Senior Member and Former Chairman, Senate Finance Committee
Tax Cuts and Jobs Act
November 29, 2017
Mr. President, the last time Congress modernized the tax code, it was 1986.
That’s more than 30 years ago.
In the generation since, the tax code has grown out of control.
It’s been a dream come true for accountants and lobbyists. But it’s a nightmare for most Americans.
The outdated tax code helps the powerful and the well-connected. But hurts American workers. It hurts American industry. And it hurts America’s ability to compete with the rest of the world.
The bill passed out of the Finance Committee moves us in the right direction to make our tax code simpler, fairer, and more competitive.
At the heart of the legislation is a middle-class tax cut. A typical family of four with two children making $59,000 a year could see a tax cut of more than $1,700.
That is significant tax relief. But, you would never know it by listening to the rhetoric of my colleagues on the other side.
They have repeatedly recited the tired line that Republicans are only interested in giving “tax cuts to the wealthy.”
In fact, they began pushing that narrative before a bill was even written.
It was a charge made against the unified framework which merely provided guidelines for the tax writing committee to start from.
The partisan Tax Policy Center then filled the gaps with policy assumptions and crafted an analysis to fit their narrative.
The problem is, their narrative hasn’t changed, even after the Finance Committee provided policy details. I think even the Tax Policy Center would have to agree that the Finance Committee product differs drastically from the underlying assumptions of their initial analysis.
The Finance Committee used all the available tools granted under the Unified Framework to target more relief to middle-income taxpayers and retain the progressivity of the tax code.
Let’s take a look at some of the major features of the Finance bill and how they provide relief for the nation’s middle-class and low-income earners.
First, it nearly doubles the standard deduction which means that many lower income Americans will be removed from the tax rolls completely. And tax filing season will be simpler for millions more.
Second, it doubles the child tax credit from $1,000 to $2,000 and moderately increases its refundability.
Both of these are made possible in large part by repealing personal exemptions. Personal exemptions for the taxpayer and spouse help to increase the standard deduction, and the personal exemptions for children help with increasing the child tax credit.
Interesting enough, these provisions mirror a proposal put out by the Tax Policy Center in December of 2016.
Nearly identical to the Finance bill, the Tax Policy Center paper argued for repealing personal exemptions, nearly doubling the standard deduction, and increasing the Child Tax Credit to $2,012.
According to the authors of the Tax Policy Center proposal, such a change would “reduce complexity, remove inequities, and mitigate marriage penalties.”
The fact is, these changes provide more relief to the middle-class and simplify the tax code.
As the Tax Policy Center paper points out, the value of the personal exemption is largely dependent on the tax bracket of the taxpayer. The higher the tax bracket, the more benefit.
In comparison, the child tax credit generally lowers a taxpayer’s tax liability dollar for dollar regardless of the tax bracket. As a result, repealing personal exemption in favor of expanding the child tax credit makes the tax code MORE progressive and targets more relief to lower and middle-income taxpayers.
Admittedly there are some differences between what was suggested by TPC and the Finance bill. Its proposal would have been more generous on the refundable feature of the child tax credit.
But on the opposite end, they would have made the child tax credit available to everyone, even millionaires. The Finance bill is less generous to the affluent because it phases out the credit for married taxpayers with incomes over $500,000.
You would think the other side would offer some credit for taking this rather progressive approach to providing family tax relief.
But no. They continue repeating their line over and over that the bill is a “tax cut for the wealthy.”
Another feature of the Finance bill that provides relief to middle-class and low-income earners is the reduction of tax rates for middle-bracket taxpayers.
First, it retains the 10 percent bracket, which many on the other side expressed concerns about being repealed based on the Big Six framework.
Next, it lowers the current law 15 percent bracket to 12 percent and expands its applicability. Additionally, it reduces what is essentially the current law bracket of 25 percent to 22 percent and what is essentially today’s current law 28 percent bracket to a much wider 24 percent bracket.
These rate reductions target tax relief to the heart of the middle-class.
You may be wondering how this middle-class tax relief bill will be financed. Largely by repealing the State and Local Tax Deduction, also known as the SALT deduction.
Our colleagues on the other side have tried to argue the repeal of SALT is a tax increase on the middle-class. But nothing could be further from the truth, considering the reduced tax brackets I just discussed in combination of with the higher standard deduction and doubled child tax credit.
The repeal of SALT is actually a key piece of this legislation which makes middle-class tax cuts possible.
The SALT deduction overwhelmingly benefits the so-called “wealthy” that our colleagues on the other side vehemently argue should receive no tax benefits under the bill.
You don’t have to take my word for it. Here is what several partisan think tanks have said about SALT in the past.
According to TPC, about 40 percent of SALT benefits go to taxpayers with incomes exceeding $500,000.
Keep in mind that tax filers with incomes of $500,000 or more only make up about 1% of all tax filers, making it a very lopsided benefit.
Here is what the Center for American Progress has said on SALT,
“The deduction for state and local taxes disproportionately benefits high-income taxpayers, property owners, and residents of high-tax states. That’s because those groups pay the most taxes at the state and local level. It also benefits high-income taxpayers because any kind of deduction is worth more to people in high tax brackets than low tax brackets.”
To further illustrate who eliminating SALT really hits, I would like to highlight a recent Bloomberg article titled, “Tax-Hike Fears Trigger Talk of Exodus from Manhattan and Greenwich.”
Now, this article is not about concerns from middle-class police officers or teachers on the repeal of SALT. Instead, it highlights concerns from wealthy hedge fund managers who may now consider moving out of the high-tax state of New York. Here is what that article had to say,
“The problem for the Connecticut hedge-fund set -- and, more broadly, for a lot of the Wall Street crowd -- is that Republican proposals in both the House and Senate would drive up taxes for many high-earners in the New York City area. By eliminating the deduction for most state and local taxes, an individual making a yearly salary of $1,000,000…would owe the Internal Revenue Service an additional $21,000.”
So I ask my colleagues on the left, are you prepared to go to bat over the SALT deduction for millionaire hedge-fund managers?
In truth, from listening to my Democratic colleague’s rhetoric I am really surprised by this article. I thought Republicans were all about “tax cuts for the wealthy” and giveaways to Wall Street. But this article suggests otherwise. In fact these types of taxpayers are likely to experience a sizable tax hike under our proposal.
According to the non-partisan Joint Committee on Taxation, by 2023 nearly 30 percent of taxpayers with incomes exceeding $1 million will experience a tax hike.
That does not sound like a giveaway to the wealthy to me.
I yield the floor.
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