[Senate Hearing 118-745]
[From the U.S. Government Publishing Office]
S. Hrg. 118-745
TAX POLICY IN 2025: IMPLICATIONS FOR THE
AMERICAN ECONOMY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
ECONOMIC POLICY
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE IMPLICATIONS OF TAX POLICY IN 2025
__________
NOVEMBER 20, 2024
__________
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
62-273 PDF WASHINGTON : 2026
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chair
JACK REED, Rhode Island TIM SCOTT, South Carolina
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia MIKE ROUNDS, South Dakota
ELIZABETH WARREN, Massachusetts THOM TILLIS, North Carolina
CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana
CATHERINE CORTEZ MASTO, Nevada BILL HAGERTY, Tennessee
TINA SMITH, Minnesota CYNTHIA M. LUMMIS, Wyoming
RAPHAEL G. WARNOCK, Georgia J.D. VANCE, Ohio
JOHN FETTERMAN, Pennsylvania KATIE BOYD BRITT, Alabama
LAPHONZA R. BUTLER, California KEVIN CRAMER, North Dakota
GEORGE S. HELMY, New Jersey STEVE DAINES, Montana
Laura Swanson, Staff Director
Lila Nieves-Lee, Republican Staff Director
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
______
Subcommittee on Economic Policy
ELIZABETH WARREN, Massachusetts, Chair
JOHN KENNEDY, Louisiana, Ranking Member
JACK REED, Rhode Island MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
TINA SMITH, Minnesota CYNTHIA M. LUMMIS, Wyoming
JOHN FETTERMAN, Pennsylvania STEVE DAINES, Montana
GEORGE S. HELMY, New Jersey
Gabrielle Elul, Subcommittee Staff Director
Jennifer Newman, Republican Subcommittee Staff Director
(ii)
C O N T E N T S
----------
WEDNESDAY, NOVEMBER 20, 2024
Page
Opening statement of Chair Warren................................ 1
Opening statements, comments, or prepared statements of:
WITNESSES
Elizabeth M. Shuler, President, AFL-CIO.......................... 3
Prepared statement........................................... 20
Responses to written questions of:
Senator Cortez Masto..................................... 40
Marc H. Morial, President and CEO, National Urban League......... 5
Prepared statement........................................... 22
Responses to written questions of:
Senator Cortez Masto..................................... 40
Brendan Duke, Senior Director for Economic Policy, Center for
American Progress.............................................. 6
Prepared statement........................................... 27
Responses to written questions of:
Senator Cortez Masto..................................... 42
(iii)
TAX POLICY IN 2025: IMPLICATIONS FOR THE
AMERICAN ECONOMY
----------
WEDNESDAY, NOVEMBER 20, 2024
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Economic Policy,
Washington, DC.
The Subcommittee met at 10 a.m., via Webex and in room 538,
Dirksen Senate Office Building, Hon. Elizabeth Warren, Chair of
the Subcommittee, presiding.
OPENING STATEMENT OF CHAIR ELIZABETH WARREN
Chair Warren. This hearing will come to order.
Good afternoon. I want to thank our Ranking Member, Senator
Kennedy, and our other colleagues, and our witnesses for
joining us here today.
In a little over 6 weeks, a new Republican-controlled
Congress will be sworn in. And exactly 2 months from today,
Donald Trump will be sworn in as President again.
One of the first policy issues that the new Congress will
face is taxes, which is the topic for today's hearing, ``Tax
Policy in 2025: Implications for the U.S. Economy and American
Workers''.
Donald Trump and congressional Republicans have made
perfectly clear that they are planning another huge tax
giveaway to billionaires and billionaire corporations. Donald
Trump said it out loud on the campaign trail. Big tax cuts will
be a payoff for his richest-held donors.
Now, this isn't our first time around on tax giveaways to
the wealthy. In 2017, Donald Trump had only one major
legislative achievement, the Tax Cuts and Jobs Act. This $2
trillion tax scam gave away trillions in tax cuts to
billionaires and billionaire corporations. The law literally
gave away money that otherwise would have come in to keep our
country running.
The impact was huge. That Trump tax cut for billionaires
and billionaire corporations alone would have been big enough
to build 3 million new homes and lower rents by 10 percent
nationwide; to cut childcare costs for most families to $10 a
day, and to invest in paid leave for all American workers--all
of those. Instead, the money went to the billionaires and
billionaire corporations.
In fact, the Trump tax cut for billionaires was so gigantic
that Republicans used a bunch of accounting gimmicks to try to
hide the full cost, but those gimmicks and some of those tax
cuts as a result will expire at the end of 2025. And this is
the reason that Republicans are pushing for a new tax law.
Without a change in the tax laws, many of those Trump giveaways
to billionaires and billionaire corporations will simply
disappear.
So, Trump and his allies are riding to the rescue.
According to an estimate from the Congressional Budget Office
and Joint Committee on Taxation, Republican plans to extend
their tax giveaways to the rich will cost a whopping $4.5
trillion, and that is before Trump added in a few trillion more
in extra goodies--$4.5 trillion and counting. The number is
huge, but because tax cuts for rich people are actually
unpopular in this country, Republicans are hoping to do this
very quietly, so that no one except their billionaire friends
will notice what's going on.
This will be a challenge. The last time that Trump and the
congressional Republicans cut taxes, Americans did notice. They
noticed and they hated Trump's billionaire tax cuts. His
billionaire tax cuts were more unpopular than any tax reform
bill since Ronald Reagan. Trump's billionaire tax cuts were
even more unpopular than the tax increases under Bill Clinton
and George H.W. Bush.
When Trump's billionaire tax cuts passed, his approval
rating dropped like a rock. The reason Trump's billionaire tax
cuts is so unpopular is that voters want billionaires and big
businesses to pay their fair share toward making our country
run.
Republicans thought they could cover up their giveaways to
billionaires and billionaire corporations by adding a few
dollars in tax cuts to working families, but that is the wrong
approach. Tax cuts for working families are a good idea, but
tax cuts for working people are not tied to tax cuts for
billionaires. We can have one without the other and we should
say it loud and clear: billionaires don't need handouts from
the Federal Government, period.
Which brings us back to the tax fight barreling toward us.
President-elect Trump has proposed making every single 2017 tax
cut for the wealthy permanent. In fact, he plans to go further
by cutting the corporate tax rate even more, so that giant
corporations making record profits off struggling Americans can
shovel even more cash to their rich executives and
shareholders.
Make no mistake, hardworking Americans will foot the bill
for tax cuts for Trump's wealthy donors. A recent analysis of
President-elect Trump's tax proposals by the Institute on
Taxation and Economic Policy found that the top 1 percent would
get an average tax cut of over $36,000, while the bottom 95
percent of taxpayers would see a tax increase.
Both Project 2025 and Trump himself have laid out
Republican plans to pay for their next tax giveaway to
billionaires. They are planning for higher taxes on everyday
items that families buy, like groceries and gas and clothing,
and so on. They also plan to pay for the tax cuts for
billionaires by cutting programs like Social Security and Head
Start. They also plan to cut investments that grow our economy
and support good jobs, like roads and bridges and medical
research. Those aren't tax changes that will help working
families.
Americans across the country, of course, are from every
political party and they are demanding a tax code that works
for them. People want Congress to raise taxes on giant
corporations that are raking in record profits. People want
Congress to close the loopholes that let billionaires like Jeff
Bezos and Elon Musk pay zero in taxes, and people want Congress
to fully fund the IRS, so that it has the resources to catch
wealthy tax cheats and make them pay what they owe.
The tax fight is starting now and every person in the
United States needs to show--every person in the Senate needs
to show the American people what side we stand on. Will we sign
our names to more giveaways to President-elect Trump's
billionaire buddies or will we fight for tax fairness for the
American people?
So, I appreciate our panelists joining us today to share
their expertise. The upcoming tax decisions are critically
important to the financial security of working people. And we
appreciate your being here with us to highlight the impact of
those decisions.
So, I'm going to introduce the witnesses we have today, and
then, we'll go to our witness statements. Are we good on that?
OK.
So, we've got three great witnesses with us today to share
their views on the impact of tax reform on our economy and on
working Americans. And I appreciate your being here today.
First, we have Liz Shuler, who is the president of the AFL-
CIO. Ms. Shuler is a visionary leader and a fierce advocate for
the labor movement. She has dedicated her career to improving
the livelihoods of working people across this country.
Second, we have Marc Morial, who is president and CEO of
the National Urban League. Mr. Morial is one of the Nation's
leading voices and advocates on redefining civil rights for the
21st century. He works tirelessly to close the economic gaps
facing Americans of color.
And last, we have Mr. Brendan Duke, who is an expert in tax
and economic policy at the Center for American Progress. He
also served as a Senior Policy Advisor at the White House
National Economic Council and as Staff Director for the U.S.
Senate Finance Subcommittee on Taxation and IRS Oversight.
Thank you all for being here with us today and I look
forward to hearing your testimony.
Ms. Shuler, you are now recognized.
STATEMENT OF ELIZABETH M. SHULER, PRESIDENT, AFL-CIO
Ms. Shuler. Great. Well, thank you so much, Chairperson
Warren, Ranking Member Kennedy, and Members of the
Subcommittee.
I'm Liz Shuler, president of the AFL-CIO, here on behalf of
the nearly 13 million workers in our 60 different unions that
represent, essentially, every sector of the economy, and
working class people writ large, frankly.
And, you know, we're thinking about what's coming up next
week. Next Thursday, American workers and their families are
going to sit down at the Thanksgiving table, and many of them
will be among the 60 percent of Americans who live paycheck to
paycheck; the 63 percent who say they cannot afford to buy a
home; the 100 million that are saddled with medical debt.
They'll give thanks for what they do have--their families,
their loved ones, the chance for at least 1 day to take a break
from the 12-hour shifts, the long days, and enjoy a meal
together.
There's one group, actually, though, who should be really
giving thanks next Thursday and that is the 800 billionaires in
this country who are about to receive yet another gift that
they do not need. If you're a billionaire in America, you have
a lot to be thankful for. You've enjoyed a system that has
worked in your favor for a long time now. You've had years
where you pay zero in Federal taxes, literally, not one cent,
while the workers at your companies actually pay their fair
share.
