I wasn't planning on going down this road,
but you did touch on the debt and the deficit, about, you know,
the problem, the challenge with that. Looking at a number today
somebody put in front of me a couple of days ago, the spending
this year in 6 months for the Department of Defense is $440
billion, and the interest on the debt, I think, is $480
billion. And I have seen a lot of balance sheets, I have been
in business 30 years, built businesses from scratch, good-sized
businesses, and I don't--you know, 35, 36 trillion, it
doesn't--it is just a matter of time until it ends badly.
So here we talk about all these other things, and I am glad
I have got some things I want to talk about today, but I do
want to put that back in your lap because you opened the door a
little bit about what that looks like. If you can, take just a
minute or so and tell us your thoughts on it.
Mr. WINFREE. Sure, thanks so much.
As I mentioned, I don't think that you can look at the
expiration of the TCJA or any of the other fiscal inflection
points that this committee and this Congress is going to have
to deal with over the next 24 months in a silo. And you have to
take the debt question at hand.
I mean, one of the things that we have seen is rates on
short-term treasuries increase by almost five percentage points
just over the last four years, right? That is the market trying
to tell us something, right? It is trying to tell us to get
control of the debt question.
And I--you know, I have to commend the committee on the
bill that was passed earlier this year that my colleague,
Austin, referred to earlier.
Mr. BUCHANAN. Hey, Doctor, let me move on. I only got five
minutes.
Mr. WINFREE. Sorry, yes.
Mr. BUCHANAN. Thank you.
Mr. Erwin, I wanted to--explain a little bit more, just in
a minute or so, the 199A, how important it is, that 20 percent
reduction. We went--corporate rates 35 to 20, 21, and we are
still looking at 39.6 percent, but there was a reduction of
199A, which was 20 percent, which is huge. And it is not like
you take all the money home, put it in your mattress. You use
it to grow and expand your business. So take a second on that.
Ms. EDWARDS. Thank you. So if we don't have that deduction,
I will just go this direction, if we don't have that deduction,
there are some things that I am personally going to lose as a
business owner. One of those in particular is putting back into
my community.
We do a lot of philanthropic work, thankfully, and that was
always one of the goals. One example is that we have a
partnership with the West Virginia Collegiate Recovery Network,
and with that partnership we have developed a coffee roast that
we sell, and the profits go directly to a scholarship for
people that have gone through recovery, are in college, and
this will help them and reward them for their progress. That
would be threatened in a major way. This is something that we
are intrinsically changing lives for because of this deduction.
Also, we have inspired organizations to begin. Just for
one, there is an organization called the On Purpose Project.
What it does is it exists to help our community--help
communities, yes.
Mr. BUCHANAN. I only got one more question.
Ms. EDWARDS. Sure, go ahead.
Mr. BUCHANAN. Mr. Ramirez, you are talking about full
expensing, the power of that. For many years it was you write
something off over five years, then we had bonus depreciation,
you get 50 percent and 10 percent for 5 years. But now the full
expensing--in my opinion, there is no more powerful tool,
whether you are buying or selling, than full expensing. And it
is a timing issue. But what are your thoughts?
Mr. RAMIREZ. Yes, accelerated--thank you, Congressman.
Accelerated depreciation does two things. One, it gives me more
liquidity, more cash now to make more investments, and it
improves the return on the investments that I make. So when you
have accelerated depreciation I am going to make bigger, faster
investments. When I don't have accelerated depreciation----
Mr. BUCHANAN. You are going to get that depreciation,
anyway, over five years. So why not create the incentive of
getting it up front? That is my point.
Mr. RAMIREZ. That is right. It creates--when you have
accelerated depreciation, the cash cost to me in the year I
make the investment is lower. So I have more cash to invest in
more equipment.
Mr. BUCHANAN. Do you find yourself either buying or selling
more than maybe you would otherwise, ideally, because of the
deduction for tax planning and other things?
Mr. RAMIREZ. Absolutely. With accelerated depreciation we
are going to pull investments forward. We are going to invest
more now. And it also stimulates the broader economy. So not
only does it impact us in a micro way, us making bigger
investments, but throughout the supply chain that happens and
that stimulates demand.
Mr. BUCHANAN. Let me just say one thing, that when you are
able to keep more money, people always say, why is that so
important? Because you are the job creators in America. Most
businesses are 50 employees or less, 90 percent of businesses
that are organized are 50 employees or less.
With that, I yield back, Mr. Chairman.
Chairman SMITH. Mr. Neal.
Mr. NEAL. Thank you, Mr. Chairman.
Dr. Edwards, as you know, our colleagues often, in support
and defense of the TCJA, they really distort and move away from
the really important issue that distributional tables tell.
They lump all taxpayers together into one undifferentiated
group, and then claim that ``an average taxpayer'' receives a
significant benefit from TCJA.
Your research, however, into the law's distributional
effects paints a very different picture for taxpayers who are
in the lowest three quintiles of income distribution. Could you
please reiterate for us how the 2017 tax cuts were distributed
across income groups?
Ms. EDWARDS. Yes. So the top 1 percent saw a reduction in
taxes of $61,000, an increase of post-tax income of 3 percent.
The middle 20 percent income quintile saw a reduction of taxes
of $910. That is a difference of about 1.3 percent. The lowest
20th--the lowest quintile, the bottom 20 percent, saw a
reduction in taxes of $70, a difference of 0.4 percent.
Mr. NEAL. So your testimony also states that taxpayers who
received the largest tax cuts aren't necessarily the ones
spending the extra cash. Why is that important?
Ms. EDWARDS. Well, the mechanism by which we think a tax
cut grows the economy is that when you give households money,
they then go out and spend it. So for the tax cut to be most
effective, it has to go to those most likely to spend it
immediately.
The problem with most tax cuts as they are legislated is
that the people who pay the most in taxes and the people who
receive the largest cuts are those also least likely to
immediately spend it, right? If you have sufficient income, you
don't have to run out to the grocery store if you got more
money.
This is a lesson that I think Congress knows very well
because during recessions in 2008, or in 2008 and 2009 and
during the pandemic, this stimulus checks were, in fact, tax
rebates that were limited to which households received them and
sent out as a one-time check. That is exactly how tax policy is
meant to increase aggregate demand.
Mr. NEAL. So in your testimony you also discussed how not
all tax cuts are created equal. We know that to be true in both
the nature of the tax cut and the timing of the tax cut. So I
would like you to reflect on the latter part of this question.
Ms. EDWARDS. The timing?
Mr. NEAL. Yes.
Ms. EDWARDS. You know, the 2007 to 2009 recession, I will
always say, earned its title as being the Great Recession. And
the hole that it left in the labor market took almost seven
years to recover from. But when that recovery did occur, the
U.S. economy was growing at a healthy clip, increasing income
and wages every year.
The tax cut essentially fell right in the middle of it,
which is why it is really not credited with any of the growth
that happened after the fact. It is--you know, happening at the
same time doesn't mean one causing the other. The economy's
tailwinds of a four percent unemployment rate just matters so
much more than that tax policy.
Mr. NEAL. So on the heels of the balanced budgets of Bill
Clinton's administration, the next administration, President
Bush, they enacted two tax cuts, $1.3 trillion in 2001 and
another trillion in 2003, which we have never recovered from
fiscally, including 2 wars. Then, of course, there were the
irresponsible tax cuts in 2017.
You outlined in your testimony that there is a time, in
terms of perspective, to talk about tax cuts, and there is a
time to suggest that those tax cuts as proposed don't make any
sense. Do you want to elaborate?
Ms. EDWARDS. I will give credit that the 2005 President's
Commission on Bipartisan Tax Reform that made it--you know,
with a mandate to make it simple, fair, and pro-growth, that
Chairman Connie Mack said in his executive summary, ``We have
lost sight of the fact that the fundamental purpose of our tax
system is to raise revenue to fund government. Sometimes you
need a tax cut. Sometimes you just need to pay the bills. This
is a moment as many have been alarming. I was in the Joint
Economic Committee three months ago, and they discussed the end
of the Republic. You need to pay your bills. You must raise
revenue.''
Mr. NEAL. Sure. I am just going to finish with this,
because frequently my experience here is the following.
Republicans complain about government spending when there is a
Democrat sitting in the White House. I have seen that through
my career. Bill Clinton should balance the budget, Barack Obama
should balance the budget, and now Joe Biden should balance the
budget. Republican Presidents should cut taxes. And there is a
huge differential there, but it has been part, I think, of the
tension that exists as we talk about fiscal policy.
Thank you for your testimony.
Chairman SMITH. Mr. Smith.
Mr. SMITH of Nebraska. Thank you, Mr. Chairman, and thank
you to our panel. Great perspectives.
Senator, welcome back to Capitol Hill. Your service and
your priorities while you served and currently serving, as
well, are certainly appreciated.
We worked very hard on tax reform that culminated in 2017.
It didn't start that year. It started, I would say, perhaps
even before 2011. But that is when we started gathering in a
bipartisan basis with working groups that I found to be very
productive. And throughout that discussion, even President
Obama acknowledged that we needed to be more competitive
worldwide on the corporate tax side.
Now, I don't think anyone would think it wise to just give
corporations a tax cut and nothing on the personal side or the
family side, and so that is why TCJA was a very well-thought-
out approach to tax reform, a broad-based tax reform, by the
way. Both sides up here want to want to give tax relief, but
very differently, I might add, and I don't have time to get
into that.
But we wanted to make sure that small businesses, as our
witnesses pointed out here today, also benefited. And I think
the numbers speak for themselves. And I am glad to say that we
had a very bipartisan vote the other day to return us to a 2017
policy that we found to be very productive. And when I say
``productive,'' I mean in terms of revenue, but also our
priority in 2017 with TCJA was to increase productivity across
the economy.
And I will tell you it is my speculation, but I think that
we are in a much stronger place today because of the priorities
of productivity in 2017 that increased wages and, like I said,
increased that productivity that we can all benefit from. In
fact, our supply chain would be far worse off now if we hadn't
done that.
So I am puzzled as to some of the comments. Of course, it
is somewhat predictable. But, you know, around this town there
is such demonization of prosperity, you would never know that
our tax code depends very heavily on prosperity so that we can
pay our bills, because I think paying our bills is important.
Mr. Ramirez, I certainly appreciate your story, the
personal story, certainly, of your father leading the way to
buy a business that he was working in, employing local workers.
Incredible story. I certainly appreciated that you called out
the importance of the increased death tax exemption for helping
keep family businesses local and family run, I think that is a
good priority. The same is true, I would add, for farmers,
ranchers, and family-owned manufacturers in my own district. I
hear from them all of the time, especially as it relates to
this.
Now, a recurring tax proposal from the Biden Administration
is the repeal of the stepped-up basis. It would be just as
detrimental to family businesses, I might add, that taxing
supposed gains on, for example, the value of your family
business, which you have never actually realized.
So could you discuss what the repeal of the stepped-up
basis would look like as you think about the future of your
business?
Mr. RAMIREZ. Thank you, Congressman. I would just like to
note I think family businesses are an indispensable part of the
U.S. economic system. You know, we take long investment
horizons. We invest in our communities. We have consistency of
leadership. And, you know, you want policy that encourages
multi-generational family businesses.
And both stepped-up basis and the death tax do the
opposite. They make it more difficult for families to maintain
businesses and have, you know, these entities pass from one
generation to the next.
Mr. SMITH of Nebraska. Thank you.
Does anyone else wish to comment on the impact of repealing
the stepped-up basis?
Dr. Edwards?
Ms. EDWARDS. Thank you, Mr. Smith. I realize I am the bad
guy at this end of the table, but I would like to point out
that I do think family businesses are important, but not to the
disadvantage of people who didn't have rich parents.
You know, I have a friend who----
Mr. SMITH of Nebraska. Would you believe the government is
entitled to take a large chunk of the value of that family
business?
Ms. EDWARDS. We had the government taking a similar large
chunk up until, you know, the law went into effect, and we
still had many family businesses and small businesses and small
proprietors----
Mr. SMITH of Nebraska. Okay.
Ms. EDWARDS. I just wonder if you would want to----
Mr. SMITH of Nebraska. Reclaiming my time, I think it is
important to note that a family business or a family would have
to take out a loan. This is a fairly common situation, where a
family would have to take out a loan in order to just maintain
the family business. We used to have a member of this
committee, now governor of South Dakota, who very articulately
told her story. That, to me, is not what America should be
about.
Of course, we need modest tax policy so that we can pay our
bills. Let's not penalize individuals.
Senator, turn on your microphone.
Mr. GRAMM. If you eliminate the step up in basis, you are
going to pay a 20 percent tax on the gain of anything you ever
own in your life. And then, when you die, you are going to pay
a 40 percent death tax. You pay taxes on every penny you earn
when you earned it. So when we are talking about taking 60
percent of people's life's work, that is just not America. And
maybe you want the money, maybe you think you could spend it
better than your children and grandchildren.
But the point is, the person who is paying that tax earned
it. They created it, and they created jobs, growth, and
opportunity in the process.
Mr. SMITH of Nebraska. That sounds like a great conclusion.
Thank you, I yield back.
Chairman SMITH. Thank you.
Mr. Doggett.
Mr. DOGGETT. Thank you, Mr. Chairman. While I think this
hearing certainly does illustrate that our committee and our
country have two very distinct paths, one path follows Donald
Trump, the clever genius, as he describes himself, the self-
styled king of debt, and the sorry legacy of the 2017 tax law
and the estimated $2 trillion in red ink that it added to our
nation's debt, and all the failed promises of trickle-down
economics.
Who benefited from this budget-busting king-of-debt effort?
Well, the best place to look is Donald Trump himself. Just last
weekend, in a $50 million fundraiser at a Palm Beach home of a
billionaire hedge fund investor, Trump boasted about how much
he had done to help the rich get richer, and that he would do
the same once again.
The heart of the Trump tax scam was a massive, budget-
busting 40 percent cut in the corporate tax rate because that
was the top priority for Trump and Republicans. They made the
corporate tax cut permanent and left everybody else hanging
with temporary. In the first year after these tax cuts, the
non-partisan Joint Committee on Taxation determined that the
largest 88 American multi-nationals paid an average tax rate of
7.8 percent.
Indeed, the 55 large, profitable corporations--55 large
corporations paid no tax whatsoever in 2018, and 23 have not
paid any tax at all in the 5 years since the law was passed.
Meanwhile, we know that a single mom with 2 children who earns
the average wage pays an effective tax rate for all of her
Federal taxes, including payroll, of 20 percent. It may be that
corporations don't pay taxes, but you would never know it from
the horde of corporate lobbyists that descend on this committee
like a plague of locusts whenever a corporate tax bill is up.
And Dr. Edwards, I would ask you, what evidence is there
that these cuts for large corporations and the wealthiest few
ever trickle down to help that single mother who is paying a
higher tax rate than these big corporations?
Ms. EDWARDS. I would say that a $2 trillion investment
shouldn't be so hard to find the benefits of for the workers
who it was intended for.
There have been some academic debates of researchers
looking for investment to trickle down to workers, and they
haven't found it to a large degree. The best evidence was that
the majority of pay raises that came after the corporate tax
cuts were concentrated amongst managers and executives. Thank
you.
Mr. DOGGETT. Well, and if the tax cuts aren't trickling
down to help the single mom, it is also important to realize
that the same Republicans who boosted the debt with their tax
breaks are the same ones who want to cut benefits when it comes
to Social Security and Medicare.
We haven't had a real balanced budget since President
Clinton, and $10 trillion has been added in debt from a couple
of rounds of Bush tax cuts and the Trump tax cuts. We have got
a number of members of this committee, a significant number of
Republicans in the House who have called for big changes in
Social Security and Medicare because they say we can't afford
to keep providing them in the current way.
I think it is also significant--and Mr. Chairman, I would
ask unanimous consent to put in the record--a new study from
Steve Rosenthal and Olivia Muccio that show that foreign
investors own 42 percent of all American corporate stock. They
were among those who were the greatest beneficiaries of this
massive 40 percent reduction in the corporate tax rate.
Chairman SMITH. So ordered.
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Mr. DOGGETT. Meanwhile, the same tax law provides tax
incentives--and I certainly agree with you, Mr. Ervin, that we
do need our tax laws to treat small businesses the way that
corporations are treated. Unfortunately, corporations are
given, under the Trump tax law, an incentive to shift their
factories abroad because they pay half of the corporate tax
rate on their investments overseas as to what they do here.
There is so much more that needs to be done. I think a
trade war with our allies is the wrong way to go, and a global
minimum tax that stops the race to the bottom is the right way
to deal with our future.
And I yield back.
Chairman SMITH. Mr. Kelly.
Mr. KELLY. Thank you, Chairman. I want to thank everybody
for being here.
Senator Gramm, I wanted to go to you because I think you
had a lot more to say. I do talk faster than you, but I want
you to go ahead and go through because you were leading into
some questions we really have on jurisdictional rights and who
has the right to enter into agreements, tax agreements around
the world.
If you could pick it up, because as you started talking
about how if you consume, the corporate tax rate hits you. And
then, if you would, go down through that because you only have
a couple of paragraphs here. But I would really like you to
dwell on that, because it seems to me, for a long time, before
I ever got here, I listened to you because I thought everything
you said was spot on.
Mr. GRAMM. Thank you very much.
First of all, if large corporations are not paying taxes,
it is because you gave them deductions which they are using. So
if you don't want them to have the deductions, take them back.
But raising the rate is a wrong way to go about it.
In my opinion, we have a lot of industrial policy in the
tax code. I would love for it to be eliminated, and I would
love for the rates to go down. In talking about who pays the
tax, the bottom 30 percent of Americans pay 0 in income tax.
The top one percent pay 45.5 percent of all the income taxes.
So needless to say, when you are cutting taxes you affect
taxpayers. The only way people get a tax cut when they are not
paying taxes is welfare. Now, we call it a refundable tax
credit, but you are giving people money they didn't earn to
begin with.
Now, let me address the issue, if I can, about what the tax
bill actually did. The bottom 20 percent of income earners in
America got the largest share of income growth from the 2017
tax cut. Now, that is a Census number, and it doesn't even
count refundable tax credits because the Census does not count
any tax change as a change in income. So the largest
beneficiary in percentage terms, no matter how you want to say
it by distorting the figures in comparing tax cuts to people
that pay taxes with tax cuts to people that don't pay taxes,
the biggest beneficiary in terms of income was the bottom 20
percent of income earners.
And look, how did they get the benefit? They got jobs. A
job is a better housing program, a better welfare program, a
better food stamp program, a better childcare program than any
program ever adopted by this Congress. In fact, of all the
programs passed by Democrats and Republicans, no program, or at
least for no year, has anything outdone your cut in the
corporate tax rate.
That is what is amazing to me. I never expected that to be
the case. The tax cut was small, $160 billion a year, and yet
it produced this extraordinary result. Why? Because everybody
pays corporate taxes. Because when we cut corporate taxes, the
two job creators sitting in the middle found it possible to
expand their business. And that is the miracle of this tax cut
you adopted.
So in talking about the fact that the bottom 50 percent of
income earners got no tax cut, the bottom 50 percent of income
earners in America with refundable tax credits, for all
practical purposes, pay no income taxes. So I don't understand
this unhappiness that people who aren't paying taxes don't get
tax cuts. Tax cuts are for taxpayers.
Mr. KELLY. Just in the few seconds we have left, the global
corporate minimum tax and how it circumvents the Constitution,
just as quick as you can, because----
Mr. GRAMM. Yes, I will tell you this----
Mr. KELLY. Just as quickly as----
Mr. GRAMM. The greatest abuse of the Constitution of the
United States in my lifetime was President Biden going to
Europe and negotiating a minimum corporate income tax, and
giving them the power to tax corporate income in America, but
you don't raise the tax rate. It was extortion committed
against the Congress. And I can't imagine at any day that I
served in the House and Senate, any President, Republican or
Democrat, that I would not have opposed that circumvention of
the Constitution.
