With the majority of American households struggling to keep up with Democrats’ hidden tax hike, Republican Leader for the Ways and Means Select Revenue Subcommittee Rep. Adrian Smith (R-NE) opened a Wednesday hearing pointing to a better alternative to higher spending: Republican tax reform has helped American working families and small businesses.
Rep. Smith said, “Our tax code exists, primarily, to collect sufficient revenue to fund government in a way which is fair to taxpayers, and which is constructive for our economy. And I have some really great news that may be startling to many of you: our federal tax code does a good job of meeting those goals under the Tax Cuts and Jobs Act.”
- Reality: Changes to our tax code brought in more revenue, not less.
- In 2019, federal revenue was $3.46 trillion – the most money the Treasury has ever taken in for a single year.
- Reality: The tax code is fair.
- The Joint Committee on Taxation (JCT) report released on Tuesday highlights that the burden of taxation is largely paid by upper-percentile workers. As Rep. Smith puts it, that is “the definition of progressive.”
- Reality: American companies and workers are positioned to compete and win on the global stage.
- Tax reform brought businesses (and the good paying jobs they create) back to the U.S., and there have been zero corporate inversions since we enacted TCJA.
- Reality: America is a net loser under Democrats’ tax proposals.
- Doubling the capital gains tax has been dubbed the “dumbest tax increase,” because it will both reduce wage growth and government revenue.
Rep. Smith’s full remarks as prepared appear below.
Thank you for the time, and thank you to our witnesses for being here today.
Mr. Chairman, what is the primary purpose of our tax code? Is it to create fairness across our economy? Is it to subsidize behaviors where we see a public good and punish those where we don’t?
Every member on this dais has certainly introduced a bill or amendment at some point to accomplish at least one of those two things. However, that is not what our tax code really exists for.
Our tax code exists, primarily, to collect sufficient revenue to fund government in a way which is fair to taxpayers, and which is constructive for our economy.
And I have some really great news that may be startling to many of you: our federal tax code does a good job of meeting those goals under the Tax Cuts and Jobs Act.
Let’s take a look at that primary goal piece by piece and see how we are doing:
Are we bringing in the money we need to operate the federal government?
In 2019, the last full, normal year before the pandemic, federal revenue was $3.46 trillion. That was the most money the Treasury ever took in for a single year, and the revenues for 2020 and 2021 are projected to be even higher.
Changes to our tax code made by the Tax Cuts and Jobs Act are not the reason we are running persistent deficits.
Question 2: Is our tax code fair?
The Joint Committee on Taxation says it is. According to a new analysis JCT released yesterday, a taxpayer earning $20,000 to $30,000 dollars per year pays 3.1% of their income in federal taxes. Someone earning between $75,000 and $100,000 paid an average rate of 15.8%, and a taxpayer over $1 million pays 31.5% on average. That is the definition of progressive.
Under the TCJA, thanks to the doubled standard deduction and our expansion of the Child Tax Credit, a single mom with two kids doesn’t owe a dime of federal income tax until her income exceeds $50,000 per year.
If we want a tax code where the burden of taxation is largely paid by upper-percentile workers, we have it.
Finally, is our current tax code incentivizing constructive economic activity?
Yes, it is. Growth was near 3%, wage growth was strong, particularly for low- and middle-income workers, and businesses were investing in workers and creating new jobs prior to the pandemic. This strength continues in states like Nebraska where our governor carefully balanced COVID precaution with needs like economic opportunity and education.
Moreover, TCJA was groundbreaking in requiring businesses to bring back profits from abroad and pay tax on them. TCJA reforms put an end to the exodus of U.S. companies overseas, and also created anti-abuse rules to prevent zero-tax income in tax havens. TCJA also positioned American companies and workers to compete and win in the global economy.
There have been zero corporate inversions since we enacted TCJA. Zero.
So why are we here?
It seems that the tax proposals in front of us have two goals. One is to raise taxes to partially offset the cost of the President’s so-called “infrastructure” package. I will leave the question of new spending proposals and whether to offset them to the committees and subcommittees with jurisdiction.
The other apparent reason for this hearing is the majority’s belief certain individuals and businesses aren’t paying their “fair share.” Their answer to this seems to be tax policies that reward their chosen few, while targeting other Americans for tax increases, regardless of their impact on job creation, our economy, or local farmers, ranchers, and small businesses.
The President’s capital gains tax proposals, and the various changes associated with it like the repeal of stepped-up basis exemplify just how broken these proposals are.
On its own, the President’s proposal to double the capital gains tax is a substantial net revenue loser.
Why? Because economists tell us there is a revenue-maximizing capital gains rate, and if you exceed that rate people won’t sell assets and the government collects zero revenue. This lock-in doesn’t benefit government, and it’s even worse for our economy.
The President’s answer to this, rather than reconsidering a confiscatory rate, is to force people to pay capital gains taxes at times that are also counterproductive for our economy.
For example, a recent EY study found that repealing stepped-up basis and taxing capital gains at death would destroy 800,000 jobs over the next decade, and 100,000 jobs per year after that.
Other tax increases in the President’s proposal, like repealing Section 1031 like-kind exchanges for real estate, will also cause economic harm for the sole purpose of papering over the President’s capital gains rate blunder.
My concern in opposing these proposals isn’t the wealthiest Americans. They’re fine and they have armies of advisors to help them navigate a complicated, high-tax environment.
My concern is the family-owned small businesses, farms, and ranches, and even middle class families whose businesses and homes have seen strong appreciation over a generation, who don’t have access to these mechanisms, and could very well be hurt by these proposals.
We all have families like this in our districts – the rancher in Nebraska, the family vintner California, the single mom on Long Island who scraped together a down payment for a house and wants to pass something on to her kids, the small parts fabricator in Kansas.
Our friends on the other side will say they want to offer some type of exemption to family businesses. I don’t trust that exemptions will help these folks – because at the end of the day, either the exemptions won’t work or the capital gains tax increase won’t raise any revenue. American families shouldn’t be at the mercy of the academics who are trying to thread that needle right now. We should empower American families and businesses to succeed on their own, and not force them to rely on Washington.
Mr. Chairman, we have a tax plan that has a proven track record of equitably collecting record revenue in a progressive tax system, stopping inversions, and driving record job and economic growth. It’s called the Tax Cuts and Jobs Act.
Thank you for calling this hearing today. It’s a great opportunity to highlight how out of touch the President’s proposals are with the economic realities in our districts, and to highlight how they would be just as damaging to our economy as programs like the most recent UI extension in the so-called American Rescue Plan already are.
I yield back.