And now, you have an incoming administration that wants to
hand you more money and power at the expense of the rest of us.
We're often told the definition of insanity is doing the same
thing over and over again and expecting different results.
Well, giving trillions in tax breaks to the wealthiest people
and companies in the history of the world, while their fellow
Americans struggle to pay for rent and groceries, I believe is
the very definition of insanity.
The rest of us will pay for this, just like we did in 2017.
We were told that those corporate tax cuts would trickle down
in the form of $4,000 raises for each worker. Well, let me tell
you, they didn't. The Tax Policy Center told us the wealthiest
top 5 percent of earners got triple the effective tax cut that
the bottom 60 percent received.
Those tax cuts did not make life more affordable. In fact,
corporations have been gouging working families--with one
Economic Policy Institute study finding more than 40 percent of
higher prices were attributable to corporate greed. We were
told not to worry, though, but those same tax cuts for the
wealthy exploded the deficit by $2 trillion. Aw, don't worry
about that.
And now, Elon Musk and Vivek Ramaswamy, to come in now 7
years later and tell us that they need to slash Government
spending--our health care, our Social Security, food assistance
for seniors and families in need--by that same exact amount, $2
trillion, the hole that Trump created in the first place--
again, insanity.
This 2025 bill will come at us fast and furious because
that's how it works in this country when billionaires want
something done. Working people, they've been waiting for 17
years for Congress to pass a minimum wage increase. It's been
50 years since Congress last enacted any sort of labor law
reform. And we know that having a union creates equity; it
lifts all workers' pay and benefits, and it narrows the racial
wealth gap and the gender pay gap. So, while working people are
often forced to back off of the legislative--they're at the
back of the legislative line, the last Trump tax bill for the
rich was actually completed before the first Christmas that he
was in office.
The incoming Administration will tell us that they have a
mandate. The mandate that I see from this election is that
working people, they are fed up with the status quo and a
system that has been rigged against them for too long. If we
see a repeat of 2017, it's going to be nothing more than the
same status quo that working Americans have just stood up
against.
There's a real opportunity to do something different, and I
think that's what we're here to talk today. If Congress has the
courage, here's what working people would suggest. We have a
long list in my written testimony, but a few:
Let the top marginal tax rate for the country's richest
people reset to the pre-2017 level.
Second, reestablish the estate tax, so that we are not
passing down an oligarchy to the next generation.
Third, close the loophole on carried interest.
Fourth, enact a minimum tax on the ultra-wealthy, a
commonsense policy that a vast majority of this country across
all political ideologies actually agrees with.
And five, maintain any provisions that directly benefit
working people, including continuing and expanding the child
tax credit.
Make things more fair. Give people a reason to believe in
this system.
And my written testimony contains a long list, as I said,
of other proposals that would benefit working families.
To conclude, the rich, the large, profitable corporations,
and Wall Street have all benefited from the vast opportunities
this country affords them. It is time for them to pay their
fair share.
And I just want to say thank you for the opportunity to be
here today with you.
Chair Warren. Thank you very much. Very powerful testimony.
Mr. Morial.
STATEMENT OF MARC H. MORIAL, PRESIDENT AND CEO, NATIONAL URBAN
LEAGUE
Mr. Morial. Thank you very much.
Chair Warren, Senator Smith, in his absence to Ranking
Member Kennedy, who, like me, is from the great State of
Louisiana, I'm proud today, on behalf of the National Urban
League, to offer these comments which summarize my written
testimony.
Number one, in 2017, we were promised that the 2017 tax cut
bill would be deficit-neutral and would provide jobs for the
people of this Nation. What we know today is that the
wealthiest Americans got whole loaves of bread--multigrain,
white, baguettes, French, lobster rolls, and you name it, and
working men and women got crumbs.
We were promised that dynamic scoring, a 21st century
version of the old Laffer curve, would ensure that economic
growth would make up for the loss in revenues. We knew that the
Laffer curve was a laugh and dynamic scoring is a mirage.
What Americans were promised has not come to pass. And once
again, it is rinse and repeat. We are about to see the same
arguments, the same fantasy stories, posited forward in support
of an extension of the 2017 tax cuts.
I'm here today to suggest to you that, instead of a Wall
Street caviar/champagne tax cut plan, we need a Main Street hot
dogs-and-pizza plan that the National Urban League calls the
Main Street Tax Initiative. And here are a few features of it
that we suggest:
Number one, instead of all the talk about doing something
for working people, how about trying something different, like
cutting taxes in half for Americans that make under $100,000?
Fully 60 percent of all Americans make less than $100,000. By
cutting their taxes in half, we would truly put money in their
pockets--for gas, for housing, for bread, for milk, for those
expensive copays in medicine.
Number two, let's restore the Child Tax Credit which pulled
people, children, out of poverty at a record level.
Let's expand, make permanent, and simplify the Earned
Income Tax Credit.
Those three provisions alone would do more for working men
and women--beyond the rhetoric, beyond the talk, beyond the
conversation.
Then, let's address, to the extent that we can, Senator
Warren, something that I know you are passionate about, and
that is the housing crisis in America. Let's expand the Low-
Income Housing Tax Credit and let's create a new affordable
housing tax credit which puts money into affordable home
ownership for American people.
Let's address the problems that we see.
And then, I would also like to highlight what I call the
Fair Deal. The Fair Deal is to say to those people in America
with assets above $1 billion--I think 770 people--You need to
pay a modest surtax on your assets in an effort to be fair. It
is not fair for the police officer, the firefighter, the
teacher, the nurse, your staff, cafeteria workers, public
sector workers, it's not fair for them to pay a higher tax rate
than America's billionaires. This could be addressed with a
modest surtax which would address and be paid for by fewer
people than are working in this building at this moment--770
Americans.
In summation, it's now time to do something for the working
men and women of America. It's also time to end the fantasy and
the facade that somehow cutting taxes for the wealthiest
Americans somehow will create jobs and economic growth for the
rest of us. The evidence is overwhelming. The evidence is
clear. Those strategies do not work and they have not worked.
And in offering these provisions, we suggest another way to go.
Thank you so much.
Chair Warren. Thank you very much, Mr. Morial. I really
appreciate your testimony here.
Mr. Duke.
STATEMENT OF BRENDAN DUKE, SENIOR DIRECTOR FOR ECONOMIC POLICY,
CENTER FOR AMERICAN PROGRESS
Mr. Duke. Thank you, Chair Warren, Ranking Member Kennedy,
and Members of the Subcommittee.
My name is Brendan Duke and I'm Senior Director for
Economic Policy at the Center for American Progress. I'm
honored to testify today on the 2017 tax law and the
implications of extending its expiring provisions next year.
My main message to you is this: letting the tax codes
expire is a far, far better alternative than saying yes to a
bill that will entrench income inequality and rip off working
and middle-class Americans down the road.
But first, let's remember how we got here. Congressional
Republicans and Donald Trump deeply wanted to a cut in the
corporate tax rate. They also knew that cutting taxes just for
corporations without cutting taxes for individuals would have
been a political disaster. So, they pursued a party-line tax
cut and limited themselves to a cost of $1.5 trillion over 10
years.
And because they did this using the budget reconciliation
process, they could not increase deficits beyond the 10-year
window. And this gave birth to the bill that actually passed.
They made a big, permanent, 40-percent cut to the corporate tax
rate and paid for it beyond the 10-year window by raising taxes
on families across the board and by cutting health care.
Then, they did a series of tax cuts for individuals--again,
heavily tilted to the wealthy. But because they couldn't even
limit the size of those tax cuts to $1.5 trillion, they set
them to expire in 2025. And here we are today at the beginning
of the debate about what to do about them.
What have we learned? The corporate rate cut, the
centerpiece of the original bill, was a massive windfall for
investors, spurring a $1 trillion surge in stock buybacks. Yet,
it failed to meaningfully increase business investment and none
of that windfall trickled down to ordinary workers.
And the recovering housing investment after the Great
Recession which was powering along, screeched to a halt after
the bill passed. CBO, in fact, projected that, quote,
residential investment is reduced throughout the entire period
by crowding out. End quote.
Given that the corporate tax cut didn't trickle down, we
should then focus on the direct tax cuts it gave to families,
which are the ones that expire next year. Any way you look at
it, extending these expired provisions will increase income
inequality--cutting taxes for rich people, while giving pennies
to everyone else.
The average tax cut for the top 1 percent of Americans is
more than 60 times larger than that of the middle 20 percent of
Americans. It is more than 600 times larger than that of the
bottom 20 percent of Americans, who only got an average tax cut
of $100 apiece.
And even these numbers are too rosy. We are talking about a
tax cut that will add $4 trillion to the deficit over 10 years.
These tax cut numbers include money we are borrowing that we
will have to pay back 1 day in the form of tax increases or
spending cuts.
One financing mechanism Trump has floated is a giant,
across-the-board tax on all imported goods. A range of analyses
from progressive to conservative think tanks estimates that
this would cost a typical family thousands of dollars by making
a trip to the grocery store or pharmacy more expensive. Just
yesterday, Walmart told investors that they would raise prices
in reaction to these taxes on imported goods. It's important to
note that the size, magnitude, nature, and purpose of these
taxes differ greatly from the strategic tariffs that Presidents
of both parties have employed over the years.
Alternatively, they can pursue cuts to vital programs
Americans rely on. Tesla CEO Elon Musk, a co-head of the new
Department of Government Efficiency, has proposed $2 trillion
in annual spending cuts. Taken literally, this would cut every
program in the budget on average by, roughly, one-third,
including Medicare, Social Security, food safety inspection,
cancer and stroke research, and nutrition for newborns.
Finally, the Trump administration and some congressional
Republicans could find that the easiest way to offset the cost
of the taxes is to not offset them at all. That's what they did
last time. But there's no free lunch here. The taxes will
likely be paid for eventually in the form of spending cuts or
tax increases down the line.
The very real danger of cuts to programs that low- and
middle-income families rely on, including Social Security and
Medicare eventually, highlights why Congress must offset the
tax cuts they extend in a revenue-neutral manner.