This global corporate minimum tax is an extraordinary abuse
which every Member of Congress ought to be against.
Mr. KELLY. I totally agree. Thank you.
Chairman SMITH. Thank you.
Mr. Thompson.
Mr. THOMPSON. Thank you, Mr. Chairman, and thank you to all
the witnesses for being here today.
You know, over the years this committee has met many times
to consider major reforms to our tax code. And I am struck
today by how little the majority's arguments have changed over
the past 40 years: tax reform in 1981, 1986, 2001, 2003, and
2017. Every time the Republican message has been the same:
slash taxes for rich people, and the benefits trickle down to
everyday Americans.
My Republican colleagues evidently still believe that tax
cuts pay for themselves, cutting taxes on the wealthy is a good
way to help the middle class, and that children's health
programs add to the deficit but tax cuts for the wealthy don't.
None of these things are borne out by any of the evidence, and
that is what I would like to focus on today.
So Dr. Edwards, I particularly appreciate the way you
described how this committee should evaluate our policy
decisions. What did the policy intend to do? What did it
actually do? And what did it cost? Those are the key questions.
And as you point out, it is not enough to just look at what the
2017 tax cuts did. We have to also look at what they cost,
particularly relative to other things we could have spent that
money on.
Given the TCJA cost, was it worth it? Has it paid for
itself?
Ms. EDWARDS. It hasn't paid for itself, but that is a very
unreasonable bar for any piece of legislation. I mean, I don't
think it is a productive part of conversation to say that one
thing would pay for itself versus not. I don't think it was
worth it, well short of not paying for itself.
Mr. THOMPSON. I would also like to draw a contrast here in
the terms of our priorities. Dr. Edwards, as you know,
Democrats in this committee passed the enhanced Child Tax
Credit in the American Rescue Plan. That credit lifted millions
of children out of poverty. And while we have passed bipartisan
legislation making improvements to the current CTC, my
Democratic colleagues and I would like to fully restore the
credit to the ARP levels.
Dr. Edwards, which do you think would do more for low-
income children and families, reinstating the fully refundable,
expanded CTC or extending tax cuts that primarily accrue to the
one percent?
Ms. EDWARDS. Well, that is a softball. It is going to be
giving the kids----
Mr. THOMPSON. Every once in a while you need a softball.
Ms. EDWARDS. Yes, it is going to be--it is a lesson for
policy design that you will hopefully hit where you are aiming.
If you want to help children in low-income families, you should
just direct policy right to them and not get an intermediary of
their employer or their corporation.
It is not to say that money can't be spent beneficially in
the corporate side, but if you want to help workers, you should
give money to workers.
You know, one of the studies I cited showed that some
workers did benefit in their capacity as shareholders of
corporations that received more money, which is just very much
not the same thing as a wage increase.
Mr. THOMPSON. And Dr. Edwards, you highlighted here that
what we face are trade-offs. Do we have to direct our Federal
resources to the wealthiest in our society?
But my colleagues across the aisle who are promoting the
extension of the 2017 tax reforms are choosing to do just that,
and we would be doing so at the expense of policies that would
really help working families, as you just articulated, in every
one of our districts. That is something that I think we should
consider.
And before I yield back, I just want to mention one thing.
The conversation today got a little off topic regarding estate
tax and estate tax reform, and it was mentioned that you
shouldn't have to pay taxes after you die. And I just want to,
for the record, point out once you die, you don't pay any
taxes.
I yield back.
Chairman SMITH. No, but your family members do.
Mr. Schweikert.
Mr. SCHWEIKERT. Thank you, Mr. Chairman.
Dr. Winfree, thank you. You actually had some very
interesting things in the written portion of your testimony. I
want to take you to something that is a little more difficult.
And first off, in your opening testimony I actually think
the most updated CBO numbers, OMB numbers are actually much
darker. Yesterday's Treasury statement said just interest this
year will be $1,146,000,000,100, I think, and that was before
they calculated in the most recent inflation data with the new
interest rate pops.
So I come to you and say, okay, I appreciate a debate of
relitigating, you know, their spending on Inflation Reduction
Act and, you know, corporate welfare, and their attacks of us
on trying to do a more progressive income tax system, which is
what happened, you know, with our tax cuts. Fine.
From today forward, you are the consultant for this
committee. How do you walk us through to how do we maximize
economic expansion? Because growth is moral. And at the same
time stabilizing the fact that 2 days ago we broke through
borrowing over $100,000 a second, a 365 average. We are now
borrowing close to or over $100,000 a second.
So walk us through the truth. What do we do to maximize
economic growth and stabilize receipts?
Mr. WINFREE. Again, it is a holistic approach. I think that
it starts with the administration. There is a lot that can be
done on regulatory reform to free up these guys to create more
jobs, to create more growth. And there is a lot that you can do
to oversee the regulation that is going on within the
administrative branch.
On the tax issue, really what we are talking about here--
and I think that, you know, I think we are missing something,
and that is that we are talking about two different
philosophies, right? Philosophy one is lower rates and fewer
carve-outs, and philosophy number two is higher rates and more
carve-outs.
Mr. SCHWEIKERT. And I need you to back up and sort of----
Mr. WINFREE. Sure.
Mr. SCHWEIKERT. Let's make sure everyone understands. Let's
use the firm base-broadening----
Mr. WINFREE. Yes.
Mr. SCHWEIKERT [continuing]. Instead of carve-outs, just so
that we are all using the same lingo. Walk me through that.
Mr. WINFREE. So sure. So you need more people with skin in
the game, right? You need more people who are ultimately
taxpayers and treat everybody, ultimately, the same. And with
that, again, it frees up these guys, who know way more about
payroll and creating wealth than a budget nerd in Washington,
D.C. to go out and do what they do best, right?
The American people are incredibly innovative. It is one of
the things that has held us together for the last 250 years.
And if we treat them fairly, and we treat the tax code fairly,
then ultimately these guys can go out and create more growth.
Mr. SCHWEIKERT. One of my concerns, and I have tried to do
multiple presentations, is we have a demographic issue. A
couple of days ago I think it was either OMB or one of the
others updated that just Medicare spend will be up 10 percent
this year.
Mr. WINFREE. Sure.
Mr. SCHWEIKERT. At our current burn rate, if you do just
the true total debt, we are right now borrowing 9.6 percent of
the economy in this year.
Mr. WINFREE. Yes.
Mr. SCHWEIKERT. So the model on all the tax hikes on
$400,000 and up, when you adjust for economic impact, you get a
point and a half of GDP. Most of us who want to cut things, I
can find about a point and a half of GDP. I have got a math
problem. The tax hikes and the cuts don't get me anywhere near
when we are borrowing 9.6 percent of the economy in a single
year. And if these interest rates continue to, you know,
normalize, we are walking into a level of financial brutality.
Okay, so you have regulatory. We got to change the cost of
delivering health care. Walk me through one more time. What
does your base broadening look like?
Mr. WINFREE. One of the things that we have not talked
about today is that the thing that is expiring next year are
the individual rates, right?
Mr. SCHWEIKERT. Mm-hmm.
Mr. WINFREE. And one of the reasons why the 2017 tax bill
was popular at the time, and I think still continues to be
popular with the middle class, is that it lowers rates and it
also increases the standard deduction, right, which decreases
the number of itemizers in the tax code. And that itself,
again, brings more people to the table.
And I mean, I am not speaking just as a budget and tax
policy guy here, I am speaking as an American. I think that if
we allow those tax cuts to go away on the middle class next
year, after we have seen again the hidden tax of inflation
increase over the last few years, there will be political
repercussions to that.
Mr. SCHWEIKERT. Okay. But--thank you, Doctor.
Mr. Chairman, one of these days we are going to have to do
an economic roundtable and understand just the headwinds and
the scale of it. I don't think it is completely understood by
anyone. Thank you, Chairman.
Chairman SMITH. Mr. Schweikert, you would be great to lead
that roundtable.
Mr. Larson.
Mr. LARSON. Thank you, Mr. Chairman, and I want to thank
all the witnesses, as well, for your testimony. And just a
couple of quick questions.
Senator Gramm, how effective is Social Security?
Mr. GRAMM. Yes. How--what is----
Mr. LARSON. How effective is Social Security as a
governmental program?
Mr. GRAMM. Well, I would say, if you depend on it, it is
pretty effective. And you would have to rate it as one of the
most successful programs in American history.
Mr. LARSON. I totally agree.
Mr. GRAMM. And by the way, we have done a fairly good job
on a bipartisan basis when we have had to make tough decisions
on Social Security in doing it.
Mr. LARSON. Yes, that is a good point. But we haven't made
any decision in terms of expanding Social Security in 51 years.
And in fact, we are talking about tax cuts today, and 23
million Americans pay taxes on their Social Security. That is
never mentioned.
What do you think about Social Security, Dr. Winfree?
Mr. GRAMM. Well--no, I am sorry. Go ahead.
Mr. WINFREE. I think Social Security is an important
program.
Mr. LARSON. We talk about revenues all the time. This
doesn't have anything to do with the debt or deficit. It pays
for itself.
Mr. WINFREE. Well, right. So it doesn't pay for itself,
right? Social Security is facing a massive shortfall within the
next 10 years. It is----
Mr. LARSON. Why?
Mr. WINFREE [continuing]. On the order of about----
Mr. LARSON. Why is it facing that shortfall?
Mr. WINFREE. Because payroll taxes are not enough to keep
pace with outlays.
Mr. LARSON. Because there is 10,000 Baby Boomers a day who
have become eligible to collect Social Security, and Congress
hasn't done anything to adjust it since 1971. Is that why there
is a problem?
Mr. GRAMM. No----
Mr. LARSON. If it is a payroll tax, and it is deducted to
provide a benefit, isn't it a simple solution just to increase
the payroll tax?
Mr. WINFREE. If you increase the payroll tax, you also have
to increase the benefits, which ultimately----
Mr. LARSON. Well, so let me ask you something about those
benefits.
Mr. WINFREE. Sure.
Mr. LARSON. You know, we have five million Americans who
work all their lives and pay into the system and get below
poverty-level checks from Social Security, most of them women,
women of color, et cetera. And if we are going to build a
system based on what the two entrepreneurs have done, and we
want to encourage that, and we want to encourage risk, et
cetera, then we also have to make sure that in that process we
have a safety net, and that we just can't ignore it and pretend
that--we say, oh, it is the probably the greatest government--
it is the number-one anti-poverty program for the elderly, it
is the number-one anti-poverty program for children. And people
pay into it. It doesn't contribute to the national debt. It is
not part of our deficit.
It is Congress's inability to take action and do the right
thing, including tax cuts for 23 million Americans who have
paid into the system. And now, because it is not enough money
for them to survive, so they still get Social Security, and
work, and yet pay taxes on their Social Security. Should that
continue, Mr. Ervin?
Mr. ERVIN. Thank you, Mr. Larson. When you brought up
increasing payroll tax, that is directly affecting small
business owners like myself, other Main Street employers.
Mr. LARSON. Do you get a write-off for that?
Mr. ERVIN. Well----
Mr. LARSON. Your portion of Social Security?
Mr. ERVIN. Do I get a write-off for my portion of Social
Security? Let me ask my accountant real quick. I am just
kidding.
But no, but seriously, like----
Mr. LARSON. That was pretty good.
Mr. ERVIN. I love Social Security, I need it. It is a
future program that I hope to benefit from myself, and my
employees, too, you know, and I know that there is a problem
that is--but, you know, my hope would be that we would find
another avenue to help fund it, rather than coming after the
people that are going to be affected the most, which are small
businesses like mine.
Mr. LARSON. Dr. Edwards, let me go to you.
Ms. EDWARDS. Is the question whether or not Social Security
benefits should be taxed?
Mr. LARSON. Yes.
Ms. EDWARDS. I think it was a very sneaky addition to the
1983 reform that that was not inflation adjusted so as to hit
more Social Security beneficiaries over time without forcing
Congress to vote on it and have to look them in the eye and say
we are taxing your benefits for revenue. So I think, on
principle, it is not----
Mr. LARSON. Amen.
Ms. EDWARDS [continuing]. Part of our social--it is not
worthy to be part of our social security system. That is a
system built on compacts with taxpayers, with workers, and with
retirees. So something like that just simply doesn't fit.
Mr. LARSON. Thank you.
Chairman SMITH. Thank you.
Dr. Wenstrup.
Mr. WENSTRUP. Thank you, Mr. Chairman. Thank you all for
being here.
You know, I love America. I think America is the place
where there is more opportunity than anywhere else in the
world, and it is the opportunity for people to come from
nowhere and lift themselves out of poverty. But we don't do
that by paying people to not work. That has no return on
investment there. And we don't do it by increasing taxes so
much that your business moves out of the country and all those
employees are without a job. There is no return on investment
there.
When I see a family succeed in a business and hire people
from your community, this is personal now, see? Washington
doesn't see it. People that just look at numbers and hold up a
piece of paper, that's different from actually talking to you,
which is what we, as Members of Congress, try to do, is get out
there and talk to you and what makes a difference.
So you do that. You get a better life for your next
generation, for your family. But at the end of that, let's put
them back in poverty, where you started. Why do we want to do
that? That makes no sense. Let's keep the business going. Let's
keep hiring the next generation of people. You know, a rising
tide lifts all boats unless you shoot holes in the bottom of
the boat. And that is what I see ourselves doing too many
times.
Mr. Ervin, I love some of the work that you are doing. In
Cincinnati we have Cincinnati Works. You have a record, you
decide you are going to turn your life around, you go through
the program at Cincinnati Works, you are a lifelong member of
it, and we have companies that said, ``When they have gone
through that, we will hire them.''
We have a business called Nehemiah Manufacturing. They make
Procter and Gamble products. Everyone there has a record. They
have turned their life around, and now they are going to try
and make things better for their next generation.
You know, in the district we go around and we say, well,
why were you able to hire more and to grow your business? What
happened? Did Washington do anything? Well, we might also hear,
well, why did you have to cut jobs? What happened? These are
the things we listen to. We don't just look at things on a
piece of paper. But when I think about making America the best
place in the world to do business and to work, that is what I
want us to be. That is what I want us to be.
Since the Tax Cuts and Jobs Act, we have had zero corporate
inversions. And instead we have seen American businesses
bringing back their overseas earnings to fuel investment, to
increase wage growth here in the United States. Maybe it is not
perfect in some ways. Well, let's take a look at that. See what
we can make better. That is okay. That is what we should do.
Don't just look back and say, oh, it is terrible, it did this
or that. No, it did a lot of good, and people know it. And I
hear it from people in the district.
I believe, though, as we go forward, for the sake of our
nation--I am going to ask Senator Gramm about this--I think one
of the next reforms of the tax code needs to be explicitly
about our supply chain, and take into account our national
security risks, our national health security risks. I think it
is important.
I have released the draft legislation that would secure our
critical battlefield medicines. I am a soldier. Do this by
providing powerful new incentives to locate manufacturing of
these essential medical products here in the United States and
in pharmacy, all the active ingredients. We rely on China for
that, an adversary. Open up our eyes, folks. We have got to
incentivize these things to be back in the United States, and
increasing corporate taxes is not how we are going to get it
done. No one can take that risk.
Senator Gramm, your testimony, you said how important the
2017 reforms were to the corporate tax code in making the
country competitive again. This isn't 100 years ago. This isn't
post-World War II. This is a different global economy today,
and we need to think differently to be competitive. So besides
protecting the 21 percent rate, what policies should Congress
pursue as we approach 2025 that will build on that progress and
make it more attractive to bring business back to the United
States and make us a more secure nation?
Mr. GRAMM. Well, you raised the point that we don't help
America by paying people not to work. Let me back that point up
with some statistics. In 1967, when we started to ramp up
funding for the war on poverty, we were providing $9,700 worth
of benefits to the average household in the bottom 20 percent
of earners, and 67 percent of their prime work-age persons
worked.
That level of benefits has now grown from $9,700 to
$45,400. And what did we get for it? The labor force
participation rate among prime work-age persons in the bottom
20 percent of income earners in America has fallen from 67
percent to 36 percent. During the pandemic, when we provided
benefits up to 400 percent of poverty, and we provided
basically welfare to middle-income Americans, what happened?
The labor force participation rate fell.
We can't put middle America on welfare. Somebody has got to
work.
And I would have to say, going back to who benefited, the
income of the bottom 20 percent of earners in this country rose
by 9.4 percent in the year following this tax cut in 1997. That
was the largest percentage benefit of any sector of the
economy. And how did they benefit? This didn't count the Child
Tax Credit you provided. They benefited by working.
And again, a job is the best program. There is no
substitute for it. And many of those people will never go back
on welfare.
Mr. WENSTRUP. Thank you, I yield back.
Chairman SMITH. Mr. Blumenauer.
Mr. BLUMENAUER. Thank you, Mr. Chairman.
Mr. Ervin, Mr. Ramirez, I am assuming your concern about
tax increases does not extend to your responsibility to pay the
taxes you owe. I am assuming that both of you are very careful
to make sure that you meet your tax obligations.
Mr. ERVIN. Yes.
Mr. BLUMENAUER. Is that is safe assumption, Mr. Ramirez?
Mr. RAMIREZ. Yes, sir.
Mr. BLUMENAUER. Are you concerned about people that you
compete against who are not paying their fair share of the
taxes they owe? Does that concern you? Is that a competitive
advantage for them if they don't pay their taxes?
Mr. RAMIREZ. You know, my biggest concern is state-
subsidized companies in China.
Mr. BLUMENAUER. No, my question was, do you suffer a
disadvantage if your competitors don't pay their taxes?
Mr. RAMIREZ. Yes, my competitors are largely in China, and
they get a 200 percent deduction on their R&D expenses, while I
get a 20 percent deduction. And that is a major disadvantage.
Mr. BLUMENAUER. I am talking about--you don't have any
competitors in the United States?
Mr. RAMIREZ. Our primary competitors are in China and
Europe.
Mr. BLUMENAUER. Do you have people you do business with in
the United States?
Mr. RAMIREZ. I am sorry, Congressman. Do I have business
people I do business with in the United States? Yes.
Mr. BLUMENAUER. No, never mind.
Mr. Ervin, do you compete with anybody in the United
States?
Mr. ERVIN. Yes.
Mr. BLUMENAUER. And if they don't pay their taxes and you
do, does that pose a competitive disadvantage?
Mr. ERVIN. Well, of course it would.
Mr. BLUMENAUER. Okay, I am just wondering because we have
these fascinating conversations and debate, dancing on the head
of a pin, competing economists about the ins and outs of tax
policy and fairness. But as a practical matter, we have $163
billion a year that is not paid by the top 1 percent of
American taxpayers. They forget to claim their income.
And it is just mystifying to me that we don't focus on this
tax gap. This is money every single year. And the evidence is
the richer people are, the more they forget to claim on their
taxes. Maybe they have got so much they can't keep track of it.
But the evidence is clear. This tax gap is an ongoing expense
every single year. And as we are talking about tax policy going
forward, it would seem to me that the easiest area that we
should focus on are the taxes that are already due and owing
that people forget to pay.
I don't want to engage you in that. I think it is
interesting that people come in with their concerns about tax
fairness, and what is going to happen, and how we are going to
meet the deficit that is growing, and we are not focusing on
collecting taxes that are already due and owing.
This tax gap is something that we attempted recently to
address. Strengthening the IRS's potential to actually collect
taxes that are due and owing, it is interesting. One of the
first things that passed from my colleagues on this committee
was to take away money for enforcement from wealthy Americans.
It was going to end up increasing the deficit $113 billion.
