Capitol Hill Recap: TCJA Talks Abound

Lawmakers held several meetings this week to lay the groundwork for extending Tax Cut and Jobs Act (TCJA) provisions set to expire in 2025.

What Went Down:

• A handful meetings took place this week about extending TCJA provisions.

Let’s Get To It:

TCJA Moment

Lawmakers this week discussed how they should address the “tax cliff” that will occur at the end of 2025 when certain individual tax cuts, that are part of the Tax Cuts and Jobs Act (TCJA), expire.

The Senate Budget Committee held a hearing this week titled “Making Wall Street Pay Its Fair Share: Raising Revenue, Strengthening Our Economy.” The hearing was a platform for lawmakers to express whether they feel TCJA provisions should (or should not) be extended.

Senate Budget Chairman Sheldon Whitehouse (D-R.I.) reiterated the Democrat pledge to only extend TCJA provisions that benefit taxpayers earning $400,000 a year or less. Extending those tax cuts would cost the Federal government revenue. To pay for the extension Whitehouse suggested taxing investments, corporations, and rich people.

“Fix the carried interest loophole. Stop rewards for offshoring jobs. Lock in a real corporate minimum tax on foreign profits so huge corporations can’t pay zero. Raise the tax on buybacks passed in the Inflation Reduction Act. Tax companies that pay their CEOs more than 50 times what they pay their average worker.  Enact a minimum tax so the richest can’t pay lower rates than everyone else,” the Senator said.

Whitehouse supports upping the corporate income tax rate above 21 percent but limited his hearing remarks to tax increases on Wall Street (hence the title of the hearing).

Senator Chuck Grassley (R-Iowa), committee’s Ranking Member, warned that if the tax increases proposed by Whitehouse became law, they would either be “passed through” to other, lower-earning, tax entities or depress economic activity.

Grassley also noted that there aren’t enough rich people and corporations to tax to hoist the Federal government out of deficits and into the black. He advocated for spending cuts to curb Federal red ink.

Senator Mitt Romney (R-Utah), a committee member, stressed that both tax increases and spending cuts will be needed to improve the financial standing of the Federal government.

“You have to do both in order to reach balance,” he said, adding, “We’re going to have to look at spending and taxing.”

For what it’s worth: The Senate Budget Committee does not have jurisdiction over taxes and cannot pass legislation to change tax policy. The Committee’s job is to allocate revenue after it is collected. (More about the Senate’s taxing powers is below.)

In other tax news, House Speaker Mike Johnson (R-La.) met with Senate Republicans about expiring TCJA provisions and how budget rules could help pass a TCJA-extension bill through the Senate.

Republicans on the House Ways and Means Committee also met with tax professions to discuss TCJA extensions.

Other TCJA meetings occurred this week, including one with former president Donald Trump. Most of these meetings were behind closed doors.

The bottom line: Nothing has been decided when it comes to extending TCJA measures.

State of Play: Republicans want to extend all TCJA tax cuts beyond 2025. Democrats, as stated above, want to limit that extension.

But there is a division between Republicans when it comes to dealing with the cost to extend TCJA provisions.

Generally speaking, House Republicans are more supportive of offsetting the cost of TCJA tax cut extensions. Senate Republicans are resistant to that idea, saying that the cost of “pro-growth” tax cuts don’t need to be offset.

The argument behind “pro-growth” tax polices is that they will help businesses expand and more people will have jobs. To wit: the Federal government will collect more revenue because more people are employed.

The idea that tax cuts pay for themselves is highly controversial. That being said, actually paying for an extension of TCJA provisions will be mind-blowingly expensive.

Extending all expiring TCJA tax cuts is projected to cost $4 trillion over ten years, according to the Congressional Budget Office. This means a one-year extension would cost $400 billion. It would be a huge lift to offset the cost of a $400 billion tax bill – every single year – for the next ten years.

Also, the $4 trillion figure could a lowball estimate. There are tax provisions outside the TCJA that might need tending to, like fuel taxes. A list of all expiring tax provisions is here.

The Committee for a Responsible Federal Budget projects that the ten-year cost to extend all expiring tax measures would cost $5.2 trillion ($6.1 trillion with interest). This means a one-year extension would be well over a half-trillion dollars.

Discussions about creating a U.S. VAT (Value Added Tax) have resurfaced. The prevailing thought is that taxing income will not be enough, and another revenue stream is needed.

As for the TCJA provisions, their fate will remain unclear this year, but the prospect of no extension is unlikely.

Without an extension, 62 percent of tax filers will incur a tax increase, according to the Tax Foundation, a D.C. thinktank. Another word for ‘tax filers’ is ‘voters.” And many of them will not welcome a tax increase and will likely oppose any lawmakers who do nothing to allow a tax increase to occur.

Legislative outlook: This cannot be overstated when it comes to TCJA extensions:

• The outcome of the upcoming 2024 elections will determine the fate of the TCJA beyond 2025.
• Election outcomes for House lawmakers will arguably make the greatest impact on extending TCJA provisions.

It has been stated before in this space, but the House is where tax bills begin. Whichever political party wins the House in the 2024 elections will have the first stab at extending TCJA provisions and deciding if their costs should be offset. 

Pardon if this recap missed a monumental moment, but we can recap it next time!

Adios amigos!