This also means rejecting attempts to pretend that
extending the expired provisions have no cost--otherwise known
as a current policy baseline. This type of baseline undermines
good budgetary practice. It is logically inconsistent.
Under that type of analysis, the failure to renew the 2021
American Rescue Plan rebate checks in 2022 amounted to a $5600
tax increase for a family of four that nobody complained about.
Simply changing the accounting convention does not remove
the burden that extending these tax cuts will place on Federal
and eventually on families' finances.
The good news is that there are ways to smartly and
efficiently raise revenue from high-income households and
corporations, such as raising the corporate tax rate to 28
percent.
These are far better ways to find savings than making a
trip to the grocery store more expensive through taxes on
imported goods or cutting vital programs like Medicaid.
Thank you, and I yield the balance of my time.
Chair Warren. Thank you very much, Mr. Duke. Really
powerful data there. We appreciate it.
Senator Van Hollen, would you like to start the questions?
Senator Van Hollen. Thank you, Madam Chair, and thank you
very much for holding this hearing.
I thank all of you for testifying.
I thank my colleagues for letting me have some questioning
now because I have to go to something immediately.
I think it's important that, when you have a train coming
at the American people and the working people throughout this
country, we should get a preview of what to expect if we don't
ourselves take action to stop it. And we've got, as you've all
testified, clear evidence of what's coming at us because it
came at us once before. So, I do think it's important to lay
the sort of foundation of the claims that were made before and
whether or not they ever came true, whether they ever
materialized.
So, I do want to start with the claim that the 2017 Trump
tax giveaway to the rich, which included a major cut in the
corporate tax from 35 percent to 25 percent, whether or not
that paid for itself.
And, Mr. Morial, I know you were prescient here, I know,
during the debate over the 2017 tax cuts. You wrote a piece
entitled, quote, Trump's tax cuts are a feast for the wealthy
and gruel for working families. Unquote. And in it, you said
that supporters of the bill, quote, like to say their huge tax
cuts for the wealthy and corporations will pay for themselves
through greater economic growth. Even conservative economists
know it's a lie. Unquote.
Mr. Morial, just for the record again--now we're here many
years later--did those tax cuts ever pay for themselves?
Mr. Morial. No, no, and no.
Senator Van Hollen. So, it was a lie then and it's a lie
now.
Mr. Morial. It was a lie and it was economic fantasy
theory. George W. Bush called it voodoo economics. I call it
hocus-pocus dominocus.
[Laughter.]
Senator Van Hollen. That sounds right to me.
We were also told at the time that the tax cuts would
generate a new wave of investments, that corporations would
spend their tax savings in growing their businesses.
So, Mr. Duke, did corporations suddenly start to make new
investments to grow their businesses in the 2 years following
the tax cut, when corporations first felt the effects of those
cuts and before COVID may have distorted the data?
Mr. Duke. Yeah, sure. The 2 years after, so anything in
2019. Investment actually fell slightly. Economic growth was,
basically, flat. The only thing powering it was Government
spending under a Republican Congress.
Senator Van Hollen. Right. And if I have my facts right,
what corporations did do was took $186 billion in stock
buybacks in 2018 to, essentially, pad their own executives'
pockets and that of many of their top investors.
So, we were promised, also, that the corporations were
going to use some of those tax savings, right, to increase the
wages that they paid to their employees. In fact, Kevin
Hassett, who was the head of Trump's Council of Economic
Advisors at the time, said there would be, quote, an immediate
jump in wage growth, unquote, and then-President Trump
predicted an average wage increase of $4,000 per worker.
So, Ms. Shuler, you represent a lot of working people in
this country. Did the average American get a $4,000 raise from
these tax cuts?
Ms. Shuler. Senator, they did not. As Marc said, it was a
mirage. And, in fact, we had one of our unions go to their
company in anticipation of this to try to bargain language in
their contract, to say, OK, if you're getting this windfall,
then, you know, we're going to get our $4,000. Let's put it in
writing. And, of course, no company would agree to it and it
didn't happen.
Senator Van Hollen. Right. So, as I watched this unfold, I
did see some people get these big pay hikes. They just happened
to be the top executives who received an average pay increase
of $5,000--excuse me--$50,000 on average.
I'm assuming none of your members, Ms. Shuler, saw anything
like that, right?
Ms. Shuler. They did not. And you may also be aware that we
track CEO-to-worker pay ratios. On our website, we do an annual
Paywatch. And the CEO-to-worker pay ratio actually is now at
268-to-1, and I think this is one of the reasons why.
Senator Van Hollen. And when these corporations were making
all these additional profits because they got these big tax
cuts, you've said that they didn't pass on the savings to their
workers. They didn't make additional business investments that
helped grow the economy. Did they at least, since they were
making these profits, lower prices to consumers? Did we see any
of that?
Ms. Shuler. We continue to see the opposite, which is price
gouging and, of course, taking advantage of, you know, things
like the pandemic, where the supply and demand was, you know,
demand was outpacing supply and they jacked up prices and, of
course, never lowered them when we were coming out of
recession.
Mr. Morial. And I would add this: the proponents need to be
held to account for the promises they made. They made a long
series of promises. The evidence is unambiguous that few of
these promises, if any of them, were ever kept. And so, why
would we lather, rinse, and repeat on policies that did not
yield what the proponents suggested they should yield? And I
think that should be the framework around the discussion, is:
did it work? Did it work?
Senator Van Hollen. Thank you. Thank you, Mr. Morial.
And that's why I want to thank Senator Warren for reminding
us of the claims and what actually happened, as a preview of
what they might try to do again and claim again. So, thank you
very much.
Thank you.
Chair Warren. Thank you, Senator Van Hollen.
Senator Smith.
Senator Smith. Well, thank you very much, Chair Warren, and
thanks for your generosity in letting me go next in this
questioning.
And thanks so much to our panelists for this really
important discussion.
So, President Trump often touts his 2017 tax bill as
historic, delivering the biggest tax cuts in American history.
It sounds good, right? I mean, that's what people want. They
want tax cuts, apparently.
But the question is, who gains and who pays when this goes
around and comes around? And this conversation is establishing
that Trump tax cuts did provide historic tax cuts, but for
massive corporations.
And I really appreciate the line of questioning of Senator
Van Hollen as he's going after this promise that this would
trickle down to wages, President Shuler, to average working
people. And as Senator Van Hollen has laid out, it was actually
zero. As I understand, it's zero increase in wages that could
be attributed to the Trump tax cuts.
But is there any benefit that you could see that working
Americans experienced because of these big corporate tax cuts?
Ms. Shuler. It's the opposite because, as we've seen
inequality grow, where workers are struggling.
Senator Smith. Right.
Ms. Shuler. And I know, you know, I'm out talking to
workers. Every week I'm on the road. People are struggling with
the basic necessities. They're working more than one job to
make ends meet, while they see those at the top making more.
The companies that they help create the wealth for are actually
profiting, but none of those profits coming back in terms of
wage increases.
And every collective bargaining agreement we go to the
table, we are fighting for scraps. And we've seen it time after
time; workers going on strike because they have been pent-up,
right?
Senator Smith. Right.
Ms. Shuler. They've been doing more with less and not
seeing the returns. And so, I think it's the same old story
where none of this trickled down. It was all a fantasy and we
don't want to fall for it again.
Senator Smith. That's right.
And, Mr. Morial, I mean, I know you've done such important
work on addressing the wage and wealth disparity that we see in
this country. Is there any evidence that this Trump tax cut to
big corporations had any positive impact on reducing that wage
disparity or wealth disparity?
Mr. Morial. I think it has exacerbated it.
Senator Smith. Right.
Mr. Morial. Because it's lifted up and we have a greater
gulf between, quote-unquote, haves and have-nots and have-mores
in this country. We have a widening gap when it comes to wealth
between Black and White Americans and White Americans and
Latinos. That is the evidence. That is what is clear. None of
these commitments and promises have come to be true. And that
is so, so important in closing that gap. Closing the widening
gap should be the aim of any serious economic policy in this
country.
And so, that's why I think many of us have offered
alternatives----
Senator Smith. That's right.
Mr. Morial. ----a different way of going.
Senator Smith. And, Mr. Duke, I think we've been discussing
how so much of those big corporate tax cuts went into stock
buybacks. So, is there any evidence that those big stock
buybacks benefited regular Americans in any way?
Mr. Duke. Not unless they own billions of dollars of stock.
You know, we saw a $1 trillion surge in stock buybacks. We saw
that they took, basically, only two dimes out of every dollar
and put it into investment at all into the whole thing.
So again, it just didn't trickle down. The primary
beneficiaries, when you look at the wage gains, were
shareholders, executives, and the top 10 percent of workers.
The bottom 90 percent of workers----
Senator Smith. Right.
Mr. Duke. ----that study, zero, zero, zero.
Senator Smith. Right. So, you got tax cuts. You ask the
question: who gains and who pays? And we see that time after
time after time with the Trump tax cuts that the folks that
gained were those at the very, very top, and the folks that pay
are the folks that always pay.
So, I would argue, Chair Warren, that when Americans went
to the ballot boxes and voted this election, they weren't
voting for more tax cuts for billionaires. They were voting
because their lives cost too much. They were voting because
they wanted to afford their lives.
And one of the biggest places where that's a challenge is,
of course, the issue of housing and how much it costs for
housing.
So, let me just ask--and I just have a couple minutes
left--but I'm going to go to you, Mr. Duke. In the Trump tax
cuts, there were some pretty generous tax benefits and tax
subsidies for big investors, who in my home State are going out
there and buying up housing, which is ending up driving up
rents and the cost of owning a new home for regular
Minnesotans. Is that what you see with the impact of the Trump
tax cuts on the cost of housing in this country?
Mr. Duke. Yes. First of all, real estate developers got
very big tax breaks. What we saw was housing investment
cratered after. When you just look at the trend, we were
recovering out of the Great Recession----
Senator Smith. Right.
Mr. Duke. ----and then, it just cratered and hasn't come
back since then.