I would hope that there would be some concern from the
business community or academics or others to make sure that we
have a level playing field, that people do what I assume you
two do, which is pay the taxes that are due and owing. You can
argue policy, but you comply with the tax law. And we have
people who simply don't do that. And it adds remarkably to the
deficit year after year after year. This seems to me to be the
simplest adjustment we could make, that is make sure that we
collect the taxes that are due and owing and have a level
playing field for the remaining people in the business
community.
Thank you, I yield back.
Chairman SMITH. Mr. Arrington.
Mr. ARRINGTON. Thank you, Mr. Chairman. Thank you,
witnesses, for your time and insights. A special thanks to my
friend from Texas.
Your exceptional service to the great State of Texas and,
sir, Chairman Gramm, you represent the best of the character
and common sense of Texas. So thank you for your years of
contribution.
Mr. GRAMM. [Inaudible.]
Mr. ARRINGTON. Yes, yes. I read her memoirs, and that is
where I am quoting your mother, actually.
Look, we try really hard to simplify the contrast between
our philosophy on the role of government and the lives of the
citizens of this great country, our fiscal, budgetary and
economic policies versus our Democrat colleagues, and the
consequences and the experiences, the results of those two sets
of policies derived by these distinct philosophies. And it is
not always easy to cut through the smoke and mirrors and
sleight of hand. But I think, because we had unified Republican
leadership and then on the heels of that had unified Democrat
leadership, I don't think there is a better picture of the two
different philosophies, policies, and results.
And TCJA is just one pro-growth policy on the economic
agenda of my fellow Republicans. It is deregulation, it is
America First trade. It is a number of things. But because of
the agenda we advanced when I was a freshman in this
institution in 2017, we got record investment, record growth,
record jobs, millions of jobs, lowest poverty rates, highest
increase in median income in 20-plus years. And the list of
successes and achievements just goes on. And as my colleague
said, all boats rose on the tide of prosperity that was
unleashed because of economic freedom, quite frankly. Less
government, more freedom, and America was doing much better.
Now, contrast that with $6 trillion in additional deficit
spending, $6 trillion added to the national debt, record 40-
year inflation, 20-year record interest rate hikes, people
spending more--$14,000 more--to survive in some cases in this
country as a result of inflation, people paying twice the
amount for a mortgage, twice the amount for their car payment.
And Dr. Gramm, and I say Dr. Gramm because I know you are
an economist and you were a professor and you taught economics.
And let me see if I understand supply and demand with respect
to the contrast between the unleashing of prosperity through
economic freedom and more government spending, borrowing,
taxing, et cetera, and regulation, and what we are living with
in terms of this cost of living crisis, not the least of which,
in terms of concerns, is the slide to a sovereign debt crisis
or some related crisis.
You have got over-stimulated demand through trillions of
dollars in Federal funds. You have got supply being squeezed by
paying people not to work who are work-capable by regulating
the lifeblood of our economy because if you tax and regulate
energy you get less of it. Vis-a-vis demand, you are going to
pay more for it. And we tax the competitiveness of American job
creators.
Now, is--when you do those things you get an imbalance in
supply and demand, and you get this inflation tax, which is the
worst and most regressive tax. Now, Dr. Gramm, grade my paper
on that, and tell me where I got it right and where I got it
wrong, because we have got two different worldviews, two
different sets of policies.
And by the way, we double down on economic freedom and our
path to balancing the budget and beyond. And President Biden,
got to respect him, put it all on the table, doubles down on
$2.5 trillion more in mandatory spending, $5 trillion more in
taxes, the highest level of sustained spending, taxing, and
borrowing in the history of the United States of America.
Mr. GRAMM. Well, let me say that the proof is in what
happened. For the last 50 years we have increased social
spending. We have instituted numerous policies. And yet the
2017 tax cuts increased median income twice as much as any
other action by any other government in the last 50 years.
Now, you can distort the figures by talking about Warren
Buffett's tax cut and some person that doesn't pay taxes, but
you can't distort that figure. And the biggest beneficiary in
percentage terms was the bottom 20 percent of income earners.
And they didn't benefit by going on welfare. They benefited by
going to work. And it seems to me that that is the greatest
benefit.
I wonder what the world of many people sitting up there
would be if we had the welfare system when they were growing up
that we have today. My guess is a lot of you wouldn't be there.
Mr. ARRINGTON. My time has expired. Thank you.
Chairman SMITH. Mr. Pascrell.
Mr. PASCRELL. Thank you, Mr. Chairman.
If I can respond to a gentleman I have a great respect for,
Senator Gramm, as I do each of the witnesses, but you really
blew my mind in what you just said.
It has been referred to by three of the panelists that what
happened in 2017 was tax reform. We haven't had tax reform
since the 1970s and 1980s. And you remember that, Senator
Gramm. We haven't had it. We haven't had a change in how we
look at the tax code itself. Not at all. Because you raise
taxes or you decrease taxes does not mean it is reforming the
system, because you can't deny that in the first quarter of
this century, in 2024, it looks like in these 25 years we will
have increased the gap between the rich and the poor, and that
that income gap is something we have not addressed, Republicans
or Democrats. And you can't do it until you have tax reform,
and not just a five percent increase in wages. That does not
help us reduce the gap. It does not.
So, gentlemen, I think that this is another tax scam. I
will be honest. I am not trying to be a wise guy. The chairman
knows I am going to say what I think. It is also one of the
most destructive laws--and from the 116th Congress--in
generations.
My colleagues on the other side said their tax scam would
be the best thing since canned beer. That really got my
interest, though.
Let us look at what actually happened. They promised they
would raise wages. It did not really raise wages. Many things
affect how wages go up and go down.
They vowed it would put America on stronger footing.
Instead, it blew a Grand Canyon of debt, nearly $2 trillion,
not a nickel of which was paid for. You folks always talk about
paying for what you do. This was not paid for, and the people
took it out on your hides in 2018 when we overcame a deficit in
numbers of people sitting in the House of Representatives, a
big deficit. They saw right through it.
They said it would let Americans file their taxes on a
postcard. Oh, how quickly we forget. They swore it would help
middle class Americans, but nearly all the money went to people
who have a lot of money. The cake went to big business, and we
know where the crumbs went.
They said out loud they did it to screw states like mine.
They said it. I was there, I witnessed it. Republicans said
that, particularly when you shafted us on the SALT plan and
those poor 12 states. You know, Lincoln knew what he was doing,
but I don't want to go back into history. Who cares about that?
George Orwell said, ``To see what is in front of your nose
requires constant struggle.'' I have a big nose. It is a
constant struggle. That is true when you are told to ignore
reality, like here today.
Last week Donald Trump spoke to some members at his golf
club, and he told them, ``We gave you the largest tax cuts in
history.'' Here is a guy that just a month ago said he wanted
to blow up the economy. Is that what the election is worth? In
10 seconds he summarized their entire platform.
The other side wants to give big business another giant tax
cut. They do not want to pay for it, either. I don't see that.
Oh, it will pay for itself because it will be so great. Then
they want the IRS so the same people can cheat on their taxes.
They want to cut billions of dollars from what was voted on by
the Congress of the United States.
So that is what is in front of our noses. This scam of 2017
was a failure, and the citizens know more than we do, and they
took it out on your hide in 2018, as they would have taken it
out of our hide. The GOP tax scam of 2025 is worse.
Ms. Edwards, you are familiar with the tax scam of 2017,
the tax cuts of 2017. Did the law raise wages, reduce inequity,
and help the middle class, as was promised? Three things.
Ms. EDWARDS. The wage increases of 2018 were largely due to
the economy hitting full employment after recovering from the
2007 to 2009 Great Recession. The law's greatest strength was
that it happened at a good time, not that it contributed to
those directly.
If you want to raise wages for people at the bottom, you
can raise the minimum wage. If you rely on intermediary of
their employer, you know, they are not going to get the full
benefit.
Mr. PASCRELL. Ms. Edwards, can you describe how making the
tax scam permanent would harm American society of the middle
class? We want to double here. We want to do a voodoo.
Chairman SMITH. Mr. Pascrell.
Mr. PASCRELL. Capital letters.
Chairman SMITH. We are----
Mr. PASCRELL. I will have her answer the question.
Chairman SMITH. Okay, we are a minute and 25 seconds over,
but let's do it.
Ms. EDWARDS. The most expensive part of the tax cut is the
investments that it didn't make.
Mr. PASCRELL. Thank you, Mr. Chairman, and it is a
wonderful day in the neighborhood again.
Chairman SMITH. I am so shocked you didn't talk about SALT.
[Laughter.]
Chairman SMITH. But I will recognize myself for some
questions right now.
When you look at the 2017 Tax Cut and Jobs Act, you can't
argue that the tax cuts created the best economy in my
lifetime. I am only 43, but I can tell you in the 43 years I
have been alive, it is the best economy we ever had. And it was
because of the 2017 tax cuts, but also having President Trump
leading this country and created the most reduction in
regulations any sitting president has ever done. And those two
things led to the best economy.
In fact, it led to the best poverty rate, the lowest
poverty rate dropped in history by recorded numbers. By what we
measure poverty is, we had the lowest rate ever in history.
Those are facts. I know facts sometimes hurts and gets people
upset up here, but those are facts.
I also want to give another fact.
Mr. PASCRELL. I can't accept that as a fact.
Chairman SMITH. It is documented information.
Another fact is this billionaire tax that a lot of people--
you know, let's go after the wealthiest of the wealthy. The
wealthiest of the wealthy. And guess what? Guess what? If you
took every dollar of every billionaire in America, where they
don't even have $0.01 to their name, you could fund government
for almost eight months. Fund government for eight months if
you took every penny of every billionaire in this world.
Mr. PASCRELL. Mr. Chairman, I am not talking about----
Chairman SMITH. Mr. Pascrell----
Mr. PASCRELL [continuing]. The rich. I don't agree with----
Chairman SMITH [continuing]. It is my time.
Mr. PASCRELL. Unfair.
Chairman SMITH. Mr. Pascrell, it is my time, and it is okay
for you to disagree.
Mr. PASCRELL. I will say that--who are you talking about?
Chairman SMITH. I am not talking about you. So I will
reclaim my time.
Mr. Gramm, let's talk about this. In the years that
followed enactment of the Trump tax cuts we saw lower-income
earners have a huge reduction in their taxes. The bottom 20
percent of earners, those with incomes up to $26,000, saw their
Federal tax rate fall to its lowest level in 40 years, the
lowest level in 40 years. Workers in the lowest 10 percent of
the income saw 50 percent higher wage growth than those in the
highest 10 percent. The economy, it grew by one percent faster
than CBO had projected, and we saw record lows in unemployment,
including for those without a high school degree.
Why did the Trump tax cuts deliver so much for working
families?
Mr. GRAMM. Because it created an environment in which
people invested more money and created more jobs.
Now, it is true that rates were down. But what is far more
important is the rise in the median income of the bottom two
quintiles, who were very major beneficiaries of the tax cut and
deregulation.
And I don't think we advance debate by simply making up
numbers that this tax cut went to billionaires. The evidence is
so overwhelming, the data----
Chairman SMITH. So in regards to that, when you talk about
real wages, real wages increased by more than 5 percent after
passage of this, which was the highest in 20 years. It was also
more than the prior 8 years combined, which is pretty
substantial because, since Joe Biden has taken the oath of
office as President the last 3 years, real wages have declined
3.9 percent. And so that does affect real, working-class
Americans.
Dr. Winfree, you were talking about the standard deduction.
I want to ask you a question about the Child Tax Credit. Do you
know how the Child Tax Credit affects families and their
Federal tax rate?
Mr. WINFREE. It gives tax relief to families.
Chairman SMITH. So my calculation shows that a family of
four, a family of four, if they make $64,000 or less, they will
pay zero dollars in Federal taxes. That is tax relief.
I represent one of the poorest congressional districts in
the nation. Our median household income is right around $40,000
a year, right around 40,000. A family of four who makes $40,000
benefited greatly from the doubling of the Child Tax Credit. It
was from $1,000 to $2,000, and that was done with Republicans.
Not one Democrat voted for that. Not one.
But we got to move ahead and look at all of the taxes for
2025, and the Child Tax Credit is something that we need to be
looking at, but we need to make sure that work requirements are
in it. The American Rescue Plan child tax credit did not have
work requirements in it. And guess what? We saw the results of
that in the economy.
And so we know that, to have a good, workable child tax
credit, we need work requirements.
With that, Mr. Davis.
Mr. DAVIS. Thank you, Mr. Chairman, and let me thank all of
the witnesses.
You know, I am always amazed at how we can accomplish so
much, and yet things remain essentially the same. Amazing.
Dr. Edwards, let me thank you for your testimony that
clearly lays out the complete failure of the 2017 Republican
tax law. It cost $2 trillion, but the only real deliverables
were growing the bank accounts of the wealthy and well-
connected. I really appreciated your focus on the failed
opportunity of the Republican law. That two trillion could have
increased the security of older Americans, dramatically reduced
child poverty, eased hunger, help working parents with
childcare, paid family and medical leave, or it could have made
housing affordable for millions.
My Republican colleagues falsely claim that they want the
Child Tax Credit to go only to working parents, when in reality
it seems to me that they only want parents who make enough
money to owe substantial taxes to benefit.
Dr. Edwards, as a labor economist focused on women and
security, can you speak about how tax policies that support
low-income individuals, parents, and workers strengthen
families and boost our economy?
For example, if we were to help parents without tax
liability get up to $8,000 of credit for their childcare, like
we did in 2021, how could that credit help families and the
economy?
Ms. EDWARDS. Thank you, sir.
The Senator from Texas misspoke earlier when he talked
about the 1996 tax law. That was--the Personal Responsibility
and Work Opportunity Reconciliation Act of 1996 ended the cash
entitlement for welfare in the United States. We don't have
welfare as welfare. We have food stamps, but there is no, you
know, no strings-attached-cash that go to the lowest-income
households. And it has not been the case since I was 10.
You know, I--what labor economics has taught us over that
period in which there has been no cash benefits for low-income
Americans, including without-strings-attached, especially for
single mothers, you know, what we have learned is that the
biggest boost to labor force participation comes from, one, a
strong economy with low unemployment rate; and two, reducing
the barriers to work that most workers face, barriers like not
being able to afford child care, barriers like you have a
felony on your record and so no one will hire you, barriers
like you have a disability and you need to get to your job but
you are one of the quarter of Americans that doesn't have paid
sick days and so the first time you go to rehabilitation you
get fired.
I mean, there are basic structures that we do not have for
labor force participation, and it is the number one barrier to
having more workers in the United States. Childcare for women
is right at the top. Families who currently purchase childcare,
those that choose to do so, pay a quarter of their take-home
income to child care benefits. That is more than mortgages in
almost every state.
Mr. DAVIS. And let me quickly ask you, you have done
serious work on racial wealth disparities. Would you say that
extension of the 2017 Republican tax law would help address
racial wealth disparities?
Ms. EDWARDS. No, there is--the racial divide gets larger
the higher up the wealth distribution you get. So I--you know,
I could see something like the pass-through deduction talking
about small businesses and being directed towards businesses of
color. But it is very important to remember all small
businesses are pass-throughs; not all pass-throughs are small
businesses.
You know, nearly 70 percent of people who benefit from
pass-throughs are in the top 1 percent of the income
distribution. That is not to say small businesses don't
benefit, but they are the minority beneficiary, relative to the
other people who claim it.
So when I say, what do you intend to do and what do you
actually do, helping small business is great. You don't need to
hit the top one percent on the way. If you have effectively
designed tax relief, it doesn't have to kind of like miss on
that margin.
Mr. DAVIS. Thank you very much.
Thank you, Mr. Chairman, I yield back.
Chairman SMITH. Thank you.
Dr. Ferguson.
Mr. FERGUSON. Thank you, Mr. Chairman, and thanks to the
witnesses for being here.
I first just want to thank my dear friend from New Jersey,
and mayor down there, who--we have a wonderful relationship. I
believe you have gone from drinking that canned beer that you
were so excited about to partaking of the Devil's lettuce with
your rant. That was quite epic, and you were really far out
there on a lot of these topics. So that was one of the better
ones that we have experienced.
So with that being said, again, let me thank each of you
for being here. A couple of questions.
Senator Gramm, I believe you said that, following the Tax
Cuts and Jobs Act, families received--I think it was you that
said this--received about a $5,200 increase in salary. Is
that----
Mr. GRAMM. $5,220 on average.
Mr. FERGUSON. Okay. If you look at what inflation has done
to American families, they have lost every single bit of that,
haven't they?
Mr. GRAMM. Well, they have lost part of it since President
Biden took office.
Again, you know, we can talk all you want to, and you
certainly have the right to your own opinions, but you don't
have the right to your own facts. The hard-core facts are that
lower-income families were huge beneficiaries of this tax cut.
Black Americans saw their income on a household level grow
faster than any other year in over 50 years. Now, that is a
fact. The Census data, and I have got it right here, shows it.
So you can say it didn't happen all you want to say, but
what we are doing is just simply talking past each other.
Mr. FERGUSON. So if I could reclaim--and thank you for
that----
Mr. GRAMM. Yes, sir, I am sorry.
Mr. FERGUSON [continuing]. Because it is important. When we
look at what is the most important thing that should come from
the tax code, it is really economic growth and economic
development and creating jobs.
Mr. Ramirez, how many new people have you hired since 2017?
Mr. RAMIREZ. Oh, gosh, Congressman, thank you for the
question. I don't know the exact number, probably 200 to 250
people.
Mr. FERGUSON. So this is a 250 people, 250 families that
have benefited from your investment, your risk, your hard work,
and also the fact that you have more in your pocket to expand
and grow your business.
Mr. RAMIREZ. Yes, sir.
Mr. FERGUSON. Okay, Mr. Ervin, when you started your coffee
company, okay, you said you started it as a hobby in your
backyard, and now--or in your garage, I should say.
Mr. ERVIN. In the garage.
Mr. FERGUSON. In the garage. You now have, say it again, 12
employees?
Mr. ERVIN. I have 12 employees that we currently have. We
have hired more than that over the years.
Mr. FERGUSON. Again, families and individuals that have a
job with you that otherwise would not have those jobs.
Mr. ERVIN. Exactly.
Mr. FERGUSON. Correct.
Looking further down the line, Dr. Winfree, talk about how
important it is with the Tax Cuts and Jobs Act when we created
the environment for research and development not only to invent
new products, improve on existing products, but then for
businesses to be able to make the strategic capital
investments, to turn those ideas into products, sell them, and
make a profit. How important is that to the American economy?
Mr. WINFREE. Thanks for that question. All of our progress
over the last 250 years is a derivative of three things: one is
culture, we have an extremely innovative culture and we should
not be doing things to penalize that; two, our institutions,
things like property rights. I can't believe I have to say this
in 2024, but it seems like at the local level all the way up--
and you can talk about Chinese stealing IP and things like
this, or you can talk about how property rights have to be
defended in cities and towns in America----property rights are
absolutely critical. And then the third piece of that pie is
technology, right? We should be promoting investments in
technology.
And when you get all of those three things together, you
get prosperity.
Mr. FERGUSON. Okay, a final question. This will be a final
couple of questions here.
How many of you on the panel have borrowed money and put
yourself at risk to either expand or start a business? Show of
hands.
Okay. How many of you have signed paychecks?
Okay. I tend to trust that. You know how to run a business,
you know what it takes. You have had to lay awake at night
worrying about how to actually get from point A to point B in
this process, and you have found a way through it. And for you
to say that it makes a difference in the success of your
business and your ability to make other families better, I am
going to trust you all's judgment on this. So thank you so much
for being here.
Chairman SMITH. Mr. LaHood is recognized.
Mr. LaHOOD. Thank you, Mr. Chairman. I want to thank all of
our witnesses for your valuable testimony here today.
