Despite the House being out of session and the Senate focused on nominations, there was a reasonable amount of tax talk in both chambers; plus Werfel now runs the IRS.
What went down:
- Treasury Secretary Janet Yellen appeared before the Senate Finance Committee to talk about Biden’s budget but also addressed other tax issues.
- The Senate’s chief Republican tax-writer blasted the tax increases in Biden’s budget.
- The Congressional Budget Office, Congress’s bookkeeper, laid out what it will take to reduce the deficit if Trump era tax cuts are extended.
- Rep. James Clyburn (D-S.C.), the House’s Assistant Democratic Leader, penned an op-ed calling for the extension of the Child Tax Credit.
- The IRS installed Daniel Werfel as the next IRS Commissioner.
Let’s get to it:
Yellen on Extending Trump Tax Cuts:
Treasury Secretary Janet Yellen testified before the Senate Finance Committee on March 16 to discuss President Joe Biden’s budget request, but other issues were raised.
One eye-opener was Yellen suggested that it could be extremely difficult to extend the Trump-era tax cuts for individuals earning less than $400,000 while allowing provisions benefiting wealthier taxpayers to expire.
Yellen was asked to provide a list of Trump-era tax cuts that if expired would increase taxes on taxpayers earning less than $400,000. She said completing this list might be impossible.
“I don’t know that I can provide you with that… I think that it is a very complex exercise, and I’m not sure [we can do it],” she said.
If a list cannot be provided, how are provisions extended or axed to meet President Joe Biden’s promise to not increase taxes on individuals earning less than $400,000?
Crapo Blasts Biden Budget:
Senate Finance Ranking Member Mike Crapo (R-Idaho) responded to the tax increases that President Joe Biden included in his budget proposal last week.
“The President’s budget calls for nearly $5 trillion in new and increased taxes. If realized, these plans would create a tax regime that would lead to some individuals handing over more than half of their paychecks to the government, and many American businesses doing better off being headquartered overseas,” Crapo said in prepared remarks.
Crapo failed to mention that Biden supports extending the Trump tax cuts for taxpayers earning less than $400,000 a year. Republicans also support this (and more).
Legislation extending the Trump era tax cuts for taxpayers earning less than $400,000 would have bipartisan, bicameral support and likely be signed into law.
Crapo has called to extend the Trump era tax cuts, but the Senate can’t start the legislative process for extending these provisions.
Tax bills must begin in the House, and Republicans control that chamber. They are likely to pass a bill that extends all the Trump tax cuts – which Democrats could support.
Here’s why: If Democrats oppose a bill extending all Trump tax cuts, then they also oppose extending the Trump tax cuts for the middle-class. Political ads could highlight that Democrats opposed extending middle-class tax cuts and hurt their re-election chances.
Crapo highlighting the tax increase in Biden’s budget is here.
The White House released the appendix to Biden’s budget on March 13th, which is here.
CBO on Trump tax cuts:
The Congressional Budget Office released an analysis on March 14th that showed extending the Trump-era tax cuts would make it harder to balance the budget.
The document essentially states that the goal for balancing the federal budget by 2033 would require deeper spending cuts if Trump-era tax cuts were extended.
Obvious alert: Less money makes it harder to balance the budget.
If the Trump tax cuts aren’t extended, balancing the budget by 2033 would require all spending (not including interest payments) to be cut by 29%. If the Trump tax cuts are extended, spending cuts would increase to 35%.
Democratic Senators requested that this study be done. Its conclusion could be deemed political: The Trump tax cuts should not be extended if fiscal responsibility is the goal.
The CBO document is here.
Also, no one on Capitol Hill thinks that the tax increases proposed by Biden will become law. Republicans control the House and have vowed to not pass legislation that increases taxes.
Clyburn and CTC:
Rep. James Clyburn (D-S.C.), the House’s Assistant Democratic Leader, put pen to paper on March 13th and called on Congress to extend the Child Tax Credit to what it was when the pandemic raged:
The American Rescue Plan’s financial lifelines include the expansion of the Child Tax Credit. The expanded Child Tax Credit, paid monthly, increased per-year payments from $2,000 to $3,000 per child and provided an additional $600 per child under the age of 6. This became a lifeline for hardworking families throughout the pandemic. Nearly 4 million children were lifted out of poverty and the child poverty rate declined by 46% in one year.
Although the expansion expired at the end of 2021, it should be reinstituted and made permanent.
The Treasury Department on March 14th released a report highlighting provisions in the American Rescue Plan and noted that the expanded Child Tax Credit helped lift children out of poverty:
[T]he Census Bureau showed that the expanded Child Tax Credit provided by the American Rescue Plan was the leading driver behind a 46% decline in child poverty in 2021…
Democratic lawmakers have tied a Child Tax Credit expansion to allowing R&D outlays to be expensed. They reason that if businesses get a tax break so should families. This quid pro quo situation has been around for over a year and lawmakers have yet to reach an agreement on it.
Many (if not most) liberal lawmakers support R&D expensing.
However, most of them would oppose R&D expensing if the CTC is not expanded. Republicans support R&D expensing but oppose expanding the Child Tax Credit.
Werfel running things:
Danny Werfel on March 13th was sworn in as the 50th commissioner of the Internal Revenue Service. His term will run through Nov. 12, 2027.
Werfel can now direct how the tax agency spends the $80 billion that Congress delivered to it in the Inflation Reduction Act.
Creating that spending plan and completing a report on how racial bias could be in the tax code will top Werfel’s to-do list. He is expected to deliver both to Congress within 60 days of becoming IRS Commissioner.
The clock is ticking.
Pardon if this recap missed a monumental moment, but we can recap it next time!