Senator Smith. Like the amount of housing that was being
built to address the housing supply shortage got worse?
Mr. Duke. Exactly. You can just see it directly on the
line. In some way, there was this industrial policy away from
housing. It's industrial policy to raise rents by reducing the
supply of housing.
Senator Smith. Yes. That's exactly right.
And this, Chair Warren and Colleagues, is one of the
reasons why the legislation that I've introduced with
Representative Ocasio-Cortez on getting after a market that is
so dominated by these big-ticket, big, deep-pocketed investors,
that it is crowding out regular investors and crowding out the
work that we need to do to address this housing supply shortage
in this country.
Thank you very much.
Chair Warren. Thank you, Senator Smith.
So, I'm going to do a round of questions, and then, we'll
go to Senator Helmy, if that's all right, because I've got two
rounds here that I want to get to.
All right. So, a progressive tax code can give a break to
families and small businesses, while making sure that those at
the top pay a fair share. And that gives us enough money to
make the investments we need to make in roads and bridges and
infrastructure and schools and Social Security, and the things
we need to buy to keep this country going.
I want to talk for just a minute, though, about the
politics and power, about how all of this works. For decades
now, instead of a tax system running that way, we've gotten
caught in a doom loop on taxes.
So, Republicans pass these giant tax cuts for the wealthy.
They toss a few small breaks to everyone else. And then,
because of the special tax breaks they get, the rich get richer
and their growing piles of cash fund the armies of lobbyists
that demand even greater tax breaks.
Meanwhile, because billionaires and billionaire
corporations are skipping out on their tax bills, deficits go
through the roof. Republicans, then, use rising deficits as an
excuse to cut the programs that American families rely on. Over
time, the rich get richer and everyone else gets left behind.
The result: Jeff Bezos and Elon Musk pay a lower tax rate than
firefighters and public school teachers.
So, let's look at the most recent tax scam. I know we've
gone over this a little bit, but I want to see if we can get it
on the record, and then tie it into other parts of what's
happening here.
Two trillion dollar tax giveaway to millionaires and
billionaires that Donald Trump signed in 2017. And the sequel,
he's now promised that he will renew for his billionaire
buddies this year.
So, Mr. Duke, what was the impact of the 2017 Trump tax
cuts on the U.S. economy? Did those tax cuts trickle down and
supercharge our economy?
Mr. Duke. No. Economic growth stayed the same. Investment
fell. Stock buybacks, though, did surge.
Chair Warren. OK. So, let's see, business investment
actually fell?
Mr. Duke. Slightly.
Chair Warren. All right.
Mr. Duke. And housing investment cratered.
Chair Warren. Housing investment cratered. Corporate
profits, what happened to them?
Mr. Duke. They went up after the tax----
Chair Warren. Corporate profits went up. Stock buybacks?
Mr. Duke. Record.
Chair Warren. Record stock buybacks up. And executive pay?
Mr. Duke. That also went up.
Chair Warren. OK. Ms. Shuler, tell me, did the Trump tax
cuts trickle down to the 12.5 million union workers that you
represent at the AFL-CIO--transportation workers, food workers,
teachers, construction workers, nurses, and more?
Ms. Shuler. The simple answer is no. The tax cuts, of
course, went to CEOs, shareholders, not workers. And every
dollar in tax cuts that a bigwig in the top 1 percent got, a
worker at the bottom, 60 percent got less than one cent.
Chair Warren. So, the rich get a dollar and the workers get
a penny? Right?
Ms. Shuler. Less than a penny.
Chair Warren. Less than a penny?
Ms. Shuler. Yup, yup.
Chair Warren. OK. I think we're detecting a theme here.
And, Mr. Morial, did the 2017 tax cuts for millionaires and
billionaires lift up Black Americans and other underserved
communities that you represent, at the National Urban League?
Mr. Morial. Not at all. Not at all. The tax cuts widened
the racial wealth gap and there was no impact on incomes--on
incomes--or on closing the twin of the racial wealth gap, which
is the racial income gap. So, there was no impact; there's no
evidence that it had an impact, and any positive movement
between then and now came from the American Rescue Plan, came
from the post-COVID investments that were led by the Biden
administration and many of you. That's important. So, any
improvement cannot be attributed to the 2017 tax cuts.
Chair Warren. OK. So, this time around, though, it's going
to be the same old scam. Trump has promised he will splash out
another $4 trillion, extending all of his rich pals' tax cuts,
and throw a few more goodies in for good measure, and that he
will give another rate cut for billionaire corporations. And
he's promised a little something extra for big oil and that
means one more loophole for Wall Street.
Here's the part now that I want to see if we can draw a
connection. Special interests lavished eye-popping amounts of
money to get Donald Trump reelected. And now, these same
special interests are ready to collect.
But wait, Donald Trump says, don't mind all that. He says
that he will cut taxes on overtime pay and Social Security for
everyone else. So, that's how this is going to work out.
Ms. Shuler, you represent these workers. Is that a good
deal for workers?
Ms. Shuler. No, and the operative word is scam. It's the
exact same scam that we've seen before. And so, the Trump plan
is to give your average worker pennies, or, you know, less than
a penny, as we've said.
Chair Warren. Less than a penny, uh-huh.
Ms. Shuler. While the real money and the benefits of the
plan actually go to the rich, and so, thus, widening the this
gap that we've all been talking about.
And, you know, not taxing overtime sounds good, but we all
heard Trump's Project 2025 would actually eliminate overtime.
So, we keep saying, OK, well, I guess you can make a promise to
not tax something that doesn't exist. That's a pretty easy----
Chair Warren. Uh-huh.
Ms. Shuler. Taxing zero is zero.
But we've also seen that, you know, that a Trump-appointed
judge actually just blocked the Biden administration's rule to
provide overtime pay protections for 4 million workers, as we
saw in the Biden administration that expansion. And so, that
Trump-appointed judge blocked it.
So, I think this is just another, as we've said, another
attempt to pay for a tax giveaway to the people who don't need
it--people like Elon Musk who are slashing, who propose to
slash Federal programs, you know, whether it's Social Security
to affordable childcare, to investments in good manufacturing
jobs, like we've seen with clean energy investments that we
know have been coming. If you eliminate those, that's actually
going to create a downward pressure on the ability to have a
pathway to the middle class and have good jobs in this country
to pay for these tax cuts that we do not need.
Chair Warren. That's right.
So, think about that: Donald Trump says he will slash
taxes, end taxes on overtime, but he will also end overtime,
and says he will cut taxes on Social Security at the same time
that his running buddy right now, Elon Musk, is saying they're
going to slash Social Security.
You know, Trump and his buddies think that, if they throw
small cuts to working people, that no one will notice that
millionaires and billionaires are pocketing trillions of
dollars. They think that, if they give small tax cuts to
working people, that they won't notice when infrastructure jobs
dry up or when their Social Security checks are cut.
But the American people are not so easily fooled. In
December 2017, when Donald Trump signed his $2 trillion tax
giveaway into law, it was his lowest approval rating of his
entire presidency, second only to the insurrection that he
stoked on January 6.
The American people know a scam when they see one. Trump's
last tax giveaway was a scam of giant proportions, and his
plans for another tax cut for billionaires is just more of the
same.
Thank you.
Senator Helmy.
Senator Helmy. Thank you, Chairwoman.
It's great to see some of you, especially those who have
done so much for my home State, and thank you for being here.
I think it's been amply demonstrated by my colleagues and
the chairwoman that the Trump tax cuts disproportionately
benefited the wealthy and large corporations, and that these
benefits have had no positive impact on the economy and no
material impact on working families.
And to add a data point--Mr. Duke, I think you were
mentioning this--since the tax cuts, America's billionaires are
now collectively worth a record $6 trillion--a wealth that has
more than doubled since the Trump tax cuts. And researchers
from both the Fed and the Joint Commission have concluded that
zero percent of those gains--zero--have gone to the bottom 90
percent of workers.
And unfortunately, it seems that some are not here to
participate in this conversation. But rather than accept the
data, it seems that we're on a pathway to continue that or even
further it.
And I would ask you, Mr. Duke--you've touched on some of
this--but not only just the Trump tax cuts, but in other prior
moments of policymaking in history, is there something that our
colleagues can point to where these kinds of drastic tax cuts
to corporations and to the wealthiest among us actually have
some trickle-down effect on America's working families and
firefighters and teachers and the middle class in New Jersey
and through the Nation?
Mr. Duke. I think all they can point to is that, oh, we
need more tax cuts because this first round didn't work. So, we
just need more of the same, is kind of the argument that we've
been hearing for the last few decades. There's no evidence that
it has had any appreciable contribution to American, you know,
to the outsized GDP growth the U.S. has had compared to its
competitors.
Senator Helmy. And while I appreciate that some who are not
here may disagree, I think policy positions are an explanation
of priorities, and either you are prioritizing the
consolidation of opportunity or you are looking to expand this
country's economic wealth and growth from the middle class out.
Ms. Shuler, you've been involved in so many things that
we've been able to do in terms of the progressive agenda. In
New Jersey over the last 8 years, with this chairwoman's
leadership and the Biden administration, the ARP was able to
expand the Child Tax Credit and the Earned Income Tax Credit.
Expanding these credits lifted approximately 10 million
Americans out of poverty. The success was replicated in many of
the States you represent. Specifically, with your help, we were
able to do it in New Jersey, providing a State-level credit
that provided $1,000 to the lowest-income families.
Again, thinking about the priorities of whether
prioritizing those who have already doubled their wealth in the
last 7 years or the working class, in terms of just the workers
you represent, labor or otherwise, what kind of an impact would
expanding the CTC and the EITC mean?
Ms. Shuler. So, the traveling that I do and talking to
workers, the most often raised issues are childcare and
housing. And those are the costs that people are struggling
with.
And I'll just share one quick story. I went to a convening
of 5,000 women in the trades, women who are accessing pathways
to the middle class through good construction job training and
making their way into good, stable employment because of these
opportunities. And the one thing that kept coming up over and
over again that is a barrier to getting more women into
construction is childcare.
And, you know, they have unique--they deal with unique
situations because they go to work early in the morning and
often childcare is not available. Or they're not able to, on a
moment's notice, find the capacity that they need.