Make no mistake about it, the Tax Cuts and Jobs Act jump-
started an economic boom in this country pre-COVID, across so
many sectors that have been alluded to today and many of you
have talked about, providing businesses with the means to
invest more, raising wages, expanding their workforce. We moved
almost six million people out of poverty during this period of
time, directly related to the Tax Cuts and Jobs Act.
And providing thoughtful tax incentives aimed at keeping
more money in the hands of our workers and businesses can go a
long way for our communities and our economy, and I saw that in
my district in Illinois. And TCJA obviously serves as a great
model and a starting point to do just that as we head into the
rest of this year and going into next year. And in order to
achieve those goals we are going to have to both protect much
of what we did seven years ago, and also consider new policy
proposals based on the world we live in today and our
competition.
And I look forward to working with my colleagues in this
room to further promote U.S. business investment, address the
affordable housing crisis and economic development needs
through tools like the Low-Income Housing Tax Credit and
support for our farms and ranches, and continuing to allow
citizens at the lower level of our economy to live the American
dream, which we expanded that American dream with the Tax Cuts
and Jobs Act.
One area, Dr. Winfree, that I wanted to talk to you about,
as we built up to TCJA in 2017 we talked a lot about how do we,
on the international level, allow our companies and businesses
to be more competitive. And so we worked on what was the
appropriate corporate tax level, but also how do we repatriate
money back to the United States. And for too long, many of our
companies and corporations were parking money overseas because
of the tax code we had here and the restrictive measures we had
in place that disincentivized having that money in the United
States. And so we did that.
And I am wondering if you can talk about post-Tax Cuts and
Jobs Act, that repatriation that has come back, and where that
money has gone.
Mr. WINFREE. That is right. I mean, that money has come
back, and it has gone back to Treasury.
I think that one of the things that, you know, you
highlighted here is that there was a lot of conversation around
what that corporate tax rate needed to be in order to be
competitive. And it is important to note that the corporate tax
rate is not expiring at the end of next year. At the same time,
we should still be thinking about what that tax rate should be
in order to make it competitive.
And to that point, when you add the 21 percent corporate
tax rate alongside the state corporate tax rate in most states,
you have got a combined tax rate at the Federal and the state
level that is higher than the corporate tax rate that is
applied to companies in China. And if China is a national
security threat and an economic threat, then we need to be
thinking about how all of that relates back to how we are
making businesses like these guys--and in particular, Mr.
Ramirez--more competitive. And--yes.
Mr. LaHOOD. Thank you for that.
Mr. WINFREE. Yes.
Mr. LaHOOD. Senator Gramm, it is estimated we repatriated
about $3 trillion back to the United States because of what we
did there. I am wondering if you could comment on that, that
reinvestment in the United States by companies here.
And then, number two, as we think about how do we win the
strategic competition against the CCP, the Communist Chinese
Party, what we need to be doing from an economic standpoint to
make sure we win that strategic competition.
Mr. GRAMM. Well, first of all, don't imitate China, don't
implement industrial policy here, where you assume government
knows more about investment than people who are investing their
own money. I have been stunned at the bipartisan support for
trying to compete with China by doing what China does. You want
to compete with China? Reduce regulatory burden. You want to
compete with China? Reduce the tax rate. You want to compete
with China? Deal with the explosion of programs that
disincentivize people to work.
Look, I am for tax credits. I want to make it possible for
low-income people to benefit from working. But when you are
giving tax credits to people that don't work, you are extending
this whole welfare system into the middle class, and it is
devastating to America's competitiveness, and we need to be
worried about it.
So I wouldn't give any tax credit to anybody who is not
paying taxes. It is a simple principle. Taxes are about
taxpayers. You don't pay taxes, you don't get tax credits. You
want to give people welfare? Fund it. The biggest dispenser of
welfare in America today is the Internal Revenue Service. Now,
how did we possibly allow that to happen? That ought to be
reversed wholesale, in my opinion. You want to start reforming?
That is a very important reform.
Mr. LaHOOD. Thank you----
Mr. GRAMM. There are not many people in China that are
getting paid not to work, I can assure you of that.
Mr. LaHOOD. Well said. Thank you.
Chairman SMITH. Ms. Sanchez.
Ms. SANCHEZ. Thank you, Mr. Chairman. It is astonishing
that today Republicans are attempting to resurrect Trump's
signature tax bill that rewarded our nation's wealthiest
families at the expense of our nation's working families.
For decades now, Republican tax policy has reinforced a tax
system that is very imbalanced, that favors the richest
Americans and the largest corporations. In the six years since
Trump signed the bill into law, its tax cuts have proven to be
costly and ineffective. Republicans claim that the TCJA's
windfall tax cuts to high earning households and large
corporations pay for themselves through economic growth, yet
they have never paid for their tax giveaways to the wealthy.
Doubling down on the Tax Cuts and Jobs Act would allow
mega-corporations to continue paying less in taxes than ever
before, and they claim that those tax cuts are going to trickle
down to everyone else. We know that they don't, but slashing
the corporate income rate only lined the pockets of executives
and shareholders. It didn't trickle down to workers and
families because Republicans seem to be allergic to tax
benefits for those who really are deserving of a break.
I believe it is time to chart a new and fairer path in tax
policy, because we know that investments in infrastructure,
childcare in particular--men on the panel, child care for
working parents, child care--and investments in education are
what create great conditions for economic growth. My Democratic
colleagues and I recognize that investments that directly
benefit American families yield much stronger results than
using intermediaries, as Dr. Edwards said earlier.
Now, TCJA promised us rainbows and unicorns. It promised
things were going to be so great, and that the tax code was
going to be so simple that we could file our tax returns on a
postcard. I want to ask the panelists, by show of hands, how
many of you file your income tax returns on a postcard?
How many of you earn $50,000 a year or under?
A hundred thousand dollars a year or under?
Two hundred thousand dollars a year or under?
All right. My question is, why don't we have low-income
taxpayers on the panel today to talk about how the TCJA
affected them, and whether or not it provided all these
glorious benefits that my colleagues continue to insist happen
when the facts show that they didn't happen if you look at the
Joint Tax Committee's analysis of whether or not the lowest-
income earners got any benefit at all?
Now, Professor Edwards, fans of the Tax Cuts and Jobs Act
claim--again, these great claims--that the law's pass-through
deductions strengthen Main Street and small businesses. Can you
tell us what kind of taxpayers are taking advantage of that
huge deduction?
Ms. EDWARDS. The benefits are concentrated amongst the top
one percent of filers by income.
Ms. SANCHEZ. So taxpayers across the income spectrum have
not benefited equally. Isn't that true?
Ms. EDWARDS. Not equally, no.
Ms. SANCHEZ. No. Okay. And if not, does the pass-through
deduction drive enough economic growth to outweigh the cost?
Ms. EDWARDS. No.
Ms. SANCHEZ. No. Thank you. Professor Edwards, your
testimony outlined the 2017 tax law's failure to increase wages
for the bottom 90 percent of workers, none of whom are on the
dais today. So what benefits, if any, have low-to-middle-income
taxpayers seen in the six years since Trump signed the
signature tax cuts into law?
Ms. EDWARDS. You know, Mr. Gramm has said several times
about people who don't work not paying their fair share. You
know, you can't pass a $2 trillion tax cut that is concentrated
at the bottom because they don't pay that much in taxes. If you
are paying $2 trillion to lower your tax revenue, it is not
going to the poorest Americans because they don't pay that
much.
So it is, I think, kind of just a basic logical argument
of, if you are going to spend that much in revenue, it is not
going to go to the bottom because they don't have that much of
a tax burden. It is going to go to the top. It doesn't cost
that much to cut people's taxes if they only make $35,000 a
year. It costs a lot to cut someone's taxes if they make $35
million a year. That is what drives up the cost of the
legislation.
Ms. SANCHEZ. Thank you. And as the IRS has shown, the
people who are most likely to not pay their fair share of taxes
are wealthy individuals and large corporations.
Dr. Edwards, can you expand on what you call the
opportunity cost of extending the 2017 tax cuts for large
corporations and highest-income earners, instead of making
investments in working families?
Ms. EDWARDS. Working families who were paying a quarter of
their income for child care would, you know, probably be upset
to learn that the cost of the 2017 tax cut was enough to create
a universal child care and preschool system in the U.S., at
least four, if not five times over.
Ms. SANCHEZ. Thank you.
And I just want to add finally, before I yield back my
time, that, Senator Gramm, I take personal issue with your
assertion that if a welfare state had been in effect when we
were growing up, that many of us on the dais would not be here.
I would submit to you, number one, we are not a welfare state;
but number two, I wonder if we didn't allow family wealth to be
passed down tax free to the tune of $13 million per individual
or $27 million for a married couple, how many Members of
Congress would be sitting on this dais or would not be here.
And with that, I yield back.
Chairman SMITH. Thank you.
Mr. Estes.
Mr. ESTES. Thank you, Mr. Chairman, and thank you to our
witnesses today.
You know, it is really unfortunate, the amount of
misinformation that is out there that is trying to mislead the
American family and American families and the people across
America about the effects of the TCJA. If we look at the facts
and the data, the TCJA allowed more Americans to keep more of
their hard-earned dollars, while Treasury ended up collecting
more in revenues.
[Chart]
Mr. ESTES. A year before TCJA, in January of 2017, CBO
projected Fiscal Year 2023 revenues would be $4.346 trillion.
After passage of TCJA, CBO revised their estimate and estimated
that the revenues would only be about $4.182 trillion, or a
reduction in revenues by about $174 billion. In reality, the
Fiscal Year 2023 revenues totaled $4.439 trillion, as we can
see in this chart, exceeding even CBO's initial estimates
before they factored in TCJA. And this is only the most recent
year. If you go back to Fiscal Year 2022, the numbers were
bigger. In Fiscal Year 2021 they also had bigger numbers.
And while these tremendous results are still working to
correct the record--we are trying to correct the record
regarding CBO's wildly inaccurate projections, and correcting
the lingering misinformation about the impact of TCJA, which is
more important than ever as we prepare to renew, extend, and
strengthen the best aspects of the TCJA in 2025.
The Tax Cuts and Jobs Act was massively successful due to
the focus on promoting economic growth and U.S. global
competitiveness. Prior to TCJA, the U.S. had the highest
statutory corporate rate among developed countries. We also had
a worldwide tax system that incentivized companies to hold
large cash reserves overseas. By lowering the corporate rate to
21 percent and reforming our international tax system,
specifically using the GILTI and FDII provisions, we were able
to bring jobs back, bring intellectual property back to the
United States, and tax revenue.
After more than five years, we can confidently say the
system worked. Corporate tax revenues have increased, even at a
lower rate, and there has not been a single U.S. corporate
inversion in that same timeframe. As we look towards 2025, it
is essential that we find ways to build upon these and other
successes.
One key pro-growth provision that must be addressed in 2025
is immediate R&D expensing. Since amortization took effect, the
growth rate of R&D spending has slowed dramatically, from a 6.6
percent on average increase per year over the previous 5 years
to less than one half of 1 percent over the last 12 months.
Mr. Ramirez, lagging R&D growth is detrimental to our
global competitiveness. As someone who has led an international
engineering and manufacturing firm, how does R&D amortization
impact our ability to compete in the world?
Mr. RAMIREZ. Congressman, thank you for the question. I
think this is the single-most important issue in the tax reform
right now.
I mentioned earlier China has a 200 percent super-deduction
for R&D. My biggest competitor is in China. And now, since
2022, I get a 20 percent deduction for R&D. I have got to
amortize it over five years. Since 2022 that one policy has
created a $20 million hole in my balance sheet. I have $20
million less liquidity because I have to amortize R&D. And if I
could just expense 100 percent of it in the year incurred--that
is a massive drag on our ability to invest and create new
products and deploy new capital and grow our business.
Mr. ESTES. Yes. And as I mentioned, we are seeing a
reduction in R&D expenditures. We are also seeing a reduction
in jobs in research and development because of that.
Senator Gramm, I appreciate you being here today, there is
so much that you have covered. You talked earlier a little bit
about international tax, and particularly the Pillar Two
provision. I have been a staunch opponent of the approach that
was taken to look through that. I want to give you some more
time to just talk about some of the concerns that you have
about that. I think it is just detrimental, and I think
whatever you can add to the conversation would be great to help
with clarifying that.
Mr. GRAMM. Well, again, I think you don't have to give
Americans an advantage. You just need to give us a playing
field that is flat as compared to our competitors.
I think that the 2017 tax reduction was very effective
because it moved us from the highest corporate tax rate in the
world into a competitive range. The American economy works
better because we have greater ability of people to make
decisions. The system is more flexible, more adjustable. That
is changing now with the regulatory burden.
I can honestly say, as someone who engages in business in
the United States and in Europe, there is no socialist
government in power in Europe that has a regulatory burden that
is growing at anything like the regulatory burden in the United
States.
Mr. ESTES. And as we see, that----
Mr. GRAMM. It is very, very harmful, and the point being,
is that it costs jobs, growth, and opportunity. And in the
process, it is not going to make me poor, but many of the
people that are having great concerns expressed on their behalf
are going to be poorer as a result of it.
Mr. ESTES. Yes, thank you, and I appreciate your time.
I yield back.
Chairman SMITH. Mr. Smucker.
[Pause.]
Mr. SMUCKER. Thank you, Mr. Chairman. You caught me by
surprise there.
First of all, thanks for holding today's official kickoff
for our discussions surrounding the tax reform that we will be
needing to do in 2025.
And I just want to expand on what Mr. Estes just said. That
chart, I thought, really said the story well. But TCJA, it
broke records on raising millions of families out of poverty;
it boosted median income across all demographics; it created
millions of jobs; it unleashed economic growth; but it also
made the tax code fairer, not less fair. Thanks to the reforms
made on the individual side of the taxes, our tax code is now
among the most progressive in the world.
According to CBO, higher-income earners started paying more
in income taxes post-TCJA. In fact, individual income tax
collection increased by 27.5 percent, overall income tax
collection, with 80 percent of that being paid by the top 10
percent of earners. A 5,027 percent increase in total revenues
coming in; 80 percent of that came from the top 10 percent.
Corporate tax revenues also went up, even during the
pandemic. In fact, receipts had double-digit annual increases,
which had only happened 11 times since 1977. And Mr. Chairman,
I do have an article from Politico that I would like to submit
into the record.
Chairman SMITH. Without objection.
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Mr. SMUCKER. Thank you. That was all achieved because the
TCJA, flat-out, it was good tax policy. By targeting reforms to
the code we closed loopholes, we helped low and middle-income
Americans keep more of their hard-earned money, and we spurred
record business investment to grow our GDP. And I just want to
contrast that with some of the tax policies, what I think are
bad tax policies that we have seen coming from this
Administration. It is important we talk about this going into
2025.
Last year, my Democrat colleagues passed the so-called
Inflation Reduction Act, which President Biden repeatedly
claimed would raise taxes on the wealthy and corporations and
make them pay their fair share. Now, I still haven't ever had
anyone define to me what a ``fair share'' is. We keep hearing
that brought up, and I don't know what the fair share is of
someone who has earned and worked hard for that money. What is
the fair share they should be paying? I don't know the answer
to that.
But what we have seen is, even though President Biden
claims that he increased taxes on the wealthy and on
corporations, the data actually shows--and I will have another
article, Mr. Chairman, I would like to submit for the record
from the New York Times.
Chairman SMITH. Without objection.
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Mr. SMUCKER. And this goes to Senator Gramm's conversation
about industrial policy. The data shows that he has actually
cut taxes for corporations and high-income earners through
corporate tax breaks for his favored industries. He talks about
raising taxes, but he has actually benefited and cut taxes for
his favorite industries.
And by the way, he also hasn't kept true to his claim that
the IRS won't audit households making less than 400,000. IRS
data shows that, as of last summer, 63 percent of new audits
are targeting taxpayers with income of less than 200,000. That
is according to a report just out from the IRS.
So now what we are left with is small businesses in my
district, who can't take advantage of those cherry-picked
corporate taxes, now face an audit-heavy environment. And
really, one of the best benefits that they have received from
the Tax Cuts and Jobs Act is the 199A deduction for small
businesses.
And Mr. Ervin, I very much appreciate you bringing that up.
I am pleased to be the lead sponsor of extending that
provision, making that provision important because Main Street
businesses that employ 60 percent of all private-sector
employees, they will face a dramatic increase in taxes if we do
away with 199A. A 43.4 percent Federal tax rate will be the top
tax rate for them.
Raising their tax could result in reduced wages, reduced
benefits for workers, certainly reduced investment in the
business, and other impacts to our growth. So again, Mr. Ervin,
I know you mentioned this, but could you expand on how a 43.4
percent tax rate would potentially impact your business if we
do not make 199A permanent?
Mr. ERVIN. Simply put, ultimately, a closed sign would go
up in my window. And not only in my window, but on the windows
of most of the other businesses on my street if we had to pay
that. So hopefully, that simplifies it.
Mr. SMUCKER. Thank you. I have other questions, but I see I
am already out of time. But the chairman is not paying
attention, so we will keep going.
Mr. ERVIN. Go ahead.
Chairman SMITH. Ms. Sewell.
Ms. SEWELL. Thank you, Mr. Chairman.
You know, there are distinct populations within this nation
that did not benefit from the enactment of the TCJA in 2017. I
can tell you right now that the hard-working Americans in my
district, Alabama's 7th congressional district, were not
beneficiaries of this legislation.
If we are going to spend the afternoon discussing the work
of this committee and the work that we have done to aid hard-
working Americans, let's look back to 2020 instead of 2017. It
was only the action of Democrats in the height of the COVID-19
that provided common-sense solutions like making the Child Tax
Credit fully refundable that addressed the needs of hard-
working Americans who, through no fault of their own, were
being hit in the hardest pandemic--once-in-a-generation
pandemic.
But here we are. We are talking about 2017. And if we are
to talk about 2017, let's be honest about the cost of the TCJA:
$2 trillion, $2 trillion. I was in the room in 2017 when the
TCJA repealed the advance refunding on tax exempt municipal
bonds. Now, I was a bond lawyer. Ms. Edwards, you talked about
the opportunity cost, what we could have done with the $2
trillion. And I can tell you that a lot of the underserved,
vulnerable communities that I represent, a lot of the towns and
villages and small communities really did use tax exempt bonds
to try to revitalize their downtown area. It [sic] actually,
you know, did hire people and the like. But the reality is that
we chose to repeal advance refunding of tax bonds, and at a
time when we saw economic growth.
My question to you is this. The benefits that the TCJA had
are not necessarily attributable to the TCJA. Can you talk a
little bit more about that, and also about the opportunity
costs?
I mean, you talked about how we could have paid for
childcare. I also know that $2 trillion could have gone a long
way to helping us with the Child Tax Credit, and--which did
lift millions of Americans out--especially children, out of
poverty.
Ms. EDWARDS. Sure. So yes, there is a lot of numbers going
around. Was TCJA a benefit to the top? Was it a benefit to the
bottom?
You know, where I based my assessment is based on the
Congressional Budget Office projections. So here is how this
works. You have got a bunch of marginal tax rates and tax laws.
You change them, and then they go into effect. Why we think it
benefited the top is because if you didn't look at anything
that had happened but who got the difference of the tax rates,
where the tax laws were changed, that was at the top.
Now, a lot happened in the economy since 2017 that would
make the actual tax receipts of the government vary based on
economic activity. So, you know, yes, the top is paying more
because they are earning more. You know, that is the--kind of
attributing causal, you know--or attributing the cause to the
tax cut happens basically when it is enacted of what the
difference is and the rates are, as opposed to how the economy
evolves.
So here is----
Ms. SEWELL. But Ms. Edwards, I mean, people are saying that
Black households increased the highest it has ever increased
because of the TCJA. And I can tell you that the Black
households that I represent in Alabama, it didn't trickle down
to them. So can you talk to us a little bit about why it is
that there were benefits--no one is saying there wasn't
benefits; it is who benefited.