So, this would enable them to have some breathing room and
to be able to plan for their lives and to make the investments
in their future that puts them on this pathway to a better
life.
Senator Helmy. Yes. So, on one hand, we're looking at a tax
policy proposal that, again, continues to consolidate
opportunity among the wealthiest and the largest corporations,
while at the same time making it harder for those folks who
want to get back into work and restart their careers after
starting families. That seems to be a way to shrink economies,
not expand them.
Mr. Morial. I think I heard some of this on my way in on
your testimony. And I would applaud the chairwoman's leadership
on this issue. But, you know, housing affordability is a
crisis, whether it be in the Northeastern States and New
Jersey, where I represent, or across the country. Home prices
are 47 percent higher than they were just a few years ago; much
more acute for renters, where 26 percent higher than just in
2020.
In New Jersey, where we've had a progressive elevation in
our minimum wage, which is now at $15 an hour, you would need
to work two full-time jobs just to afford a one-bedroom rental.
Mr. Morial, can you give us, in the short time I have left,
what ways we can use the tax code to address and make
significant positive change in our housing crisis?
Mr. Morial. I did also just want to go on the record that
working people would benefit greatly if we had a national
living wage bill. It's long overdue. And States like New Jersey
and many other States have done it on their own. But, Senator
Warren, we need a national living wage bill indexed to
inflation.
Now, in our proposal, the tax code could expand the Low-
Income Housing Tax Credit, which has been a tool used to expand
affordable housing in this country. But I propose something
else, and that is an affordable housing tax credit which would
be a tax credit that would put money into the construction of
affordable home ownership opportunities. We need to not only
build rental housing, we need to build housing that people can
buy and build wealth. That's how you create intergenerational
wealth--through property ownership, through home ownership. So,
the tax code could be shaped, could be used to do that.
The New Markets Tax Credit program is another that has been
used to construct mixed-use affordable housing in this country.
There are a number of things that, indeed, could be done. None
of them address what we really need, which is a housing supply
initiative to really build the number of units. We've gotten so
far behind in the last 25 years, and that's why the challenge
is so acute. But there's a lot that could be done in an
upcoming tax bill, if we centralize the needs of working
families.
And I think, Senator Warren, you're so right in really
saying let's call for the proposers of the 2017 bill to account
for their promises, so that the American people understand and
know that what they were promised did not occur. And in doing
that, stop this or shape a better approach.
Senator Helmy. Madam Chair, I just have 20 seconds. To just
make a statement, to piggyback off of what Marc said, just to
make one statement about the SALT deduction. You mentioned
Black and Brown home ownership.
Mr. Morial. Yes.
Senator Helmy. And what goes under-said about the SALT
deduction, which is essential, in my opinion, to encouraging
home ownership and wealth-building in Black and Brown home
ownership in communities, because they pay an inflated share of
the property tax comparable to White homeowners.
So, as this Committee considers these important issues, I
would hope that the SALT tax cap goes away.
Mr. Morial. I concur.
Senator Helmy. Thank you, sir.
And I would just, I think, end where you ended, Marc, and
applaud our chairwoman's leadership on making sure that our tax
policy is reflective of what's in the best interest of working
families.
Thank you.
Chair Warren. So, thank you. Thank you, Senator Helmy, and
thank you for the comments----
Senator Helmy. Thank you.
Chair Warren. ----on this.
So, the Trump tax scam playbook has more than one page.
Page one is hiding the giveaways to the wealthy by trying to
throw some small cuts, or at least allegedly throw some small
cuts, to working Americans.
Then, there's page two: using magic math to pretend that
the tax cuts don't cost anything at all. The 2017 Trump tax cut
was so big that Republicans had to use budget gimmicks and
accounting tricks in order to hide the true cost.
One of the main tools was to set up a bunch of the cuts to
expire next year. That limited the cost to just $2 trillion.
So, what's Trumps second-term agenda? Keep cutting taxes
for billionaires and pretend they don't cost anything. Magic
math formula number one: save money by defunding the IRS and
letting wealthy tax cheats off the hook.
Mr. Duke, help us double-check the math here. Does cutting
the IRS enforcement budget actually save any money?
Mr. Duke. No. The Congressional Budget Office estimates
that every dollar cut from IRS enforcement actually increases
the deficit by $2.50. Other estimates go as high as $11. And
just fundamentally, they are trying to pay for tax cuts for the
rich with tax cuts for the rich. It breaks the laws of
arithmetic.
Chair Warren. Yes. But that's not the only magic math.
Senator Crapo, the incoming chief Republican tax writer in the
Senate, has an even better scam. He's running around Capitol
Hill saying that Congress shouldn't pay for a single cent of
the $5 trillion in the Trump tax cut extensions because that's
just extending current policy, and if you're extending current
policy, it doesn't cost anything. It's free.
Mr. Duke, another math question for you. Does $2 trillion
in tax cuts in 2017, plus another $5 trillion in extensions in
2025, equal zero dollars in cost?
Mr. Duke. No. I didn't hear Senator Crapo say that
extending the American Rescue Plan Child Tax Credit was also
free because it would have just been extending current policy,
either. This is just a way to hide the cost of enormous tax
cuts for the wealthy, while clearing the way for Elon Musk's
cuts to health care and food for families.
Chair Warren. Yes. You know, none of this is new. For
decades, Republicans have over and over passed massive
giveaways to the wealthy, used fake math to try to hide the
true cost, and then, turned around and claimed to be shocked--
shocked--by the ballooning deficit. Then, in fake outrage, they
demand that we cut the deficit by cutting funding for
everything from Social Security to public schools.
Trump and his MAGA buddies have made clear that they plan
to run the same play again next year. They want to hide the
true cost of tax cuts for billionaires and billionaire
corporations and do it while claiming that they're helping
working people.
Mr. Morial, should working people buy this?
Mr. Morial. No. And, Senator Warren, since tax cut fever in
the GOP began in the 1980s, I encourage all Americans to go
look at the widening gap between rich and poor Americans,
between rich Americans and middle-class Americans, that so many
people in elected office profess to champion for, and to look
at the widening wealth and income gap since tax cut fever began
in the 1980s in the GOP.
You can do a through line. In the Reagan years, the economy
was about a $5 trillion economy. Today, it's almost a $25
trillion economy. Yet wages for the bottom 70 percent of
Americans have not kept pace with that growth. In fact, it's
gone in reverse.
It's time for this tax cut fever, this tax cut fever, to
get the proper dosage of medicine--to end this, if you will--
call it a scam? Yes. I call it razoo and a head fake, right.
Get Americans looking over here, believing that they're going
to get something, and they get crumbs----
Chair Warren. Yes.
Mr. Morial. ----while over on the other side, massive
subsidies are given to Americans who don't want, nor need,
these subsidies, and then, behind it, come back and challenge
the programs, workforce, Medicaid, Medicare, Social Security,
aid to education, aid to small businesses, that we sorely need.
So, you have, I think, Senator Warren, accurately
characterized the current situation, and I'm just proud and
committed to working with you and others to get a fair deal for
the American people. The American people need a fair deal, a
better deal when it comes to tax and fiscal policy.
Chair Warren. Oh, I very much appreciate your comments on
this.
Look, Democrats in Congress should flat-out reject Trump's
tax scam 2.0 and the junk math that Republicans are using to
try to sell this thing.
The tax code is not about magic math. It is about choices.
Are we a country that invests in roads and bridges, in housing
and health care, in our children, or a Nation that cuts taxes
for billionaires and billionaire corporations?
American families are counting on us to have their backs,
and that means fighting for a tax code that demands that the
wealthy pay their fair share, just like everyone else--a tax
code that invests in American workers; a tax code that helps us
build a stronger economy in which everyone gets a chance to
participate.
In next year's tax debate, every person in the U.S. Senate
will have the opportunity to show the American people whose
side they are on--the side of billionaires clamoring for more
handouts or the side of hardworking Americans. Because next
year is a chance to fight for a tax code that works for working
people, a chance to fight against more giveaways to the wealthy
and giant corporations, and to flat-out reject any package that
includes billionaire handouts. It is a chance next year to
fight for a tax code that raises taxes on the wealthy to fund
the investments that we all need. And I am proud to stand
shoulder to shoulder with working people across this country in
this fight.
I want to say one more time how much I thank the witnesses
for being here today; for the testimony that you provide, and
for the work you do every day.
For any Senators who wish to submit questions for the
record, those questions will be due 1 week from today,
Wednesday, November 27th.
And for our witnesses, you will have 45 days to respond to
any questions.
Thank you again.
And with that, this hearing is adjourned.
[Whereupon, at 3 p.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF ELIZABETH M. SHULER
President, AFL-CIO
November 20, 2024
Chairperson Warren, Ranking Member Kennedy, and Members of this
Subcommittee, I appreciate the opportunity to appear before you today
to talk about tax policy and working people.
I am here representing the nearly 13 million workers who are part
of the 60 affiliated unions of the AFL-CIO. We represent workers in
every sector of the economy, including construction and building
trades, transportation, maritime, healthcare, education and
entertainment, manufacturing, and professional athletes. We are also
the voice of the labor movement representing the concerns and needs of
working people broadly, whether they are in a union or not.
Today I have been asked to testify on the tax system, which is
something every working-class and middle-class worker pays into with
their hard-earned wages. In the next few months Congress will be
discussing the fate of the expiring 2017 Trump tax cuts as well as
determining the direction of our tax policy. For working people, these
are the most consequential decisions that the new Congress will make
because they will affect not only take-home pay, but the ability for
the Federal Government to provide essential programs and services.
The AFL-CIO will fight for a tax system that is fair and equitable
for all Americans, especially working people. The expiration of the
2017 tax cuts is an opportunity to take stock of that tax policy and
get it right this time.
In 2017, President Donald Trump and his allies promised an array of
benefits for the American people from the Tax Cuts and Jobs Act. Those
benefits did not materialize. They said that cutting the corporate tax
rate would raise the wages of working people by $4,000 on average. That
did not happen. Studies show that 90 percent of workers received no
wage increase as a result of the tax cuts, and, for those who did, they
were already the highest paid 10 percent of people at their companies.