Ms. EDWARDS. Yes, exactly. The--you know, the pass-through
deduction is a great example of--you know, it did benefit some
small businesses, but 67 percent of the beneficiaries are in
the top 1 percent. And it is not just did you create some
beneficiaries that you like, but did you create some
beneficiaries that you didn't intend to?
You know, I kept hearing about--I mean, I keep hearing
about how much wages have gone up, how much income has gone up.
Child labor has gone up in this country 250 percent since 2017.
And no one would say that is because of the tax law. But if I
said, look, they had lower tax rates, they had lower
regulation, you know, did that lead to child labor, it took off
at the same time, you would say, no, that is the economy, that
is immigration, that is other things happening.
So when I say you are claiming wage increases, you know,
you would have to take child labor along with it. So they
happen at the same time, they don't happen for the causal
reason.
Ms. SEWELL. It sounds like we use these facts and figures
to serve our own purposes.
But what is a fact to me----
Ms. EDWARDS. Certainly.
Ms. SEWELL [continuing]. Mr. Chairman, is that my district
in Alabama did not benefit from the TCJA, and I will not be
seeking to extend those cuts. Thank you, and I yield back the
balance of my time.
Chairman SMITH. Mr. Hern.
Mr. HERN. Thank you, Mr. Chairman. It always amazes me that
people who never created a single job know more about business
than those who have spent their entire life doing so.
In 2017 Congress lowered the corporate tax rate from 35
percent, which at the time was the highest tax rate in the
OECD, and that lowered tax rate went down to 21 percent. Adding
state corporate tax taxes, now the average combined U.S.
corporate tax rate is now 25 percent, which is just above the
global mean of 23 percent. Lowering the corporate rate almost
to the global mean made American businesses and millions of
American workers more competitive in the global marketplace.
It was apparent back in 2017, as much as it is today, that
the U.S. needs a corporate rate that is competitive with the
rest of the world. U.S. multi-nationals were fleeing the United
States, and headlines of corporate inversions were commonplace,
taking their jobs and capital investment with them as they
left. Nobody has disputed that fact.
Lowering the corporate rate, combined with international
tax provisions, stopped inversions, encouraged domestic
investment, and made the U.S. an attractive place to do
business, and created jobs for American workers. Total U.S.
domestic investment grew by over 20 percent after GOP tax
reform, and year over year we continue to see record corporate
tax receipts. Tax reform is working. Jobs and innovation are
coming back home.
We should look to build on these gains as we approach the
massive tax cliff coming at the end of 2025. Unfortunately, the
Biden Administration has proposed massive corporate tax hikes
that are out of sync with the rest of the world, has proposed a
repeal of the vital TCJA international tax provision, Foreign
Derived Intangible Income, or otherwise known as FDII, which
play a critical role in bringing intellectual property back to
the United States and keeping it here to begin with.
The Biden Administration has also unilaterally committed
the United States to a global tax policy that could diminish
the United States' competitiveness on a global scale, and have
grave consequences for our domestic economy.
I have said this time and time again, progress on the new
global tax agreements is important, but Congress must approve
any commitments that might erode the U.S. revenue base or
significantly impact bilateral trade and investment flows.
Congressional action to carry out international tax agreements
is clear from the text and structure of the Constitution.
Mr. Chairman, I would like to enter into the record the
Wall Street Journal op-ed, ``How Congress Can Stop Biden's
Regulatory Onslaught.''
Chairman SMITH. Did you say a Wall Street Journal op-ed?
Mr. HERN. I did. [Laughter.]
Chairman SMITH. Okay.
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Mr. HERN. Okay. I know it is controversial.
Senator Gramm, thanks for all your work that you did in the
Senate, and so many op-eds you have written. I have followed
them all. Your Wall Street Journal op-ed is quoted saying,
remarkably, the Biden Administration agreed to let foreign
governments tax U.S. companies on their U.S. earnings if
Congress refuses to adopt the minimum tax. This is an
extraordinary circumvention of the Constitution, that the Biden
Administration has attempted to use an international agreement
that Congress never approved to force Congress to raise taxes.
How harmful would it be for not only our economy, but our
democracy, if Congress's hands were ever forced to rubber stamp
Biden's poorly negotiated global minimum tax?
Mr. GRAMM. Well, first of all, there was no advice and
consent given to Congress in any of the negotiations with OECD
countries concerning the international minimum corporate rate.
Number two, no treaty was ever passed. No law has ever
implemented the minimum tax. But what President Biden has
agreed to is to stand by and allow European countries to tax
American subsidiaries in their country on income the subsidiary
made in the United States if we don't impose the corporate
minimum tax in the United States.
And if I could urge this committee to do one thing, it
would be to pass a bill that mandates retaliation against any
country that implements a tax against American companies to, in
essence, tax their American earnings. With all of this talk
about assaults on the Constitution, this is the greatest
assault on the Constitution in my lifetime.
And if Biden were a Republican and I were in the Senate,
there would be no peace until we would stop this thing. This
has nothing to do with partisanship.
Mr. HERN. Thank you so much for your testimony.
Mr. GRAMM. I am sorry, I----
Mr. HERN. No, no, thank you for being here.
Mr. GRAMM [continuing]. I have a tendency, as a Senator, to
just go on.
Mr. HERN. Well, you guys have no time limit over there.
I just want to put for the record that I am a proud
cosponsor of Congressman Smucker's Main Street Tax Certainty
Act. I think that if we don't make sure that our small
businesses in America are taxed favorably so that they can
create jobs, grow, and keep this economy going into the future,
I always say for the record, there is not a single business in
America that didn't start as a small business, and we need to
recognize that.
I yield back.
Chairman SMITH. Mrs. Miller is recognized.
Mrs. MILLER. Thank you, Mr. Chairman, and a special thank
you to you, Senator Gramm, for spending the afternoon with us,
your precious time. And to all of you witnesses for being here,
but I especially want to welcome a fellow West Virginian,
Michael Ervin of Coal River Coffee Company in Saint Albans,
which is in my district, for making the trip to Washington and
getting an earful of how we do business here. It is entirely
different.
It is just so good to hear voices of business owners from
my home state to discuss the benefits of the Tax Cuts and Jobs
Act and our committee's work to extend the key benefits for
hard-working Americans like Mr. Ervin and his employees. You
all are what make the country great.
The Tax Cuts and Jobs Act is one of the most important
policies passed into law in generations, and thanks to the work
of President Trump and the United Republican governance in the
House and Senate. To this day, the positive impacts of a
simpler tax code are still being felt, and it is telling that
Biden and his liberal colleagues in the House and Senate did
not repeal any key provision of President Trump's landmark
legislation, and failed to gain the requisite support within
their own party to raise our tax rate or strip small businesses
of their fairer treatment that the TCJA did provide.
Lowering our corporate tax rate to a globally competitive
21 percent has been a key driver in drawing investment to our
country and allowing our businesses to reinvest in their
employees and communities, and I strongly support maintaining
this rate. Any increase to pay for industry-specific handouts
undermines the core tenet of the TCJA of broadening our tax
base and simplifying the tax code.
The Tax Cut and Jobs Act was extremely successful at
simplifying the code on the individual side, as well. In West
Virginia over 97 percent of filers utilize the increased
standard deduction included in the TCJA. This means that more
families spend less time worrying about their taxes and have
more in their pockets at the end of the day. Families, large
employers, and small businesses all benefited from the passage
of the TCJA.
And in West Virginia only 98 percent of our businesses are
actually small businesses. The 199A, a small business
deduction, allows for pass-through entities to receive a
comparable tax rate to larger corporations, allowing small
businesses to stay competitive and reinvest in their employees.
And I look forward to working with a reelected President
Trump, Chairman Smith, and all my colleagues to extend the
essential components of the TCJA and spend the next year
hearing from our constituents on how to improve on this
essential legislation.
Mr. Ervin, can you describe what the impact on Coal River
Coffee would be if the 199A deduction was not extended?
Mr. ERVIN. Absolutely. Let me just start off by saying we
have only existed since this has existed. When I started my
company, I probably was considered low-income, to answer Ms.
Sanchez's question earlier. So, yes, I am qualified to answer
and speak to these aspects. And it created an environment for
entrepreneurship in a very economically depressed state. And if
we lose that deduction, in particular, it will squelch, it will
kill that environment.
Not only that, there won't be as much of an incentive to
actually start something and take a risk, maybe take a loan and
do the things that are necessary to create economy. And that is
what we are doing, is creating economy and creating jobs, doing
what the American dream is.
And just like my friend over here, you know, his father
started their journey in this dream. And that is what I am
doing, hopefully, for my children who are sitting in the back
of this right now, watching this. They can inherit my business
someday. And if this deduction is not extended or made
permanent, which is what I hope, then me and the other
entrepreneurs, business owners, and 98 percent of the
businesses in my state might have to close.
Mrs. MILLER. Tell me----
Mr. ERVIN. And that is why I am here today.
Mrs. MILLER [continuing]. Tell me quickly how you have
reinvested in your community.
Mr. ERVIN. Yes. Very quickly, we help start organizations.
We give money toward our Little League programs, in particular.
And are these bigger corporations doing that? No, they are not.
We give to almost every sporting team that comes to us. And we,
obviously, have our program with the Recovery Network. We help
with organizations that integrate folks with disabilities.
We employ folks with disabilities, too, and they love being
a part of something that is bigger because for--go ahead.
Mrs. MILLER. I was just going to say that is how small-town
America works.
Mr. ERVIN. Exactly.
Mrs. MILLER. And I have to yield back my time. I am so
sorry.
Mr. ERVIN. Sure, thank you.
Mrs. MILLER. And Mr. Ramirez, I had questions for you, too,
but we talked too long.
Thank you for being here, all of you.
Mr. FEENSTRA [presiding]. Thank you. Now I recognize the
gentleman from North Carolina, Dr. Murphy.
Mr. MURPHY. Did I scare the Democratic witness away? I must
have.
Anyway, thank you all for coming today. You know, it opines
to me that our Democratic colleagues love to attack the big,
nasty, big corporations, when 98 percent of our corporations in
this country have 100 employees or less. And what
Representative Hern said, that every company starts as a small
company, is absolutely true.
You know, a couple of statistics here, the TCJA for
minority groups had an all-time income, hit all-time highs.
Compared to the second term of Obama and Biden, wages grew 24
percent faster for Hispanics, 79 percent for African Americans,
95 percent for Asian Americans. This is what happens when you
unleash the power of the American economy.
Thank you for coming back. Sorry about that. I didn't I
didn't say anything bad, I promise. [Laughter.]
Mr. MURPHY. I just want to reiterate that most of the
corporations in this country are small employees. They are not
the big, bad things that do things. And so when we cut the
corporate tax rate, we are hurting our small things.
Dr. Edwards, let me ask you just a couple of quick
questions. We are talking about the not-fair-share when the
rich are not paying their fair share. So they pay 47 percent,
the top one percent. What percent would you think is
appropriate for them to pay?
Ms. EDWARDS. You all, I don't decide fair.
Mr. MURPHY. I know. I mean, that is what we hear all the
time. Pay their fair share. Pay their fair share. And when the
top one percent pay 47 percent of the tax burden, I want to
know what would a Democrat witness say is the fair share.
Ms. EDWARDS. Well, speaking as an economist and not as a
Democrat, what I would say, sir, is that the top one percent
have also seen the accumulations of income over the past 20
years. Part of their outsized burden of how much they are
paying in taxes is also a fact of how much faster their income
has grown over the past 40 years, and the top one percent
income share is now at a 70-year high. It is not just the rate
that sets the share, but also the total amount of income they
earn relative to the economy.
Mr. MURPHY. Yes, and I would--you know, I am not going to
disagree. Their facts are always your facts and my facts, and
that is just the way life happens.
To what Senator Gramm said earlier about we want a Child
Tax Credit, we want to lift up the poor, we absolutely do. The
problem is, in the State of North Carolina now, 52 percent of
the births in the State of North Carolina are born to mothers
on Medicaid. Over half. So think about that geometry. Think
about those proportions as we move forward. What does that look
like?
I still see patients. I still see them to this day whose
mother I saw as a young patient. And it is grandmothers now
raising children. And it is generational Medicaid because there
is no expectation when you have a child that you have to pay
for it. There is none. And this is the destruction of the
American dream right there.
Senator Gramm, I want to follow up. You know, the pandemic
was horrible for the world. It started in China. We all know
that. But we did find some few silver linings. We saw our
absolute and utter dependency upon China. I would love for you
to comment on how--you were talking about how much regulation
is killing American businesses. I would love for you to comment
on what you thought is happening to United States
competitiveness on the national scale due to over-regulation
now is doing to our national security. We saw how national
security is threatened now because if we were at war with
China, we would have two months' worth of medicines. How is
this a threat to national security?
Mr. GRAMM. Well, the security of the United States, when
you get down to the bottom line, comes from the productivity of
the American worker. It gives us the ability to not only
provide the resources for defense, but it gives us the
technology to always be out front.
Technology for defense is now coming from the private
sector. That wasn't true when I came to Congress. It was coming
from the industrial military complex when I came here. But now
it is out in the general domain. So the only way we can stay
ahead is by developing the technology ourselves.
Mr. MURPHY. Right.
Mr. GRAMM. We have got to be first.
Mr. MURPHY. I want to make sure I get in----
Mr. GRAMM. But regulatory burden strangles our ability to
do that.
Now, a perfect example is artificial intelligence.
President Clinton set out a policy when the Internet came on
the American scene of first do no harm. You have heard that
phrase----
Mr. MURPHY [continuing]. Absolutely.
Mr. GRAMM [continuing]. In your profession. And we stayed
out of regulating the Internet, and we dominated it. We
absolutely dominate the tech industry.
So what has the Biden Administration done in response to
artificial intelligence? They are demanding all kinds of
actions by artificial intelligence to deal with everything in
the world except artificial intelligence. And my concern is, if
we don't develop the technology, somebody else will. And will
the world come to an end? Maybe not, but we will be poorer, we
will be less dominant in terms of our ability to defend
ourselves. And even if the lion and the lamb in the world lie
down together, we had better be the lion. And so, I am
concerned about it.
Also, an important point was made that Biden has cut
corporate taxes more than that corporate taxes have been cut
under the Biden Administration. And they have, but they have
been cut for industries government picked. So a perfect example
is we are providing all these tax credits----
Mr. MURPHY. Senator Gramm, I need to yield back my time.
Mr. GRAMM. Let me finish this one point, if I may, please.
We provided all these tax credits to make computer chips.
And so the largest manufacturer of computer chips in the world
in Taiwan says, with all of these subsidies, we will be able to
make these computer chips in America and they will only be 50
percent more expensive than the computer chips----
Mr. MURPHY. Right.
Mr. GRAMM [continuing]. You can buy from Taiwan. Well, what
kind of great deal is that?
Mr. MURPHY. Thank you, Senator. I guess my time has
expired.
Thank you.
Mr. FEENSTRA. Thank you. Now I yield myself five minutes.
I know a little bit about economics. I might have taught a
class or two in it. I do know this about economics, that you
can always argue a picture that you want to portray, right? If
you want to portray something, you argue it. You spin the
numbers, right? It happens in economics. That is the great
thing about the field. You can always argue something.
But sometimes facts get in the way, get in the way. And I
just want to talk about a few facts. So under the Tax Cuts and
Jobs Act, we had a tax code before Tax Cuts and Jobs Act,
before, you know, our corporate rate was at 35 percent. So
between 1983 and 2015, we had 60 companies that inverted and
moved their headquarters to another country. And this trend was
continuing on until the Tax Cuts and Jobs Act. After that, we
have had zero--zero--inversions. Think about that, zero.
So, we have actually had companies that were offshore move
to onshore, all right, with their intellectual property, their
cash, their jobs. Oh shocker, jobs. Yes. These corporations
actually create jobs, right? And they moved onshore, right?
That is the difference here when you talk about the Tax Cuts
and Jobs Act.
Now, one other thing that I want to talk about--and we
talked about the Congressional Budget Office--projections.
Great, let's talk about them. So before we had the Tax Cuts and
Jobs Act, the CBO said--in 2024, they projected that we would
generate about $405 billion in corporate tax revenue. Now this
might shock you, but now they project, after the 21 percent,
after we cut corporate tax, now the CBO projects that we will
collect $569 billion because of the cut.
So it begs the question, Mr. Winfree, this begs the
question: how do you think our role--when we have to reduce the
deficit, how does this play into economic growth when we have
this 21 percent cut, and seeing what it is doing for
inversions, and seeing what it is doing for our revenue coming
into the Department of Revenue? What are your thoughts?
Mr. WINFREE. Two comments.
The first comment is that if you look at the very long run,
right, if you study revenues over the very long run, we have
had lots of different tax systems. And at no point in our
history have we ever been able to grow revenue faster than GDP
for more than four years, four consecutive years. At the same
time, Federal health care spending has been growing faster than
GDP since the 1960s. That is the problem.
The other problem is that before the pandemic, government
spending as a percentage of the economy was at about 20
percent. At its peak--I mean, we had a crisis--it was about 31
percent. Not faulting that. Now it is at about 22 percent.
Every time we have a crisis we reset that benchmark.
Mr. FEENSTRA. Right.
Mr. WINFREE. That is the problem.
Mr. FEENSTRA. So, if we have a Democrat-controlled Congress
or President next year, what is going to happen if it goes from
21 to 35 percent, and all these other things increase?
I mean, what do you see? What is going to happen then?
Mr. WINFREE. It will increase. I mean, this is one of the
reasons why in President Biden's own budget you see the deficit
increasing.
Mr. FEENSTRA. Absolutely. I want to talk about something
else.
So, I am probably the number one or two ag district in the
country, right? So you can well imagine what taxes do. You
know, we can talk about qualified business income. We have
talked about that already. But I want to talk about the pilfer
tax. I mean it is, it is a pilfer tax.
Think about this. You got the IRS and the Department of
Revenue actually reaching in the grave with their arm, taking
the dead person out of the grave and saying, hey, you owe 41
percent of your property, the property that you paid tax on all
your life. Now you want to give it to your kid? Oh, you owe 41
percent. This gets cut in half--and I should say it ends in
2025, it gets cut in half.
So I want to ask you, Mr. Ramirez, how would this affect
you and challenge you if you had to pass your business on to
the next generation? How does this apply?
Mr. RAMIREZ. Yes, look, the death tax makes it
extraordinarily difficult to pass on family-owned businesses.
You know, the reality is the time I have spent with lawyers and
accountants doing estate planning to put Husco in a position
where it could possibly pass on to a third generation would
have been much better invested creating jobs and investing in
the business rather than in tax planning.
Mr. FEENSTRA. Yes, absolutely. And you know what is
happening in Iowa? And this is a true story. What is happening
in Iowa--so these families, these farmers, they can't pass it
on to the next generation, all right? Who are they selling it
to? Our foreign adversaries like China, foreign countries, and
stuff like that because the children can't afford the 41
percent. This is absolutely ridiculous.
Anyway, that is end of my time and I yield back. And I will
now recognize Congresswoman Steel from California.
[Pause.]
Mrs. STEEL [presiding]. Thank you, all the witnesses, and
this is a really long meeting, and thank you.
And Senator Phil Gramm, you know what? I saw you so many
times in California in the late 1980s, and it is so nice seeing
you and your wife. So you know, I was really happy to sit here.
Mr. GRAMM. You look good in that chair, by the way.
Mrs. STEEL. Someday, hopefully. But you know what? A long
time from now. But thank you.
So Tax Cuts and Jobs Act provided tax relief to families.
You know what? By the way, I recognize myself for five
minutes.
The Tax Cut and Jobs Act provided the tax relief of
families across my congressional district, and provided
economic growth to businesses of all sizes in California.