\1\ Corporate executives, who last year made 268 times what the average
worker made, benefited the most. \2\ The projections of increased
revenue and investment from corporate America also never materialized.
By 2019, a couple years into the tax cuts and even prior to the
pandemic, business investment was declining quarter after quarter. \3\
---------------------------------------------------------------------------
\1\ David S. Mitchell, ``Six Years Later, More Evidence Shows the
Tax Cuts and Jobs Act Benefits U.S. Business Owners and Executives, Not
Average Workers'' Washington Center for Equitable Growth (December 20,
2023), at https://equitablegrowth.org/six-years-later-more-evidence-
shows-the-tax-cuts-and-jobs-act-benefits-u-s-business-owners-and-
executives-not-average-workers/.
\2\ ``New AFL-CIO Report: S&P 500 Company CEOs Made 268x Worker
Pay in 2023'' AFL-CIO (August 8, 2024), at https://aflcio.org/press/
releases/new-afl-cio-report-sp-500-company-ceos-made-268x-worker-pay-
2023.
\3\ Josh Bivens, ``New GDP Data Show That Business Investment
Slows for 3rd Straight Quarter'' Economic Policy Institute (January 30,
2020) at https://www.epi.org/press/new-gdp-data-show-that-business-
investment-slows-for-3rd-straight-quarter-more-evidence-that-tax-cuts-
have-failed/.
---------------------------------------------------------------------------
The Trump tax bill's massive temporary and permanent cuts to
corporate and individual taxes have had three consequences.
First, corporations benefited most significantly from the tax cuts.
The top corporate tax rate was lowered from 35 percent to 21 percent
but as reported by the Government Accountability Office (GAO) the
actual effective tax rate for many corporations was far below 21
percent and instead averaged 9 percent--if the corporations paid any
taxes at all. Many large and profitable corporations continue to pay
nothing in corporate taxes, and a larger percentage of corporations
paid no corporate taxes than in previous years. \4\ Corporations thus
had a far lower tax rate than any middle-class worker.
---------------------------------------------------------------------------
\4\ https://www.gao.gov/assets/gao-23-105384.pdf
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Second, for all their ineffectiveness to boost wages or
investments, the Trump tax cuts have been outrageously expensive. As a
result of lower taxes on corporations and the ultra wealthy, the 2017
Trump tax law has lowered Government revenue. While Trump tax
supporters claimed the tax cuts would ``pay for themselves,'' they have
not and the Congressional Budget Office projects that the tax cuts will
increase deficits by nearly $2 trillion over a 10-year period. That
effect will be stronger if the measures, which are set to expire in
2025, are allowed to continue. These deficits squeeze funding for
programs and agencies upon which low to moderate income working people
depend.
Third, the benefits of the 2017 tax cuts, particularly on
individual taxes, have overwhelmingly skewed toward the wealthy.
Highest earners got the greatest tax benefits through being granted
special deductions on estates and investments while middle earners saw
few benefits. The Tax Policy Center estimated that the wealthiest top 5
percent of earners got triple the effective tax cut that the bottom 60
percent of the income distribution received. \5\ Middle-class families,
who often depend solely on wages for their income, brought home a
smaller percentage of their paycheck than the billionaire class.
---------------------------------------------------------------------------
\5\ Tax Policy Center, ``Distributional Analysis of the Conference
Agreement for the Tax Cuts and Jobs Act'', December 18, 2017, https://
www.taxpolicycenter.org/sites/default/files/publication/150816/2001641-
distributional-analysis-of-the-conference-agreement-for-the-tax-cuts-
and-jobs-act-0.pdf.
---------------------------------------------------------------------------
At the end of 2025, many provisions of the Trump tax law will
expire--and most of these provisions should expire because they rig the
system against working people. For example, letting the top marginal
tax rate reset to the pre-2017 level and re-establishing the estate tax
will improve tax revenue and restore some fairness to the system. Any
talk of cutting the corporate tax rate even more deeply, with another
round of massive giveaways to the rich in 2025, is an insult to working
people. Corporations on the whole have been doing great in this
economy, and they have been gouging the American consumer. Corporations
have been experiencing a spike in profits over recent years, and,
according to one study, over 40 percent of rising price levels between
2019 and 2022 was attributable to corporations' rising profits, not
rising costs. \6\ Based on prior behavior, boosting their profits even
higher with even more tax cuts will do nothing to lower prices. Members
of Congress who claim to represent the interests of working people
should reject any tax deal that includes extending the 2017 Trump tax
cuts for the wealthy.
---------------------------------------------------------------------------
\6\ Josh Bivens, ``Profits and Price Inflation Are Indeed Linked''
Economic Policy Institute (September 5, 2024) at https://www.epi.org/
blog/profits-and-price-inflation-are-indeed-linked/.
---------------------------------------------------------------------------
But aside from letting the worst provisions expire and doing no
further harm, we also want Congress to recognize that there are long-
standing problems with our tax code that privilege corporations and the
wealthy over the average households. These policies have eroded our tax
base, making the deficits and debt worse.
Specifically, the tax code needs to require high-income households,
the billionaire class, large profitable corporations and Wall Street to
pay a greater share of their income in taxes than each one does
currently under the Trump tax revisions. By restoring revenue through
fairly taxing those who earn more or profit more, we can provide tax
relief to middle- and lower-income families.
We also support specific measures that will promote tax fairness
such as:
Fairer and more efficient tax enforcement, including
increased funding and staffing for IRS enforcement and a plan
to restore audits on wealthy individuals and profitable
corporations.
Reinstating a union dues tax deduction.
Closing the carried interest loophole that would tax income
from carried interest as ordinary income.
Continuing IRS Direct File as a free, online, user-friendly
alternative to costly tax preparation services.
Letting the SALT deduction cap expire.
Creating a new above-the-line deduction for worker-provided
tools and equipment.
Raising the maximum income cap for the Qualified Performing
Artist Deduction to update incomes to reflect inflation.
Disallowing tax deductions for union avoidance. Tax
deductible ordinary business expenses should not be allowed to
include money spent on opposing union organizing.
Taxing capital gains as ordinary income for taxpayers
earning more than $1 million.
Enacting a Wall Street Speculation Tax to discourage risky
speculation.
Taxing stock buybacks at a higher rate.
Promoting racial equity in tax policy by refining tax data
collection and analysis to root out inequities in tax policy
design and enforcement.
Repealing real estate loopholes that allow real estate
investors to delay, reduce, and eliminate their tax
obligations.
Enacting a minimum tax on the ultra wealthy of 25 percent
(e.g., annual income above $100 million) and other taxes on
those with extensive wealth.
Economist after economist, regardless of political leanings, has
cautioned against the current tax system crippling the future of our
economy by expanding our budget deficits and national debt. The trickle
down economics model that the current system is built on is faulty in
its beliefs that economic benefits will spread throughout the system.
Wealth concentrates in corporations and middle- and lower-income
earners are excluded from most of the benefits. We cannot continue to
ignore this problem, and we must rebuild a progressive tax system that
taxes those who earn more at a higher rate than those who earn less.
Thank you for the opportunity to address the Subcommittee today.
______
PREPARED STATEMENT OF MARC H. MORIAL
President and CEO, National Urban League
November 20, 2024
Chair Warren, Ranking Member Kennedy, and Members of the
Subcommittee: Thank you for the invitation to testify about the urgent
need for a tax policy that works for all Americans, particularly low-
and moderate-income individuals.
My name is Marc Morial and I serve as President and CEO of the
National Urban League, an organization that has been uplifting and
empowering Americans since its founding in 1910. I am also a former
Mayor of New Orleans, Louisiana.
The National Urban League is a historic civil rights organization
and since our founding, we have been dedicated to efforts to guarantee
equality, social justice, and inspire economic empowerment. We
collaborate at the national and local levels with community leaders,
policymakers, and corporate partners to elevate the standards of living
for African Americans and other historically underserved populations.
For example, through our affiliate network of 92 Urban League
affiliates in 36 States and the District of Columbia, the Urban League
spearheads the development of social programs and authoritative public
policy research, and advocates for policies and services that close the
equality gap. At the community level, the Urban League and its
affiliates provide direct services that improve the lives of four
million people annually, and we promote economic empowerment through
education and job training, housing and community development,
workforce development, entrepreneurship, health, and quality of life.
The National Urban League stands here today to call for a new
approach, a bold, comprehensive and equitable plan to lift
undercapitalized communities out of poverty and stimulate their
economic growth. One that helps hardworking Americans and their
families to advance the National Urban League's Main Street Tax
Initiative, which I will introduce to the distinguished Members of the
Subcommittee during my testimony, today, and in addition, legislation
that prioritizes equity and meaningful opportunities for low- and
moderate-income Americans that starts with extending, expanding, and/or
making permanent several important tax provisions impacting hardworking
Americans, their communities, and small businesses.
National Urban League's Main Street Tax Initiative
Background
In 2017, the Tax Cuts and Jobs Act (TCJA) was enacted with the goal
to cut taxes, lower rates, and provide tax relief for Americans,
however the provisions providing direct tax relief to individuals and
their families were not permanent and within this group, the top
earners experienced the most substantial benefit of the tax cuts for
individuals. Against this backdrop, as many of the TCJA tax code
changes set to expire at the end of 2025, the National Urban League
proposes a 10-point plan called the Main Street Tax Initiative, which,
if enacted, would ensure that the tax code promotes economic
opportunity and growth for all Americans. Amongst other things, this
proposal includes making permanent the expanded Child Tax Credit (CTC)
and Earned Income Tax Credit (EITC), restoring the State and Local Tax
(SALT) deduction, and increasing support for first-time homebuyers and
small business owners in undercapitalized communities. Additionally,
the National Urban League calls for reforms that address systemic
inequities in the tax system, such as targeted incentives to close the
racial wealth gap and enhanced tax benefits for affordable housing
development and community investment. Together, these measures aim to
uplift families, empower communities, and foster long-term economic
prosperity for all Americans.