One provision of TCJA that has had huge success for
companies in California is the Foreign Derived Intangible
Income deduction. FDII enhances the competitiveness of the U.S.
and, combined with the competitive corporate tax rate, can
result in more U.S. jobs and U.S.-based R&D. In fact, a number
of companies have brought their offshore IP to the U.S. or
maintained in the U.S. and developed their new valuable IP here
at home, especially because of FDII. With the current effort at
the OECD, FDII will be pivotal to protecting the U.S. against
taxation by other nations.
I wanted to ask Dr. Winfree, but since he is gone I know,
Senator Phil Gramm, you are the expert for economy, especially
for U.S. economy. So do you agree that FDII is a critical part
of U.S. tax policy, and maintaining and enhancing it should be
a top priority for Congress?
Mr. GRAMM. I think it is very important that America has a
competitive tax system, and I think we ought to do everything
we can to keep it competitive.
Again, Americans don't need an advantage. We just need to
have a level playing field.
And I see he is back, so you can ask him your question.
Mrs. STEEL. Dr. Winfree.
Mr. WINFREE. I apologize, my son has got a baseball game in
about an hour, and I had to figure out who was going to take
him there.
The question was about competitiveness, international
competitiveness?
Mrs. STEEL. It is--FDII is a critical part of U.S. tax
policy. It is a Foreign Derived Intangible Income deduction. So
maintaining and enhancing it should be a top priority for
Congress.
Mr. WINFREE. I think, to follow up on what the Senator and
Dr. Gramm just said, I think that one of the things that we
want to do is that we want to make sure that the American tax
system is competitive, right, both for domestic investors, and
then also for folks who want to invest in America. Ultimately,
that is what drives growth. And so I would say yes, I would
agree with you.
Mrs. STEEL. So Senator Gramm, you said that
competitiveness--so when this Tax Cuts and Jobs Act, that it
reduced corporate tax for 21 percent, that is a competitive
rate because it is average in the world. So we keep that
number, it is better for our economy.
Mr. GRAMM. Only an economy that is intent on suicide would
have the highest corporate tax rate in the world.
And again, I just want to emphasize that everybody pays
corporate taxes. A corporation is a piece of paper in a filing
cabinet in Delaware. Corporations are investors, and 74 percent
of all investments in American equities are owned by retirement
funds, 401(k)s, IRAs, and pension funds. So this idea that
there is some rich corporation out there is a fiction. And now
it is a political fiction.
Corporate America is really your pension fund. And so, when
you are socking it to corporate America, you are taxing your
pension fund. So the worker gets hit two ways. One, his wage is
affected by the corporate tax because about 70 percent is
passed on to him that can't be passed to the consumer. And
secondly, her retirement fund is hit by the corporate tax. So
the corporate tax is really a broad-based tax on poor people in
America, and the tragedy is people don't know it.
Mrs. STEEL. Thank you very much. My time is up.
So Ms. Chu, you are recognized for five minutes.
Ms. CHU. Dr. Edwards, I also serve on the House Small
Business Committee, which held a hearing just yesterday on the
impact of the Tax Cuts and Jobs Act. One of the witnesses at
this hearing, himself a small business owner, pointed out that
the TCJA did not adequately address the needs of small
businesses and does not invest in their success.
In fact, he shared a survey of small business owners that
found that 80 percent said that TCJA did not help them hire new
employees, and 72 percent believe that the tax code favors
large corporations over small businesses. In fact, this is
shown in the results of the 20 percent 199A pass-through
deduction. It is touted as a tremendous help to small
businesses, but the opposite is true. It gives the largest tax
breaks to the wealthiest individuals.
And in fact, as a result, in 2019, the latest non-pandemic
year for which data was available, the average pass-through
deduction across all taxpayers who claimed the deduction was
roughly $7,000. But it was nearly $1 million for the 15,000
taxpayers with incomes above $10 million who claimed the
deduction. So it failed to invest in the smallest and youngest
businesses that really needed the most support.
So Dr. Edwards, do you believe that extending the expiring
Trump tax law provisions is an effective way to help the truly
small businesses?
Are there better ways to structure the business tax code
that will help these small firms and boost productivity and
wages across the board?
Ms. EDWARDS. The pass-through deduction has the exact flaws
that you, that you enumerate.
And, you know, what I have heard from small businesses
that--over the past few years--what they would like is workers,
that, you know, hiring is difficult, that they need more
workers in the labor market.
And, you know, we have had so many members talk about
global competitiveness, the U.S. falling behind, wanting to
level the playing field. Well, we are certainly behind in labor
force participation, a area where we used to be a leader. We
used to have one of the highest female labor force
participation rates in the world, and we are frozen because
every other industrialized country has paid family leave and
subsidized child care.
I understand that small businesses benefit from taxes in
many ways. I know Mr. Hern says I don't have qualifications to
speak because I never created a single job. But I created my
job, and I am a small business, and I know I don't have any
employees yet, but that doesn't mean I don't have aspirations.
But I can do nothing without child care, and I can do nothing
if I don't have a place for my kids to go. And that is truly an
era where it is not just the U.S. has fallen behind. We are in
a different century than our peers in how we treat working
parents.
Ms. CHU. Well, let me follow up with this, Dr. Edwards. One
of the most lopsided handouts to the wealthy included in the
TCJA was this doubling of the estate tax exemption which allows
joint filers to inherit more than $27 million completely tax
free.
But Republicans are not satisfied with merely extending
this tax break for the ultra-rich. They want to eliminate this
tax altogether. Now, in 2025 this will cost us as much as $40
billion a year. But that is the same amount of dollars that it
would take to extend childcare and universal preschool. So
there is a cost to our society of this.
Can you talk about the trade-offs of Republican plans to
further weaken the estate tax? What are some of the services
that the government might be able to provide if we let the
Trump tax law's estate tax provisions expire?
Ms. EDWARDS. Yes, I have proposed previously that the
revenue from the estate tax could be dedicated to a trust fund
intended for children because we have talked so much about the
estate tax in terms of men like Mr. Ramirez, but he doesn't pay
it, his kids do. It is paid by inheritors of dynastic wealth.
And the point of the proposal is that there are a lot of kids
out there that don't inherit dynastic wealth, and they don't
inherit businesses, and this would be a way to redirect
investment to them.
You know, the government is not limitless, as large as you
are, and your dollars are competing for priorities. And as much
as the tax cuts can produce, you know, people who can speak to
its strengths, childcare, paid family leave, and more
investments in children would create more workers and higher
labor force participation, something that would benefit all
businesses in the United States.
Ms. CHU. Thank you, I yield back.
Chairman SMITH [presiding]. Ms. Tenney.
Ms. TENNEY. Thank you, Mr. Chairman, and thank you to the
witnesses.
It is certainly a tremendous honor to have Senator Gramm
here. One of my very first mentors in Congress was the former
congressman, Jeb Hensarling, who is a huge fan of yours and
talked about you all the time. So we appreciate all your
contributions.
Mr. GRAMM. He was my student at Texas A&M.
Ms. TENNEY. There you go. He talked about you a lot. He was
the chairman of the committee when I was on Financial Services.
So look, this issue may mean so much to me because I am a
small business owner. My family business was started in 1946.
We are still in existence, but barely, because we live in the
State of New York. And the Tax Cuts and Jobs Act was the best
thing that has happened to our community in upstate New York in
probably 30 years.
And every business I went to, every business I communicated
with in 2017, regardless of their party affiliation, what
industry they were in, said this is the best thing that has
happened to our business. And you want to know why? Because
most of the businesses in my community are small businesses
taking advantage of the pass-through deduction. The 199
deduction is so critically important. They are able to
reinvest, find employees that they could give more money to,
and be more competitive against--our biggest competitor in the
marketplace in upstate New York is the government. The
government gives out more benefits than we could ever compete
with.
And so our small business was the very first one to have a
401(k), the very first one to have a private health care plan.
Since the advent of the Obamacare and the Affordable Care Act
in New York, as well, we now have almost unaffordable
insurance. Our insurance is terrible.
We did have childcare, and I raised my son as a single
parent. I am part of the sandwich generation. I took care of my
parents, ran our family business, which was always in very
rough shape in terms of the balance sheet because I was running
a newspaper when the business cycle was dying on newspapers. So
imagine. This was very challenging times for us.
And thank goodness that we have benefits like, for example,
the estate tax. And boy, did we not have dynastic wealth. And
there is no such thing as dynastic wealth in upstate New York.
When you talk about my district in New York 24, the largest
agricultural district in the entire northeast, the largest
dairy district, people who work every day to try to run dairy
farms, to try to have crops under the impressive New York State
Government. With taxes, and fees, and costs, and all the things
that are coming to them, they are lucky if they have any value
left in their land so that they can actually--and then guess
what? Some of them have to sell their farms and equipment just
to be able to pay an estate tax. So the estate tax is a godsend
to businesses like ours in upstate New York. And I would just--
it aggravates me when I hear people talk about dynastic wealth,
and how these benefits are only for the wealthiest.
And one thing that we don't talk about. In my district,
upstate New York, is what I call the Rust Belt of New York. All
the big companies were founded in my area: IBM, Corning, major
companies, Kodak, Bausch and Lomb, you name all these major
companies all along the Erie Canal corridor, where my great
district is. Most of them are gone. But you know what is left?
Small businesses, people who are working every day to try to
make a living. And so that is why these Tax Cuts and Jobs Act
were so important. Ninety-five percent of the people who work
in my area, ninety-five percent, work for a small business.
They don't work for an IBM, 20,000 jobs lost, all--Corning, all
these other jobs.
But one thing that was really important that never gets
mentioned in the Tax Cuts and Jobs Act is the repatriation
money, and that one-time reduction in the corporate tax rate
that was given to a lot of businesses--and these are the big
guys--they took advantage of it, paid a ton of money. It is at
$1.6 trillion, I believe, that so far. I think it is ended now.
But they brought hundreds of thousands of jobs from overseas to
our communities. And every single day in every single year
those jobs are bringing in payroll tax, sales tax, they are
helping the economic output in their communities, and they are
doing exactly what Mr. Erwin, Mr. Ramirez, all of you are
doing. That is why the Tax Cuts and Jobs Act are so important.
And it is so important that we consider what this bill was
aimed at and what it helped, and it really provided relief. And
I just want one quick question, and I would love to talk to
Senator Gramm, but I want to talk to Mr. Erwin, because you are
someone who is actually running a business.
And tell me about the tax pressures you face, and what
would happen if the 199A deduction, the pass-through deduction,
were to end for you if the Tax Cuts and Jobs Act weren't
extended?
Mr. ERVIN. That is a great question. So, you know, we would
obviously have to let go of some employees, unfortunately. We
would streamline--we would have to pass off some of that cost
to the customer. And so it would be determined on the community
if we were going to stay in business in the long run.
Now, my forecast would be, if it didn't exist anymore, it
is unfortunate, we probably would have to close our doors at
some point.
Ms. TENNEY. Thank you. I appreciate that. And that is
actually the truth of what is going on. This is why the Tax
Cuts and Jobs Act are so important to the middle class, to
middle-tax taxpayers, people who are running businesses with
one or two employees.
I know some of my colleagues across the aisle like to focus
on, you know, the city blocks and the companies with huge
numbers. But our business is driven by small business, and this
has been a godsend for us. And I couldn't go into a single
business in my community that hasn't said to me, ``I hope we
are going to extend the Tax Cuts and Jobs Act,'' and this is
New York. This is not Texas. It is not, you know, Florida. This
is upstate New York, where, you know, we rely on our small
business community. And the Tax Cuts and Jobs Act has really
have saved us from some of the harm that has been inflicted by
one-party rule in Albany.
And with that, Mr. Chairman, I am over time, but thank you
so much. I appreciate it.
Chairman SMITH. Mr. Kustoff is recognized.
Mr. KUSTOFF. Thank you, Mr. Chairman. Thank you to the
witnesses for appearing today.
Senator Gramm, thank you also for appearing today. If I
could, with you, you have talked quite a bit about the
reduction in the corporate rate with the Tax Cuts and Jobs Act.
And I remember just historically, when we passed it out of the
House and ultimately out of the Senate, we went to the White
House for signing, the signing ceremony of this bill, which was
historic and, as somebody in our position, that is a neat thing
to be able to do. It is really special.
I remember being on the south lawn of the White House and
hearing anecdotally about companies that were announcing
bonuses and pay raises as a result of the Tax Cuts and Jobs
Act. If I could, just a few, right after the signing, and as
the bill was getting ready to be signed into law by President
Trump, AT&T announced a $1,000 signing bonus for 200,000 of its
employees. They wouldn't have done that without the tax cut
they got from the Tax Cuts and Jobs Act. They said that.
American Airlines announced a $1,000 bonus. FedEx, which is
based in my district in Memphis, invested $200 million in pay
raises and $1.5 billion in pension benefits because of the Tax
Cuts and Jobs Act. Bank of America at that time announced a
$1,000 bonus for 145,000 of its employees. And if I could, one
more, First Horizon Bank, which is also based in Memphis,
announced a $1,000 bonus for its employees. Brian Jordan, the
CEO, a well-respected CEO of First Horizon, issued a press
release December 22 of 2017, the day the Tax Cuts and Jobs Act
was passed. And he said, for a number of reasons and ``because
of recent tax reform efforts that we believe will benefit First
Horizon, we are happy to offer bonuses to our people who work
hard every day to maintain First Horizon's reputation as one of
the best companies to work for and one of the most trusted
banks in the country.''
So I have given a few examples. But Senator Gramm, could
you talk about how the Tax Cuts and Jobs Act allowed businesses
to increase wages, to raise wages, to issue bonuses, and invest
for their workers?
Mr. GRAMM. Well, at the risk of sounding like a recording,
I want to start by saying corporations do not pay taxes. A
corporation is a piece of paper in a filing cabinet in
Delaware.
When taxes go up--let me just go through the example with
it going up--a corporation tries to pass the cost onto its
consumer. But generally it can't pass all the costs on to its
consumer. And then economists have studied this in great detail
for 150 years, and the findings are pretty straightforward.
Between 70 percent and 50 percent of corporate taxes are paid
by employees, and the other 30 to 50 percent are paid by the
investors in the company.
Now, there is this image that corporate America is owned by
these mega-rich people. But 74 percent of American stock
investments are made by 401(k)s, IRAs, retirement programs,
life insurance companies to back up death benefits, and
annuities. Just look at your thrift savings plan, if you have
one, as a Member of Congress. What happened to your thrift
savings plan from the 2017 tax cut? It exploded, and all that
went to your retirement.
Now, unless you are a billionaire, you benefited. So there
is a complete misconception about how all this works. And the
tragedy is that when you cut individual income taxes, you have
already got half the people that don't pay income taxes. So
unless you are going to just give them money, which is welfare,
they don't get any benefit. When you cut corporate taxes, you
affect prices, and they do benefit. And that is one of the
reasons that the bottom 20 percent of income earners benefited
so much from this tax cut. They got jobs, and costs were lower
than they would have been. And these are the same people that
have been pillaged today by the fact that inflation over the
last three years has outrun wages. So it is working in reverse.
So again, corporate tax cuts affect real people.
Mr. KUSTOFF. Thank you, Senator Gramm.
Thank you, Mr. Chairman.
Chairman SMITH. Thank you.
Ms. Moore.
Ms. MOORE of Wisconsin. Thank you so much, Mr. Chairman,
and let me thank the witnesses.
Let me start out by acknowledging you, Mr. Ramirez, a
little suburb outside of Milwaukee. I would love to come and
visit sometimes. You certainly contribute to the notion that
our region has a reputation for being the machine makers of the
world, and we are going to reclaim that glorious position.
And I would say to you, Dr. Edwards, a labor economist, you
know, educated at the University of Wisconsin, you are well
educated. And so we are really happy to have you all here.
Senator Gramm, you know, people do come back to the scene
of the crime, don't they? Welcome back. You know, I guess my
questions are going to start out looking at your comments and
the--sort of the dialogue that has gone on here where, for
example, you repeatedly said that the Tax Cuts and Jobs Act
benefited the lowest quintile of workers, and you have even
attributed something like $5,200 to----
Mr. GRAMM. That was the average for the whole country,
the--I had the--$5,220 was the average mean income went up.
Ms. MOORE of Wisconsin. Okay, because I swear to God----
Mr. GRAMM. No, that is right, no----
Ms. MOORE of Wisconsin [continuing]. I couldn't figure that
out.
Mr. GRAMM. It didn't go to everybody, but----
Ms. MOORE of Wisconsin. Because, you know, when you are
making $21,000 a year----
Mr. GRAMM. Yes.
Ms. MOORE of Wisconsin [continuing]. You ain't going to get
no $5,200 out of the tax--they got nothing.
Mr. GRAMM. And you ain't going to forget it if you do.
Ms. MOORE of Wisconsin. That is right. You know, I am
scratching my head and on my little calculator, and it just
wasn't working.
Mr. GRAMM. No.
Ms. MOORE of Wisconsin. But I would ask you, Dr. Edwards,
isn't that increase in wages that Mr. Gramm talked about, isn't
that attributable to the fact that we--at least 22 states that
raised the minimum wage, cities like Seattle, the Obama
recovery--there was no direct benefit, other than that 70 bucks
from the Tax Cut and Jobs Act. Can you help clarify this for
me?
Ms. EDWARDS. Yes. The--you know, where--hold on let me
start again.
That was the assessment of the Congressional Research
Service. That is you all's researchers who made the assessment
in 2019 this had no effect on wages. They looked at expected
growth rates, unemployment, and expected economic growth and
made the assessments--you know, I pulled it up--ordinary
workers had very little growth in wage rates outsized from what
would have been predicted by the economy and the unemployment
rate at the time.
Ms. MOORE of Wisconsin. Okay, listen. Another thing that
Senator Gramm said is that workforce participation dropped from
67 percent to 30 percent in the lower quintile. Do you think
that that is because of things like not having childcare, wages
were too low, no health care associated with it, no
transportation?
What would we attribute to a low--and, you know, if you are
at the lower quintile, of course, these jobs that are available
to you are those fringe jobs. What do you--what is your thought
on that?
Ms. EDWARDS. Well, the hero and villain of every story is
Baby Boomers. So the top--the bottom 20 percent now has a much
higher share of retirees----
Ms. MOORE of Wisconsin. Okay.
Ms. EDWARDS [continuing]. Whose income is, you know, fixed
and adjusted with inflation for Social Security over time. And
so that share falls.
You know, I also think I would be remiss if I didn't say
when we are talking about labor force participation you have to
talk about men and women differently. Male labor force
participation, people who typically get nothing from the
Federal Government, has been declining for 70 years. Women's
labor force participation, who are the receptors of almost
every public benefit that you provide because they are the
caretakers of children, their labor force participation has
been rising for 70. We cannot confuse the forest for the trees
here.
Ms. MOORE of Wisconsin. Thank you. That is excellent.
So a lot of my colleagues were concerned about workers
who--you know, about having workforce--you know, the CTC saying
that you need to work to get a benefit. You know, the Earned
Income Tax Credit was not changed in the JCT. As a matter of
fact, they moved to a chained CPI. And workers under 25 didn't
get any benefit, over 65 didn't get any benefit. So even people
who were working--I mean, we worked people into poverty with no
changes to the Earned Income Tax Credit. True or false?
Ms. EDWARDS. You know, best of my knowledge, yes, but I am
actually not sure----
Ms. MOORE of Wisconsin. Okay, well, good, because I got
more.
GDP--these things, productivity, prosperity--the GDP would
have been 6.7 percent had these tax cuts paid for themselves.
Instead, it was only a 0.2 percent increase in our GDP. So not
only did these tax cuts not pay for themselves, but our GDP
only increased by two-tenths of a percent. Is that true?
Ms. EDWARDS. So mostly it is how much larger--so GDP grows
pretty much every year, and--as do revenues, right, pretty much
every year because our economy is getting better. Also,
spending increased pretty much every year as our economy gets
bigger.
The question is, what is the difference between where the
economy was going and then what the effects--the economic
effects of the corporate--or of the 2017 tax law, added. The
Congressional Research Service concluded that the economy grew
about--by 3 percent, and that 0.2 percent larger than would
have been otherwise an absence of the tax cuts. So 0.2 percent
larger. Yes, it is a lot of percentages and rates all at the
same time.
Ms. MOORE of Wisconsin. And it went to the top one percent.
Mr. Chairman, I would yield back and thank you for your
indulgence.
Chairman SMITH. Thank you.
Mrs. Fischbach.
Mrs. FISCHBACH. Thank you very much, and I do want to thank
all of the folks that came to testify today, because you have
had to sit through a lot. And I think there was a couple of
folks with a little too much caffeine and all kinds of stuff,
so I appreciate you being here and sticking it out with us.
But I wanted to ask Mr. Ervin. I know that Congresswoman
Miller was asking you a question, and you ran out of time. And
I am from a rural area. And so, you know, what it does, how it
helps rural areas and those less populated areas, I would love
to have you finish that answer.
Mr. ERVIN. So, essentially, your question is, how does the
current tax situation help the rural areas?
Mrs. FISCHBACH. And help the communities.
Mr. ERVIN. Help the community, yes. So just since I have
been in business, my main street specifically, it is a main
street in a small town, businesses have opened up.
And in particular, I will throw out a couple of names. One
of my first customers on my first day of opening was Brian.
And, you know, he was a good guy. He was the high school
basketball coach. And he had a dream of opening a business. And
a couple years after--it was right before COVID--he shared the
dream with me and my wife, and we encouraged him. And not only
did he, but his assistant coaches started an ice cream truck in
our town. And it was amazing. And then they ended up starting a
taphouse on my street, which kind of helped instill a nuance
that we needed on our street.
And so anyway, that is one primary example that if this
deduction wasn't around, I highly doubt that they would have
taken the risk to do what we have been able to do together. And
he has joined in that entrepreneurial experience or call
because of the environment that the deduction has created and
continues to create. And so, you know, that is one thing.
But there are businesses--I have got a guy texting me right
now. They are trying to open a coffee shop in Pinch, West
Virginia. And he has, you know, got a million questions about
it. And I am going to be his trainer and his consultant in all
of this, and try to help them do what we have done. In Poca,
West Virginia, another example, they are trying to revitalize
that little small town, that main street. They have opened a
month ago. In Elkview, another place; in Clendenin, another
place; and my list can go on, and I can bore you with all of
this.
If that deduction goes away, this wouldn't have happened.
It wouldn't. We wouldn't be able to do it. There wouldn't be a
point because, if we are being taxed at 43 percent, that is
almost half of our business income. How can I--let alone pay my
bills? I would have to go back to being a low-income person, as
my own self-employed person, you know, and it would be
ludicrous to do that.
And so, essentially, what, you know, I am doing here is I
am not just fighting for my family and my street, but for all
of Main Street America and for American economy, because that
is what the basis is of our economy, our small businesses. And
if we are going to put a nail in the coffin of our small
businesses and entrepreneurs, and as all of you have said, big
corporations started in garages, they started in kitchens, they
started in the mind of women and men and boys and girls who
took a chance and took a risk. And some are successful, some
are not. That is the American dream.
But this deduction gives us the opportunity to pursue that
dream, and to realize that dream, and to help others to do the
same thing. And so that is what would happen if it doesn't
exist. If this isn't extended or if it is not considered as a
permanent tax or a threshold for us, then we wouldn't be here.
We won't be here.
Mrs. FISCHBACH. Well, and I appreciate your passion and
your willingness to help others achieve that American dream.
And I think what you are saying is every dollar counts,
because----
Mr. ERVIN. It does.
Mrs. FISCHBACH [continuing]. Your margins are so tight,
particularly when you are starting out or you are a small
business. And so I appreciate you being here and taking the
time.
And you know, I have a couple seconds left, but I am going
to yield it back because you have said it all.
Mr. ERVIN. Thank you for your questions.
Mrs. FISCHBACH. So I yield back, Mr. Chair.
Chairman SMITH. Thank you.
Mr. Carey.
Mr. CAREY. I want to thank the chairman, I want to thank
the ranking member for, really, having this hearing today.
But I want to touch upon an important issue, and Mr. Erwin,
I know Saint Alban's well, I spent a lot of time in West
Virginia over the years, and one of the things that I know is
important to West Virginia but it is very important to my home
state of Ohio, which is the Historic Tax Credit. So before I
get started on my questions, I do want to highlight this one
issue, and I hope in the future we can have a hearing to have
an opportunity to discuss where perhaps provisions in the TCJA
need to be revisited.
Senator Gramm, great to be with you. The last time I saw
you speak in any one of these bodies I was a staffer out there,
and so it is an honor to actually be asking you a question
later today.
As part of this legislation, the Historic Tax Credit was
modified such that the credit actually must be spread over a
five-year period of time. I cannot find any policy
justification for this modification, other than the revenue
constraints that were required in the reconciliation process.
The impact of the change to five years at the project level
results in either a lower overall equity investment or a higher
cost of capital. As projects must be financed, the equity
investment over five years receiving the entire equity
investment in just one year. Increased interest rates, as we
highlighted earlier, have only compounded this problem, while
other challenges include competing credits such as the green
energy incentives and also the single year credits.
Developers, investors, communities that work to revitalize
these blighted buildings--and for those of you who don't know,
I represent about 65 percent of the City of Columbus, so we
have had some of these projects that took credit for, or got
some credit from this: the Atlas Building, the original
skyscraper in the skyline of Columbus, Ohio, the Leveque tower,
which sits in the district, and nearly three dozen other
projects across Ohio. Hundreds more across the nation are
facing project delays. In fact, they are facing cancellations.
And I think, quite frankly, our communities deserve a lot
better.
I, along with my dear friend on the other side of the
aisle, Congressman Schneider, have introduced a bipartisan
piece of legislation to return the Historic Tax Credit back to
the single-year credit. And I ask all my colleagues to support
this proven tax credit that has been vital for rejuvenating
historic structures to help address the ongoing housing
shortage and, of course, just the overall development.
So my question--and Senator, it is an honor for me to
actually ask you a question, I have watched your career as a
young staffer and, again, I am really excited to ask you this
question--Columbus, Ohio, where I live, is rapidly expanding.
In fact, the Bank of America Institute recently released a
study suggesting that Columbus, in fact, was one of the
fastest-growing cities in the United States. Many of the
corporations have been able to expand, hire new employees
because of the policies that were included in TCJA. Do you
believe that it is right that corporations simply received huge
tax--while it is true corporate rate was reduced from 35
percent to 21 percent, but didn't we also broaden the base so
that, yes, these jobs created with the companies are now paying
a lower rate, but on a much higher slice of that income? You
have got a minute and 30 seconds, Senator.
Mr. GRAMM. I have a bad habit of running over, but since my
wife----
Mr. CAREY. We won't let you----
Mr. GRAMM [continuing]. Is waiting for me outside, I am
going to be quick.
Mr. CAREY. Good deal.
Mr. GRAMM. Look, any time you have the highest corporate
tax rate in the world, you are disadvantaging every company
that operates in your country. And so the movement from 35 to
21 was a no-brainer. It is something we should have never
gotten in the position that we had the highest corporate tax
rate in the world.
Secondly, we had this system where, when companies earn
money abroad, they kept it abroad because why would you bring
it back here to be taxed? And by simply passing the 2017 tax
bill and letting people bring the money back, we brought as
much as $3 trillion back to America to invest in Columbus,
Ohio. So I think, clearly--I don't understand how you can
debate the point that it made sense to cut the corporate tax
rate from the highest level in the world to a level that is in
the middle, right in the middle of developed nations.
And then finally, you got all these people that don't think
they are paying the corporate tax rate who are.
Mr. CAREY. Senator, thank you.
And Mr. Chairman, I appreciate your indulgence and I yield
back.
Chairman SMITH. Thank you.
Mr. Beyer.
Mr. BEYER. Mr. Chairman, thank you.
And thank you all for staying so late. My college
statistics textbook was called, ``Lies, Damn Lies, and
Statistics,'' or as my father would usually say, ``Figures lie
and liars figure.'' We have heard an awful lot of interesting
statistics this afternoon, a lot of which make sense.
By the way, Mr. Ervin, you know, I have been in a small
business for 46 years. I started more than a dozen companies,
all of them still thriving. And I heartily agree with you,
getting rid of the pass-through would be devastating for the
small businesses.
I do think, as we look towards whatever we are going to do
in this year and next, that we have to be aware that much of
the pass-through is not for small businesses. They are for, you
know, big accounting companies and big lawyer law firms and the
like. And so I am very sympathetic about what it would do to
your business and to my business 20 years ago, but we need to
take a good--an account of that.
And with the 35 percent tax rate, certainly the highest in
the world, but let's also remember that most of the economists
said that the actual tax rate was about 13 percent because of
all the different things that people were paying. There were
some naive corporations paying 35 percent, but most were not.
We also have to realize that most corporations were looking
for 26 or 27 percent and were thrilled when it somehow went to
21.
You know, it is also reasonable to think that when you put
more money in people's hands, some good things are going to
happen to some people. However, what is really important to us
is who got that benefit. In 1967 our Gini index was .397--Gini
index, of course, being the measure of inequality, income
inequality, within our country. It rose to 43 percent in 1990,
47 percent in 2022. And it is looking at 52 percent right now.
We have the highest of every industrialized country in the
world.
To restate, we have the most unequal incomes, the most
wealth inequality in the industrialized world right now. And
sadly, the TCJA did nothing but contribute to that. It is not
that there weren't good things. There were good things in the
Jason Smith-Ron Wyden bill that we passed 40 to 3 out of this
committee, stuck in the Senate right now. Not everything was
bad, but we need to be honest about the downsides that came
from that.
And Dr. Edwards, specifically, when we talk about the
impact of TCJA on growth, can you talk about timing effects and
the difference between cause and correlation?
Ms. EDWARDS. Thank you. Yes, I mean, I am a broken record
on the other side, where I--while I say the, you know,
happening at the same time and being caused are not the same
thing, you know, most of the assessment I take for the TCJA I
take from the Congressional Research Service. I--you know, I
didn't--and their assessment was it did not contribute to
taxes, it did not contribute significantly to economic growth.
And the economic growth it did contribute was well below the
average production projection of what it would contribute. But
it did happen at a time when the economy was growing and when
wages were rising.
But, you know, the point that I made earlier was, you know,
you don't want to claim everything that has happened in
corporate behavior since 2017. You don't want all that. We have
had a 250 percent increase in child labor. You don't want to
claim that. That happened--I mean, that took off right as the
corporate tax cut went into effect. That--you would never claim
that, and I would never assert that because, you know, we want
to look back to, like--we want to look back to the actual
causes and the actual consequences.
Yes, companies paid out bonuses. According to the
Congressional Research Service, they accounted for two to three
percent of the total decrease in taxes that they paid. They
also got over $1 trillion in corporate buyouts; 2018 was the
largest year on record for corporate stock buybacks.
Mr. BEYER. Dr. Edwards, let me interrupt you for a minute
so I can give you one more chance to answer the question.
You know, there was a one-time, one-year surge in corporate
revenues after TCJA, but we are back down to 16 percent. And in
fact, if you look from 2001, when it was 19.2 percent, to
today, where it has averaged 17--16 to 17 percent since TCJA--
you know, my friend, Jodey Arrington, who chairs the Budget
Committee, is passionate about the debt, as am I. How are we
ever going to address the debt when we are spending 22 percent
and corporate tax rates are 16 and 17 percent--or overall tax
rates? How can we do this without new revenue?
Ms. EDWARDS. You can't. I brought up earlier in my original
remarks if we had not had 4 tax cuts since 2000 and maintained
the revenue as a share of GDP, as it was in the last years of
the 20th century, you know, we would have $850 billion more in
revenue each year. That is paying off Social Security in under
four. All right? That is a child care program and a half in a
year.
Now, that is--it is about opportunities and trade-offs for
where you want to spend the money and how you want to pay off
your bills.
Mr. BEYER. Great, thank you very much.
Mr. Chairman, I yield back.
Chairman SMITH. Thank you.
Mr. Steube.
Mr. STEUBE. Thank you, Mr. Chairman, and thank you all for
being here. I know that the hour grows late, but each member,
obviously, has important questions and statements we want to
make. But thank you for your time today.
As this year's tax filing deadline rapidly approaches,
Americans should know that the growth and benefits that they
have enjoyed since the passage of the Tax Cuts and Jobs Act are
in peril of going away if President Biden gets his way.
The difference between President Trump's tax cuts and
President Biden's promised tax increases could not be clearer.
President Trump's tax bill dramatically reduced tax rates for
Americans at every income level. The TCJA sparked economic
growth that dramatically increased the net worth of Americans,
especially low-income and middle-income families. In 2018 and
2019 low-income families increased their net worth by 37
percent, and the net worth of middle-income families
skyrocketed by 40 percent. These low-income families
experienced the lowest tax rates they have seen in 40 years.
As a result of this, President Trump's historic
legislation, more than six million people were lifted out of
poverty. The TCJA also helped drive a jobs boom that still
benefits the economy by slashing the corporate interest rate
from 35 percent to 21. A study from economists from the
National Bureau of Economic Research in the Treasury Department
found that the corporate tax reform in the TCJA helped increase
domestic investment by about 20 percent in the 2 years
following the law's enactment. These are not just numbers on a
page. They have real meaning to real American families. This
increased investment leads to jobs, which puts money in
Americans' pockets and food on their dinner tables.
Despite all the economic growth and prosperity unleashed by
President Trump's tax cuts, it seems President Biden seeks to
increase taxes on American families, which is especially
concerning considering the crushing inflation that we have
experienced under his Administration. President Biden made no
secret of his intentions during the 2020 campaign, when he
promised tax increases, not cuts. He flat out said, and I
quote, ``I am going to get rid of the bulk of Trump's $2
trillion tax cut.''
The expiration of TCJA is coming soon, and President
Biden's promises may come to fruition unless we act. Congress
must act to make sure that the TCJA's reforms for both
individual and corporate filers are, at the very least,
maintained. In particular, we need to protect the 199A small
business deduction because small businesses around the country
will face a 43.4 percent Federal tax rate unless we act. If we
do nothing, it will have a devastating impact on small
businesses and the millions of Americans who are employed by
these companies.
Mr. Ervin, I will start with you. As an owner of a small
business that has benefited from 199A, can you please tell us
how these tax provisions have real-world impact for employees
and customers?
Mr. ERVIN. Thank you for the question. So to make it easy,
so employees, you know, we are going to have to look at that in
particular because, you know, obviously, we won't be able to
keep everyone if we are going to have that deduction gone.
And then we will have to figure out not only when this
deduction, if it is gone, I imagine, we would still have the
continued rising costs of the rest of doing business because of
inflation. You know, the cost of milk, the cost of green
coffee, the cost of utilities, which we haven't even brought
up. And so we are going to have to analyze, you know, very
soon--because that is only about 18, 20 months away--what we
are going to do. What is the plan, who are we going to keep.
And then it is how are we going to raise prices.
And in my particular part of the world, in my particular
part of the country, in West Virginia, you know, our median
income isn't extremely high. And most of the businesses that
are in my state are small businesses, and they are bringing in
incomes that are similar to mine, and they are employing people
the best that they can.
So essentially, we will have to pass off some of the costs.
We have to raise our prices. And then, if that doesn't work, we
would have to close our doors. And that is what we are facing--
not only me, but every small business in America.
Mr. STEUBE. You would have to raise costs, probably, and
possibly get rid of employees because of the costs incurred by
the raise in the taxes.
Senator Gramm, I noticed in your testimony that you discuss
how all Americans pay corporate taxes. Can you discuss how
these hidden taxes affect everyday Americans and their
investments, employment opportunities, and consumer choices?
Mr. GRAMM. Taxes affect all of them. There is no such thing
as a corporation, except on a piece of paper. All corporate
taxes are paid by consumers, workers, and investors, and 74
percent of the common stock in America is owned by pension
funds, 401(k)s, IRAs. This conception that there is this mega-
rich corporation out there that is not paying its fair share is
bunk because corporations do not pay taxes. And if people could
understand that, and if you could remove the politics from it,
you could dramatically improve the economic environment in the
country.
Mr. STEUBE. Thank you all for being here today. And thank
you for your time.
I yield back.
Chairman SMITH. Mr. Moore.
Mr. MOORE of Utah. Thank you, Chairman, for holding this
important hearing. I love that we are doing, you know, what I
have been excited about to get on this committee, talking about
how we can expand on the successes of the 2017 Tax Cuts and
Jobs Act leading into 2025. It is going to be a very important
year. I wish every American was just focused on this one issue
in all the politics that get presented in an election year.
Also, to the ranking member, he offered some criticism on
his opening statement. And while I will deny ever saying this,
and only doing it when there is, you know, less people here, it
is fair.
Mr. NEAL. Could the gentleman yield? You are on camera.
[Laughter.]
Mr. MOORE of Utah. It is fair. When each party gets the
opportunity for budget reconciliation--you have the White
House, House, and Senate--I believe we sometimes take the path
of the least resistance, right? And for Republicans, we have
proven that we wanted to get a stronger, more simplified tax
code, tax reform. And in 2021 there was an enormous--you know,
it was ARPA, with a significant amount of spending.
And so I go back home and I explain, like, hey, you know,
when you got two philosophies--we are growing our debt, right?
And I am saying this internally, we need to make sure, as
Republicans, that we are looking at the spending of our nation,
and we can't just rely on just doing tax reform, which I
support completely, because I do believe it is a strong
economic factor for two reasons, which I will go into.
And the minority party, when they had the budget
reconciliation, it was an enormous amount of spending. And we
have got to get out of that cycle. That is why I loved what
this committee did this year with the tax relief bill that is
currently stuck in the Senate. But it was one of those really
productive aspects of this job that gives me every reason to
get up in the morning and keep fighting for this, because I
believe that was a strong--we found waste and we were going to
replace it with productive, pro-growth policies, both at the
family level and the worker level.
Two things that I have key on from Tax Cut and Jobs Act is
real wage growth and competitiveness. Those two things are so
important to me. Before I got elected I went to a manufacturing
facility in my district. And, I mean, they showed me direct
effects after TCJA and what they did to their front-line
workers, what they did to grow wage growth across their entire
community, and buy ambulances for their community, too. I mean,
those are the type of anecdotes that I know are getting spread
across when we do significant reform like this.
But the one thing I would like to quickly talk about, Mr.
Ervin, I would love to hear from both you and Mr. Ramirez real
quick. I have the Small Business Growth Act, and that is going
to lift the deduction cap up to $1.29 million if we can pass
this current bill that is stalled in the Senate right now. Just
tell me how being able to immediately expense certain business
equipment purchases, computer software, machinery helps you
invest in expanding your operations and workforce.
Mr. Ramirez, I will go to you real quick.
Mr. RAMIREZ. You know, we are too big, Congressman, for
that provision to apply to us. But I will tell you we have a
lot of small manufacturers in our supply chain, and they are
really struggling these days. So the health of our supply
chain, particularly the health of our domestic supply chain,
obviously----
Mr. MOORE of Utah. And that is actually what I love about
this type of reform, is that it will benefit them. They will
also have strength, growth, and contribute more revenue. Like,
and we see that, and we just need to continue to invest in
this.
Mr. Ervin.
Mr. ERVIN. Yes. So I am a coffee business owner. And so
equipment is vital to us. And so, you know, upgrading our
espresso machines, upgrading our grinders, you know, so to be
able to write those off--that is the question, right? How does
that benefit, how does it benefit writing off the equipment
costs, right?