Ten-Point Plan
1. Create Direct Tax Cuts and Incentives To Support Low- and
Moderate-Income Workers
The National Urban League advocates for making new investments that
prioritize low- and moderate-income workers by providing transformative
tax reform that includes a 50 percent direct income tax cut for
Americans earning less than $100,000 annually, a policy that would
benefit approximately 60 percent of the U.S. population. This bold
initiative aims to put significant financial relief directly into the
pockets of those who need it most, creating a more equitable and
sustainable economic foundation for our Nation. In addition, more
targeted tax incentives for lower-income Americans provide real relief
that strengthens communities, as compared to deductions for mortgage
interest, college savings, and retirement accounts, which
disproportionately benefit wealthier Americans. Finally, we are urging
Congress to equalize the tax rates on wealth and work. For example,
capital gains that are profits from investments are taxed at a far
lower rate than wages earned by working people, and we are asking
Congress to create a tax system that equitably helps more low- and
moderate-income American families and communities build economic
security.
2. Make Permanent the New Markets Tax Credit Provision
Historically, low-income communities experience a lack of
investment, as evidenced by vacant commercial properties, outdated
manufacturing facilities, and inadequate access to education and
healthcare service providers.
The New Market Tax Credit (NMTC) program, which attracts private
capital into low-income communities by permitting investors to receive
a tax credit against their Federal income tax in exchange for making
investments into a Community Development Enterprise. The NMTC program
was originally authorized in 2000 and has been extended by Congress
eight times since. These extensions, along with the original NMTC
legislation, have enjoyed bipartisan and bicameral support over the
past two decades. Since its inception, the NMTC program has provided
billions of dollars to organizations that help rebuild economically
distressed communities and has created more than a million jobs.
In addition, during a July 2024 Senate Finance Committee Hearing,
``Tax Tools for Local Economic Development'', Chairman Ron Wyden stated
``all 50 States have benefited from the New Markets Tax Credit. It has
helped get thousands of projects off the ground. Health care and
manufacturing facilities. Childcare centers and schools. Retail
developments and housing, including lots of affordable units.'' And
during the same Hearing, Ranking Member Mike Crapo stated that, in his
State, a new primary care facility opened that will serve a more rural
part of his State and was made possible due to a New Markets Tax Credit
investment. In addition, both Senators indicated their support for
bipartisan legislation introduced by Senators Cardin and Daines to
permanently extend the New Markets Tax Credit.
The current extension of the NMTC program expires next year,
however, the program is needed, especially in today's uncertain
economy, because corporations are looking to attract capital to
underserved communities to revitalize neighborhoods, offer employment
opportunities, and jumpstart small businesses. The National Urban
League is strongly urging Congress to extend the NMTC program to
attract the investment necessary to reinvigorate and grow struggling
disadvantaged communities.
3. Expand the Low-Income Housing Tax Credit: Promoting Housing
Affordability
Affordable housing remains an urgent need and with a critical
nationwide shortage of affordable housing units, makes it extremely
difficult for American families to purchase or rent a home. The
National Urban League is advocating for the expansion of existing tax
incentives like the Low-Income Housing Tax Credit (the LIHTC or Housing
Tax Credit), which would support the creation of affordable housing
units in all parts of the country, provide stability for working
families, help to address significant housing needs, and contribute to
closing the home ownership gap. For almost 40 years, the Housing Tax
Credit has played an important role in supporting new multifamily
housing construction and has reduced housing costs for millions of
families. The Housing Tax Credit can continue to help increase the
housing supply and with Congress' support, expansion of the credit
could provide affordable housing for many more families in need during
our country's housing affordability crisis.
4. Create an Affordable Housing Tax Credit for the Construction of
New Homes
The National Urban League is strongly urging Congress to continue
building upon Federal Government efforts to address the housing supply
needs and also to invest more directly to spur investment in affordable
housing construction.
As examples, the Federal Government could increase available tax
credits for LIHTC and funding for other affordable housing subsidy
programs, which some researchers contend could be achieved by boosting
funding for the U.S. Department of Housing and Urban Development's
existing programs that support LIHTC, such as HOME Investment
Partnerships Program. In addition, several States and localities are
considering implementing new social housing programs that could develop
projects independently of the private market, and the Federal
Government could invest in those initiatives as a complement to LIHTC.
These are only a couple of strategies that could accelerate Government-
supported production of affordable rental units and help more people
with low incomes access stable housing.
5. Restore the State and Local Tax Deduction
The State and Local Tax (SALT) deduction, which has been around
over 100 years and was originally more expansive, is for taxpayers who
itemize deductions on their tax return. Currently, the SALT deduction
allows taxpayers to subtract a portion of their State and local
property taxes, income taxes, and/or sales taxes from their Federal
taxable income. TCJA limited the SALT deduction to $10,000 (cap);
however, if Congress allows the SALT cap to expire next year, taxpayers
may claim the SALT deduction again, beginning in 2026, but some may
find their itemized deductions will be less than TCJA's higher standard
deduction. The National Urban League supports Congress allowing the
SALT cap deduction to expire as scheduled next year along with a plan
to offset the costs of restoring the deduction.
6. Extend and Expand the Child Tax Credit and Earned Income Tax
Credit
Our first priority must be to expand tax credits that uplift
working families. This includes extending and making permanent the
expansion of the Child Tax Credit (CTC). A robust Child Tax Credit can
drastically reduce child poverty, lifting up the next generation and
contributing to stronger communities and a healthier economy overall.
As an example, after the CTC was further expanded in 2021 during the
pandemic, U.S. Census data showed that the CTC expansion significantly
decreased the number of children experiencing poverty across several
race and Hispanic origin groups, specifically--1 million children under
6, and 1.9 million children between the ages of 6 and 17.
The TCJA did not make any direct changes to the Earned Income Tax
Credit (EITC), however, the TCJA uses a permanent, new, more
conservative measure of inflation to index its parameters and
indirectly affected the EITC's value so that EITC benefits would grow
more slowly in future years. The EITC has a proven track record of
reducing poverty, particularly in Black and Latino communities and the
National Urban League urges Members of Congress to reverse this
permanent change, which can help offer millions of families a stronger
foothold to achieve economic stability in the future.
7. Establish the ``Fair Deal for America Tax''
To help offset the tax incentive benefits that I have testified
about today, the National Urban League proposes the creation of the
``Fair Deal for America Tax'', a targeted initiative designed to
address wealth concentration inequities and ensure a more balanced
contribution to the Nation's revenue base. This tax would also take
meaningful steps towards closing the racial wealth gap by enabling
equitable investments across all economic levels.
Under the ``Fair Deal for America Tax'', ultra-wealthy
individuals--those with assets surpassing $1 billion--would pay a
modest surtax. Importantly, this tax would apply to an extremely small
group of individuals. As of 2023, only 770 individuals in the United
States had assets surpassing $1 billion. The number of people that this
tax would apply is fewer than the number of fans attending a Washington
Commanders football game on any given Sunday. Despite its limited
scope, this tax has the potential to generate substantial revenue that
can be reinvested into programs supporting low- and middle-income
families, promoting greater economic equity and opportunity nationwide.
As an example, according to the Tax Policy Center, most Federal
revenues are collected from wages, which are paid primarily to low- and
middle-income families, face heavier taxation than capital income,
which generally goes mainly to high-income families. Moreover, payroll
taxes account for 33 percent of Federal revenues and are imposed solely
on wages. In addition, the Federal Reserve Bank of St. Louis examined
the challenges facing vulnerable workers in 2023 and the opportunities
that more equitable participation in the economy may provide. It
concluded that ``greater wealth equity could help mitigate economic
declines and boost the economy during expansions. During an economic
contraction, more financially stable families would have funds to fall
back on if facing a job loss or a decline in asset values. This means
that many families wouldn't need to heavily rely on the support
provided by the public safety net (e.g., unemployment insurance).
During times of expansion, greater wealth equity could drive
consumption (via the wealth effect) and investment even higher, thus
boosting economic growth.''
However, the Federal Reserve Bank further stated that ``to achieve
greater wealth equity, many families need greater capacity to build
savings and access to sustainable asset ownership (e.g., home
ownership, tax-advantaged retirement accounts). Additionally,
addressing inequities in wealth outcomes could lead to more
opportunities for families of different demographic groups to invest in
their futures and thrive.''
8. Extend or Make Permanent the Standard Deduction
Many working families have also expressed frustration about high
prices for housing, groceries and other necessities and are struggling
to meet basic needs. The National Urban League is advocating on their
behalf and urging Congress to support extending or making permanent the
standard deduction increase, which helped many hardworking families by
reducing the amount of tax they owed. If Congress allows the standard
deduction increase to expire next year, it will likely result in a tax
increase for many low- and moderate-income Americans who have made it
clear that they do not have enough money to pay their monthly bills and
buy what they need for themselves and their families. Further, the
increased standard deduction makes itemizing not as beneficial for many
tax filers, which represents another important benefit of the change.
9. Incentivizing Corporate Investment in Certain Stressed and Rural
Communities
The National Urban League supports extending the TCJA Qualified
Opportunity Zone deferral provision that is set to expire next year and
is strongly urging Congress to review and consider any necessary reform
measures, including reporting requirements that would help to give
necessary information on the community benefits of Opportunity Zones to
ensure the legislation is accomplishing what the law intended, and that
is to use investments for projects and businesses that meet the
community's needs and produce significant economic and social benefits,
while encouraging economic development, job creation, and a positive
economic impact specifically to certain stressed communities and rural
parts of the U.S. and its territories. These communities, as you know,
are generally low-income and undercapitalized communities. Reform
measures and reporting requirements would show if the underserved
communities initially targeted for assistance by the incentive are, in
fact, receiving investment.
The goal of Opportunity Zone tax provision is to encourage long-
term investment in these communities by providing tax incentives for
new investment. If the Opportunity Zone provision is not extended,
these communities could see a decrease in economic growth. The National
Urban League is advocating for extension of the Opportunity Zone
deferral provision that includes necessary reform measures, and we
stand ready to assist Congress and States to ensure the legislative
intent of the tax provision is carried out, effectively.