So, you know, that enables us not only to purchase the
equipment, but also to train more people, or take that
equipment and open another location, or expand and help other
people sell the equipment to somebody else to help them open
another location of their coffee business, and train them on
how to do it. So it helps us create more jobs, simply put. It
helps us create more jobs, helps us, you know, raise wages, as
well, whether it is just 600 bucks or $20,000, which is what
the average cost is of an espresso machine.
Mr. MOORE of Utah. And from the hard-fought battle from
this committee and from the leadership of Mr. Chairman, that
provision is permanent, and small businesses can have that
expectation going for as long as we can see to be able to have
that type of write-off.
To quickly wrap up, Senator Gramm, we want to make sure you
get to your spouse because we know we don't want to disrupt
that. Competitive corporate tax rate worldwide. What does that
mean specifically for workers and families?
Mr. GRAMM. Well, I think the data makes your case. No
matter how you want to cut this, if you look at the facts, the
2017 tax cut, along with deregulation--it is hard to separate
the impact of the two--had a bigger impact on working people
than any other action taken by this government in the last 50
years.
Mr. MOORE of Utah. Thank you, sir. Thank you all,
gentlemen.
Chairman SMITH. Mr. Evans.
Mr. EVANS. Thank you, Mr. Chairman.
Dr. Edwards, I am concerned about the Trump tax bill
negative impact on small business and the workers who are
employed by them. Studies have shown that the majority of
benefits from small business tax cut in the 2017 bill have not
actually benefited rural small businesses, mom and pops.
Instead, these tax breaks have mostly benefited large
businesses and revenue lines in the tens, hundreds of millions.
Dr. Edwards, can you please explain to the committee the
importance of a tax code that supports small businesses,
especially for working women and workers in low-income--
employed by these businesses?
Ms. EDWARDS. Well, this is exciting because they have
actually gotten all these questions so far.
So it is--I think Mr. Beyer said it best, that there are a
lot of good things in this tax bill that were poorly targeted
so that there are lots of bad components. You know, we--Ms.
Tenney spoke relatively passionately about farms and wanting
to, you know, protect the family-run businesses. But, you know,
the way that we chose to do that was by increasing the estate
tax to $27 million, right?
It is the same with the pass-through deduction. If you want
to help small business, you don't need to design a deduction,
you know, that two-thirds of which are going to go to the top
one percent.
The concern about the top one percent is that they are just
very good at gaming the tax--not really them, probably their
tax attorneys and their tax firm--are very good at getting a
complicated tax code to work in their favor. So the more that
you can put bright lines so that it affects the people you want
to affect, the less that it goes to the top.
So I think, you know, small businesses have all kinds of
struggles. They struggle to hire, they struggle to pay, they
struggle with their taxes. But they do not benefit from a $27
million estate tax exemption. And they do not benefit of two-
thirds of their tax cut going to the top one percent.
Mr. EVANS. Dr. Edwards, I am strongly supportive of Child
Tax Credit, one of the most powerful tools in decades for
alleviating poverty. I do not want to--I want to thank my
colleagues on the committee who helped work to get a childcare
tax credit on the House floor.
Dr. Edwards, can you please explain for us the effect
regarding the reorganization of tax credit for the American
economy at large?
Ms. EDWARDS. The year that the expanded and fully
refundable Child Tax Credit was in effect, the Census Bureau
said that income reduced child poverty by 50 percent, it about
halved child poverty in the United States.
You know, I think so much about the bill that we have
been--and the law that we have debated so far today, you know,
loses sight of the fact that the best way to get hard-working
Americans money is to just give them the money, and not to have
it go through their corporation or their employer. If you want
to help hard-working Americans who are having a hard time, you
know, affording food, affording basic necessities, you can give
parents with children additional money through the tax code. It
doesn't have to go through bonuses as determined by their
employer.
Mr. EVANS. I want to thank you, Mr. Chairman. I yield back.
Chairman SMITH. Ms. Van Duyne.
Ms. VAN DUYNE. Thank you very much, Mr. Chairman.
Yesterday the Small Business Committee, of which I am also
a member, held a hearing highlighting the success of the TCJA.
And the rhetoric from my colleagues across the room is
completely different than what we heard from these witnesses.
None of the witnesses were one-percenters or wealthy
corporations, but they did share a very clear message that,
because of the policies that were enacted under this
Administration, they are all paying more in taxes.
My Republican colleagues and the American people knew the
President was lying when he said no American making under
$400,000 would not feel a tax hike. We knew it was a lie, and
the hearings yesterday proved this point. And one witness added
regulatory costs have gone up a whopping 460 percent.
It has been made clear over the last three years that
President Biden, with two years of a Democrat-controlled
Congress, that Democrats are exceptionally out of touch with
economic policies that benefit Americans. What we hear today is
an old and repetitive story, which once again they retreat
under their warm blanket of safe space, of tired talking
points, and are scared of the reality that cutting taxes and
eliminating regulations would set loose job creators and
benefit family budgets.
Now, look, I went to college. I paid for my own way to
college. It took me 10 years to pay off that debt. But because
I am the one who took it out, I am the one who benefited. I
paid it off. Do you know what got me to be able to pay it off?
Having a job, having a business that was successful that could
actually hire people and invest in its employees.
I also was a single mom, a mom of two. Guess what? My kids
had to have childcare. I paid for it. Guess how I paid for it?
I did not ask people who didn't have kids to pay for it. I
didn't ask the government to pay for it. I actually was a small
business owner, and I was able to get clients because these
clients were able to make money, invest in their employees, and
hire people like me. That is how it gets paid for.
But, I mean, the TCJA actually grew the economy. And yet,
in the President's budget, he has proposed $2 trillion in new
taxes. The only creative idea they have is to tax money that
you have not yet received.
In 2025 Congress will be facing an important choice:
continue the success of the TCJA, looking at new ways to be
competitive, such as continuing the work that we have done by
finding new ways for small businesses to access capital; or go
back to taxing job creators at record levels.
Lastly, we have an opportunity to get things right the
first time, with new opportunities when it comes to digital
assets in cryptocurrencies, and we need to take advantage of
that.
Senator Gramm, it is great to see you again. I love your
work, and you have had some great comments this afternoon. We
often hear only the other side of the aisle, that the policies
that we have, that the only thing that we care about are our
fiscal states when looking at tax cuts. During your time here
you were a fiscal hawk. Do you believe that the TCJA
contributed to the fiscal situation that we are in now?
Mr. GRAMM. Well, on the--first of all, I can see why you
won in [inaudible] district.
Look, I can say things about this bill and how it did in
terms of generating revenues until 2020, when the pandemic
started. And what I feel comfortable saying is that it paid for
about five-eighths of itself, according to the Congressional
Budget Office and the 10-year projections they made prior to
the pandemic. After the pandemic, you got to understand,
government spent more in two years than it ever spent in three
years. And so anything that happened after that, it is almost
impossible to try to attribute it to something that was set
into place before it.
So I know this. I know that the 2017 tax cuts had a
tremendous impact on ordinary people in the American economy. I
know that, per capita, that median income grew 50 percent
faster than in any other year in the last 50 years. I know that
the bottom quintile, the 20 percent lowest earners in the
country, were the biggest beneficiaries in percentage terms.
And let me say before my time runs out, my numbers on the
labor force participation rate falling from 67 percent in 1967
to 36 percent today applies only to prime work-age persons.
Nobody can deny that these massive welfare expenditures have
induced millions of people to leave the labor market.
Ms. VAN DUYNE. I appreciate your comments very much.
And I yield back.
Chairman SMITH. Thank you.
Ms. Malliotakis.
Ms. MALLIOTAKIS. Thank you very much. I appreciate all the
input that you have provided with us today.
Look, I think the success of the Tax Cut and Jobs Act is
clear. I mean, this was a pro-growth, pro-jobs, pro-family
policy. America gained 7 million new jobs, and middle-class
families' income increased nearly $6,000, more than five times
the gains during the entire Obama Administration. And
businesses were able to buy new equipment. They were able to
invest, to expand, as our witnesses testified to today.
But also, we saw unemployment rates, right, reach the
lowest points, particularly for African Americans, Hispanic
Americans, for veterans, for women. Unemployment for women hit
its lowest rate in nearly 70 years, and poverty rates
decreased. Nearly seven million people were lifted off of food
stamps. We saw the middle class, like I said, the family income
increase, but we also doubled the Child Tax Credit from 1,000
to 2,000. Well, I wasn't here, so I didn't do it, but the
Congress did, with President Trump, double the Child Tax Credit
from $1,000 to $2,000, benefiting 40 million families.
My first question is--because I have legislation that would
increase the standard deduction, so my first question is to Dr.
Winfree.
I believe that, obviously, increasing the standard
deduction allows people to keep more of their hard-earned
money. What are your thoughts on whether we should be looking
at further increasing that standard deduction, which was
doubled during the TCJA?
Mr. WINFREE. Thanks. That is a great question. I think
that--a couple things. I think that there are costs and
benefits to increasing the standard deduction.
I think that the cost to increasing the standard deduction
is that you are potentially removing people from paying taxes.
And now it is tax relief, and that is a good thing, typically,
in that it provides people, you know, more income in their
pockets, increases aggregate demand, and so on and so forth.
But I would be careful about the level at which you increase
the standard deduction.
Now, that said, one of the positive aspects of increasing
the standard deduction in 2017 when we did the TCJA was that
you are--we talked about base-broadening measures before. By
increasing the standard deduction, you are not picking winners
and losers, right? And so, ultimately, what you are doing is
you are reducing the number of itemizers, and that is a----
Ms. MALLIOTAKIS. One point seven million Americans have
benefited from that, and I appreciate your comments.
Senator Gramm, in 1983, that was the last time that the
Social Security taxable income threshold--it was set at $25,000
for an individual, $32,000 for married couples. It has not
increased in four decades. I think that is really a hardship on
our senior citizens who are relying on their Social Security
checks. Should we be looking at increasing that threshold that
has not been increased in 40 years?
Mr. GRAMM. Well, you got to remember that Social Security
increases as real earnings increase because, as you pay in
more, you get more.
Social Security is a tough issue because it is so difficult
to deal with it. I dealt with it twice in my career, once in
the Reagan budget and once in the bipartisan reform of Social
Security. I think our primary focus today on Social Security
has got to be on the fact that it has now, on a cash basis,
been running a deficit for seven years. The problem is going to
get much greater. And so I would be very loathe, in good
conscience, to recommend that we raise benefits. I think we
have got to come to grips with what do we want people to have,
and what are we willing and able to pay for.
Ms. MALLIOTAKIS. Yes, and I think, at a minimum, we need to
eliminate the marriage penalty for----
Mr. GRAMM. Well, and also, I got to come back to the point
that was raised earlier about taxing Social Security benefits.
And I didn't come here to be partisan, but being here and
hearing this debate makes me feel more partisan I am ashamed to
say.
But Bill Clinton imposed a tax on Social Security benefits.
Ms. MALLIOTAKIS. Yes.
Mr. GRAMM. I am proud to say I voted against it.
Ms. MALLIOTAKIS. Well that is great. Well, hopefully we
can--I am a Republican, and I heard it from a Democrat,
hopefully, we could work together to make sure seniors can keep
more of their Social Security benefit, not--that has to--it is
so outdated, 40 years. We really need to increase that
threshold.
One last question for Mr. Ramirez. For manufacturing to
bring Active Pharmaceutical Ingredients, pharmaceutical
manufacturing, back to the United States, what tax incentives
would you recommend, if any?
Mr. RAMIREZ. Thank you for the question. In zero seconds,
you know, I think it got hit before. What we need is a level
playing field. We need competitive tax policy, competitive
trade policy. And American manufacturers will win in that
scenario and do it here in the United States.
Chairman SMITH. Mr. Schneider.
Mr. SCHNEIDER. Thank you, Mr. Chairman, and I want to thank
the witnesses, A, for staying long for all of us as we get to
the end of this hearing.
And so, you know, next year--I think the reason we are
having this conversation, one of the things we are talking
about is that next year we will be having very significant
conversations about expiring aspects of the 2017 tax bill. We
don't agree, Republicans and Democrats, on the impact of that
bill or the wisdom of that bill. We will agree to disagree. But
I think what we can agree is that that bill has not--is not
standing the test of time, which is why we are here, eight
years later, having to have these conversations.
And I think, Mr. Ramirez, you talked about a level playing
field in trade and tax, and this is something where I think we
most certainly all can agree. And I definitely, as a Democrat,
agree with you 100 percent.
My hope next year--we won't know who will be in the
chairman's seat. I, as a Democrat, hope it will be Chairman
Neal. But either way, if we are going to address what needs to
be done in a way that will stand the test of time, we have to
do it in a way that I think was very different than it was done
in 2017, where we rushed it through this committee and to the
House, where we didn't have hearings to evaluate the ideas
being considered, where we didn't work in a bipartisan way.
I remember saying to then-Chairman Brady, ``I want to sit
down and work with you.'' I wasn't on the committee at that
time, but I wanted to try to find a path forward that would
help small businesses and make sure that they can stay
competitive, that would protect the innovation that drives our
economy and that has helped the United States--made the 20th
century the American century. We have to have a tax policy that
makes sure the 21st century remains a century where American
enterprise, American ingenuity, American workers can continue
to lead.
You know, so if I think about how we are going to be
successful, I think we should--and Senator Gramm, you were here
in 1986--how do we do it in a way that stands the test of time,
has the consideration and deliberation that is necessary, and
reaches across the aisle. As we think about that, I will lay
out some of my key priorities as we look forward.
I mentioned one: we have to ensure that the U.S. remains
innovative and competitive in this global economy. I was
talking to some people earlier today. The advantages we enjoyed
75 years ago, 40 years ago, 48 years ago when we talked about
tax, those have been compressed today. It is a global economy
where other economies are bigger than they were, their workers
are better trained, their industries are more competitive. We
have to make sure ours stay at the end. That is why I wish we
could get the Senate to move on the bipartisan bill that would
restore the R&D credit. And I will come back to the Child Tax
Credit on that as a piece.
But we also have to be at the table as we look at the OECD
tax work going. We can't let it go without us.
We have to invest in our kids. We can't be innovative if we
don't invest in our children. When we in the American Rescue
Plan raised the Child Tax Credit, we found a way to cut child
poverty by 50 percent in this country. That success can't be
understated, and yet we let it slip away. We need to invest in
our young kids in early education through their primary grades
onto university and Ph.D.s in science or manufacturing, or
whatever the case may be, because if we don't do that we are
going to fall further behind.
And third, we need to make sure that we are addressing the
challenges of climate change. The threats are real. We see it
in the storms, the bigger tornadoes, the more powerful
hurricanes. We need to make sure that we are leading. And I
think in this committee we can have a real impact on that.
So I want to be sensitive to the time. So I--we have had
good conversations. We will agree to disagree on some things. I
know that there are many things we agree on. We have to work
together, Republicans and Democrats, if we are going to create
a tax system for our country that moves our country forward,
that tackles the fiscal challenges. We can't sustain a $34
trillion debt, and we have to work on bringing that down. But
we can't do it if we go to our corners, if we let the show
horses replace the workhorses on this committee.
So Mr. Chairman, I look forward to working together for the
remainder of this term. And whoever is chairman next term, I
look forward to making sure that this committee earns its
reputation, as it always has, as a committee that gets things
done. I yield back.
Chairman SMITH. Thank you.
Mr. Gomez.
Mr. GOMEZ. Thank you, Mr. Chairman. First, I am glad once
again to be back on the committee. I was off for about 13
months, but I am very happy to be here, although I wasn't here
in 2017, when the Trump tax cuts were passed.
But when I heard that we were going to have a hearing on--
and the Republican majority wanted to have a hearing on the tax
cuts, I thought, really, you really want to do this? Because I
believe that the Trump tax cuts are really one of the most
egregious giveaways to the most wealthy individuals in this
country, and it didn't really work out very well for the
Republicans in 2018. So I said, all right, let's do it, and
let's go with the top five greatest hits that resulted from the
Trump tax cuts.
One, it gave 83 percent of the tax cut to the richest 1
percent. And if you want to really look at it even finer, it
gave 60 percent of the tax cuts to the top one-tenth of 1
percent. So think about that. Let that sink in, that those tax
cuts were not for the working class or the majority of
Americans, but really the folks at the top of the income
ladder.
And it made the corporate tax cut permanent, while leaving
all the provisions for families and individuals temporary.
Seriously? So we are going to give the corporations a permanent
tax cut--and I understand some of the reasoning--but when it
comes to individuals, you guys are going to just make it
temporary? I find that insulting, as somebody who grew up with
parents that never made more than $38,000 a year, you know.
Giving temporary tax cuts to working people, but permanent? I
think that says a lot.
It ballooned the deficit by $1.5 trillion, and the bill
never paid for itself. I was brand new, so I was meeting with a
lot of folks regarding the--this tax plan after I got elected
and how it was going to impact. And I was always told by every
expert these tax cuts never, ever pay for themselves. Supply-
side never worked. I mean, how many of you have heard about the
Kansas experiment, where they tried to cut taxes and taxes and
taxes. It blew up the deficit; it reduced revenue so much that
their own Republican legislature had to repeal those tax cuts,
and then had to override the Republican Governor Brownback's
veto, right? Supply side doesn't work. Tax cuts never pay for
themselves.
But that is a story, it seems like, as old as time that
people want to keep telling people. That is how--that is what
you people sell. And then we have some people of this committee
itself that are for the Trump tax cuts but are talking about
the deficit as we speak on the floor. I find that just
egregious.
Five, it reduced the top tax rate for millionaires.
And then six, it disallowed deductions for union dues, for
union dues. This is peanuts, right? But who does that impact?
It impacts construction workers, ironworkers, plumbers,
teachers, nurses. Go on and on. The people that are building
this country, the people that take care of our children, the
people that are right now building the bridges, right, and our
infrastructure, the people that are going to help make sure
that the Francis Scott Key Bridge is rebuilt in record time.
These are the people who we just--we took that away. Why? It
was not a big pay-for. It was to be petty and political.
So a lot of what I have seen really just tells me where we
see our country and what we value. The tax code is about
values, in my belief, and you can do it in a way that supports
working people or not. And I think that is what the Trump tax
cuts did. At the same time, what Democrats want to do, we want
to focus on policies and tax policy that helps working
families, the middle class, gets us up and people who are
struggling to get in the middle class make it a little bit
easier. We want affordable childcare, affordable housing, and
housing that is affordable. We want to cut the child poverty
rate like we did under the American Rescue Plan.
One last thing. We have a very different idea of what the
role of government should be in people's lives. But I was
listening--and with all due respect to one of the speakers--
said the greatest abuse of the Constitution of the United
States in my lifetime was President Biden going to Europe and
negotiating a minimum corporate income tax and giving them the
power to cut--to tax corporate income in America, but if you
don't raise the rate.
Here is the thing. The greatest--that is exactly what I--we
had it transcribed. The greatest abuse of the Constitution in
my lifetime is when a former President incited a riot that
tried to stop the peaceful transfer of power. That is the
greatest abuse of our Constitution in my lifetime, attacking
the idea of America itself, that it is a country that is
governed, self-governed, by the consent of the people. That is
the greatest abuse.
And that is what really is--this is about, I believe our
values. Democrats believe in our Constitution, the working
class, and the middle class, and some don't.
With that, I yield back.
Chairman SMITH. Thank you. I want to thank each and every
one of you for the 4 hours and 15 minutes that you have been
part of this hearing. This is the beginning of what we are
going to see over the next 20 months with the expiration of
$4.3 trillion worth of tax cuts on all Americans. So we have a
lot of work before us.
Please be advised that members have two weeks to submit
written questions to be answered later in writing. Those
questions and your answers will be made part of the formal
hearing record.
With that, the committee is adjourned.
[Whereupon, at 6:17 p.m., the committee was adjourned.]
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