10. Prioritize Small Business Growth
Small businesses, as we know, are crucial to our economy, the
backbone of many communities and according to the Department of Labor,
employ nearly half of all U.S. workers and comprise more than 99
percent of businesses. Further, small business ownership can be an
important step to economic empowerment because it allows hardworking
Americans to control their own income, create jobs, and achieve
financial independence, especially for those who might face barriers in
traditional employment markets.
The TCJA included important tax provisions that affect small
business taxpayers and their owners. For many small business owners,
the qualified business income (QBI) deduction (Section 199A) under the
TCJA has been an essential tool for supporting these businesses,
allowing eligible owners to deduct up to 20 percent of their income.
However, the deduction is set to expire, potentially undermining small
business growth unless Congress acts.
While the National Urban League supports extending the QBI
deduction, we urge Congress to address its significant distributional
inequities. Researchers have found that the top 1.5 percent of tax
filers (AGI over $500,000) claimed more than half of all QBI deductions
in 2021, while filers with AGIs under $100,000--51 percent of
claimants--received average deductions of only $1,997. Meanwhile, those
earning $10 million or more averaged over $1 million in deductions.
To ensure the QBI deduction better serves small businesses in
underserved communities, Congress must pair its extension with reforms
to reduce abuse, encourage reinvestment in business growth, and align
tax benefits more equitably across income levels. This approach will
strengthen small businesses as engines of economic opportunity and
empowerment for all communities.
Conclusion
In closing, according to a recent Pew Research Center (Center)
finding published in April 2024, most Americans feel that corporations
and wealthy people don't pay their fair share in taxes. And, about six-
in-ten U.S. adults said they're bothered a lot by the feeling that some
corporations (61 percent) and some wealthy people (60 percent) don't
pay their fair share.
Our tax system must reflect our values as a Nation and the goal of
any tax reform should be to improve incentives for Americans to work,
take care of their families, and be able to save to achieve economic
security. We have a chance to create a tax system that provides true
relief to low- and moderate-income Americans, ensures all Americans pay
their fair share, and encourages businesses to invest directly in our
underserved communities.
This is a pivotal moment to reshape our tax policy for a fairer and
more prosperous America for all. The recommendations in the National
Urban League's Main Street Tax Initiative offer a transformative path
toward ensuring that every American can realize the promise of the
American dream.
Thank you, and I look forward to your questions.
PREPARED STATEMENT OF BRENDAN DUKE
Senior Director for Economic Policy, Center for American Progress
November 20, 2024
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM ELIZABETH M. SHULER
Q.1. There is currently a tax law fluke that forces consumers
who win consumer law cases to pay income taxes on parts of the
settlements they never see; specifically, the court-ordered
fees that go to attorneys. In fact, the attorneys who receive
the funds already pay income taxes on those funds. In 2003-
2004, Senator Grassley introduced and Congress passed a
provision to protect victims of discrimination. The Internal
Revenue Code now excludes awarded legal fees from a plaintiff's
taxable income in civil rights suits. The End Double Taxation
of Consumer Claims Act (S. 3459) aims to provide this
protection for consumer victims who successfully enforce
consumer laws.
Should victims of consumer law violations be similarly
protected from a tax policy that would force them to pay taxes
on funds awarded to their attorneys and they do not receive?
Why is preserving access to legal support important to
ensuring a fair consumer market?
A.1. The AFL-CIO is a voluntary federation of 61 national and
international labor unions that together represent nearly 15
million workers. We have one overarching goal: a better life
for working people. At the heart of that goal is assuring that
the financial system--including the tax system--benefits and
treats fairly the millions of workers in the United States. As
such, we support any measure that increases the fairness of the
system and assures that individuals are treated consistently
before the law.
In regards to the question: Should victims of consumer law
violations be similarly protected from a tax policy that would
force them to pay taxes on funds awarded to their attorneys and
they do not receive? We believe protecting individuals from
unfair taxation on funds that attorneys instead of the clients
receive is a commonsense way to protect victims of consumer law
violations.
In regards to the question: Why is preserving access to
legal support important to ensuring a fair consumer market? We
believe that consumers often require legal support in order to
fight against much more powerful well-funded financial actors
and corporations and to navigate confusing policies and
procedures. Without the ability to use the legal system
effectively, consumers would be disadvantaged.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM MARC H. MORIAL
Q.1. There is currently a tax law fluke that forces consumers
who win consumer law cases to pay income taxes on parts of the
settlements they never see; specifically, the court-ordered
fees that go to attorneys. In fact, the attorneys who receive
the funds already pay income taxes on those funds. In 2003-
2004, Senator Grassley introduced and Congress passed a
provision to protect victims of discrimination. The Internal
Revenue Code now excludes awarded legal fees from a plaintiff's
taxable income in civil rights suits. The End Double Taxation
of Consumer Claims Act (S. 3459) aims to provide this
protection for consumer victims who successfully enforce
consumer laws.
Should victims of consumer law violations be similarly
protected from a tax policy that would force them to pay taxes
on funds awarded to their attorneys and they do not receive?
A.1. Under current law, the general rule regarding taxability
of amounts received from settlement of lawsuits and other legal
remedies is Internal Revenue Code (IRC) Section 61. This
section provides that all income is taxable from whatever
source derived, unless exempted by another section of the code.
IRC Section 104(a)(2), which is the applicable code section
regarding an exclusion from taxable income with respect to
lawsuits, settlements, and awards, provides that gross income
does not include ``the amount of any damages (other than
punitive damages) received (whether by suit or agreement and
whether as lump sums or as periodic payments) on account of
personal physical injuries or physical sickness.'' However, the
facts and circumstances surrounding each settlement payment
must be considered to determine the purpose for which the money
was received because not all amounts received from a settlement
are exempt from taxes.
As such, the amount of money plaintiffs are awarded, as
part of a successful consumer protection case, is taxed as
gross income, unless exempted. However, the money received
could also include an amount for their attorney's fees that go
to their attorney as compensation, who then would be taxed on
the attorney fees it received. ``Double taxation.''
Therefore, the simple answer is, yes, victims of consumer
law violations should be protected from a tax policy that would
require them to pay taxes on award amounts that include a
portion that goes to their attorney for attorney's fees--who
then would be taxed on the attorney fees it received. Double
taxing on the same funds is not sensible, and more than likely
was not what was intended by lawmakers.
The current law can be harmful to plaintiffs when legal
fees, which are included in the amount plaintiffs receive,
misrepresent their yearly gross income and make it appear they
made more than what they actually earned. As a result, this can
potentially restrict taxpayers from being eligible to receive
other tax deductions or income-qualifying benefits.
Litigating these consumer claim cases can be time consuming
and result in only a small amount recovered for the plaintiff.
In certain cases, the money awarded can be even less than the
attorneys' fees, making such cases a costly burden for
consumers and can also discourage consumers from pursuing such
cases.
Several consumer law advocacy groups support the End Double
Taxation of Successful Consumer Claims Act to change tax law to
make plaintiffs that win consumer law cases no longer required
to pay taxes on the amount of the award for attorney fees.
Q.2. Why is preserving access to legal support important to
ensuring a fair consumer market?
A.2. Access to legal support is and will always remain
important because it provides direct representation to
consumers by using the legal system to seek to redress for
unfair or deceptive business practices--helping to ensure fair
practices and demands that businesses answer to consumers with
honesty and transparency.
Oftentimes, many consumers are unaware that they are
victims of harmful business practices, such as discrimination,
unfair conduct that misleads consumers, or other unlawful
practices by businesses. Having access to legal support not
only protects victims but serves as a resource to keep
consumers informed on what potential harms they should be aware
of. This is especially important in Black and Brown communities
that have historically fallen victim to predatory practices by
businesses, lenders, debt collectors, and so on.
Access to legal support can help Government agencies in its
mission to advance racial equity in our consumer law landscape.
For consumer markets to remain fair, all consumers must benefit
from equal access to the goods and services provided and also
be provided accurate information to make well-informed
decisions about their choices. Our legal systems can help to
protect consumers who fall victim to predatory legal issues
like consumer debt lawsuits or fraud; roadblocks that prevent
consumers from enjoying the benefits of a fair market.
Access to legal support is a critical part of the larger
oversight ecosystem that includes Federal agencies and the
courts to hold these businesses accountable. With a Government
whose fundamental goal is protecting American citizens, it
needs the help of the courts and attorneys to stop bad actors.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM BRENDAN DUKE
Q.1. There is currently a tax law fluke that forces consumers
who win consumer law cases to pay income taxes on parts of the
settlements they never see; specifically, the court-ordered
fees that go to attorneys. In fact, the attorneys who receive
the funds already pay income taxes on those funds. In 2003-
2004, Senator Grassley introduced and Congress passed a
provision to protect victims of discrimination. The Internal
Revenue Code now excludes awarded legal fees from a plaintiff's
taxable income in civil rights suits. The End Double Taxation
of Consumer Claims Act (S. 3459) aims to provide this
protection for consumer victims who successfully enforce
consumer laws.
Should victims of consumer law violations be similarly
protected from a tax policy that would force them to pay taxes
on funds awarded to their attorneys and they do not receive?
A.1. The proper treatment of attorney's fees is more similar to
how they were treated before the 2017 tax law--taxing the
attorney's fees once by requiring attorneys to pay taxes on the
fees as income but allowing consumers to deduct those fees.
Congress should find a way to restore that proper treatment by
restoring the deduction for attorney's fees while offsetting
the cost of that restoration with revenue increases elsewhere.
Q.2 Why is preserving access to legal support important to
ensuring a fair consumer market?
A.2. The courts are a key way we police our consumer markets
for fraud, negligence, and other anti-consumer behavior by
companies. Maintaining proper financial incentives for
consumers to file a law suit when they have been wronged is
critical for maintaining the integrity of our consumer markets.
The proper treatment of attorney's fees is more similar to
how they were treated before the 2017 tax law--taxing the
attorney's fees once by requiring attorneys to pay taxes on the
fees as income but allowing consumers to deduct those fees.
Congress should find a way to restore that proper treatment
while offsetting the cost of that restoration with revenue
increases elsewhere.
[all]