TCJA: Newer Crop of Tax Writers Prepares to Take on 2017 Tax Law

By Caitlin Reilly, CQ-Roll Call (TNS)

Member turnover on the tax-writing committees and in Congress broadly has given rise to a feeling on and off Capitol Hill that nothing is off the table in next year’s tax deadline negotiations, including provisions made permanent by the 2017 Tax Cuts and Jobs Act (TCJA).

The effects of this turnover are likely to be felt more deeply in a Republican sweep or divided government next year, as churn has been more dramatic on the GOP side of the dais. The lineup changes pose two primary challenges for those who would like to see the 2017 law extended: the need to educate new members on the policies and trade-offs included in the law, and adapt to shifting political winds less friendly to wealthy individuals and big corporations.

“The political dynamic today is different than it was in 2017,” said Senate Finance Committee ranking member Michael D. Crapo, R-Idaho. “There are different approaches and philosophies about tax policy that may be stronger or weaker today than they were then. And I think that that just makes it more incumbent that we understand exactly what we did and why and how it worked.”

Lower tax rates on individuals, relief from the alternative minimum tax, treatment of money U.S. companies make abroad, small-business deductions and other provisions established by 2017 law are set to expire or become less generous at the end of next year.

Eighty percent of the Republicans on the House Ways and Means Committee and a little over half on Finance joined the committee after enactment of the 2017 law. There are only five Ways and Means and six Senate Finance Republicans remaining on those panels from that time.

Republicans on both committees have started member education efforts with topic-specific working groups.

There has been less turnover among Democrats on the House and Senate panels since 2017 and substantially less since 2021 when they worked on legislation that eventually became the 2022 health care and clean energy budget law, a closer corollary for Democrats when it comes to next year than the Republican-passed tax law.

Peter Roskam, a partner at BakerHostetler and former Ways and Means member who helped write the 2017 law, said given those dynamics stakeholders should start engaging lawmakers now, rather than waiting until after the November elections.

“Everything’s on the table. And I think it’s a real strategic mistake to make an assumption that says, ‘Hey, we’re good. We’re fine. Nobody’s going to touch this,’” the Illinois Republican said. “I just don’t think that’s true in this environment, and that some of the choices that members are going to be forced to make will end up being very uncomfortable.”

Shifting politics

The turnover has brought with it a shift in politics, including a growing populist vein within each party. The change has K Street preparing to play defense on behalf of business-friendly tax breaks, particularly the 21 percent corporate tax rate that the law made permanent, unlike other breaks aimed at households.

President Joe Biden has said he’d like to increase the rate to 28 percent. Ways and Means Chairman Jason Smith, R-Mo., said members of his party have asked why the rate, which sat at 35 percent before the 2017 law took effect, is so low. In the wake of those comments, some Republicans have floated lowering the rate further, including former President Donald Trump.

“That’s an earthquake,” Roskam said, referring to Smith’s remarks. “That is shifting grounds underneath long-held assumptions, which means that clients really need to be articulating what they’re doing through the lens of quote, ‘the forgotten man.’ How does this have an impact on folks that are far away from Washington and whose economic interests are not articulated necessarily on the editorial pages of the Wall Street Journal?”

Some Republicans are also growing more hostile toward corporations, which they see as pushing socially progressive political messages, Roskam added.

“I think some members are looking at this saying, ‘This is an opportunity for me to extract a price from corporations who are promoting a value system that I don’t agree with, sort of ‘woke Wall Street,’” he said.

Aharon Friedman, director and senior tax counsel at the Federal Policy Group, dismissed the idea of a major shift among Republicans on the corporate rate, but said the politics around trade policy have changed significantly since 2017.

“Most Republicans believe that cutting the corporate rate was something that spurred enormous economic growth,” said Friedman, who was senior tax counsel for Ways and Means Republicans in the lead-up to the 2017 law. “There are definitely different ways of looking at trade policy now in the mainstream Republican Party than there was 10 years ago.”

Trump has proposed a 10 percent tariff on all imported goods if he wins in November, which could be viewed as an offset for tax cuts though some analysts say such broad tariffs would sap economic growth enough to wipe out the revenue gain.

Some tax provisions due to become less generous at the end of next year deal with money U.S. companies earn abroad, including from intangible assets like patents and trademarks.

Aruna Kalyanam, a principal at EY’s sustainability tax practice, said the estate tax could also be a target amid shifting politics. The 2017 law nearly doubled the amount of inheritance exempt from taxation.

“It’s a provision that’s incredibly important for people with constituents that have a whole lot of land wealth, and things like that they may not consider liquid,” Kalyanam said. “It’s far less important for districts where huge swathes of their constituents live under the poverty line.”

Understanding trade-offs

Kalyanam, who spent two decades working for Ways and Means Committee Democrats, said part of member education will have to include understanding the trade-offs baked into the 2017 law.

“Here’s a way to think about it: if you touch this, this is another thing you have to touch,” she said, citing the 2017 law’s changes to personal exemptions, the standard deduction and the child tax credit as an example.

The 2017 law suspended the use of personal exemptions, which could be used to lower a taxpayer’s liability based on how large the household is, including a spouse or dependent children. The nearly doubled standard deduction and child tax credit boost were intended to offset the pause on personal exemptions, Kalyanam said. The three provisions are due to expire next year.

“You can’t really think about those policies in an isolated way, if you’re talking about maintaining distribution, social equity and things like that,” she said.

George Callas, executive vice president of public finance at Arnold Ventures, said member turnover risks overlooking those trade-offs, especially if lawmakers examine each provision individually. Callas spent 15 years working on the Hill, including as senior tax counsel in the House for the Ways and Means Committee and former Speaker Paul D. Ryan, R-Wis.

“The turnover really risks Congress not understanding how the pieces fit together, and just viewing them as a bunch of one-offs that were cobbled together in a bill,” he said at a Tax Foundation event last month.

“These members and their staffs look at all these provisions, I think, kind of in isolation,” Callas said. “‘Oh, they made the child credit bigger. Do we think that’s good or bad? Oh, they repealed personal exemptions. Do we think that’s good or bad?’ And they don’t know that there is a trade-off there.”

Another trade-off involved imposing a $10,000 cap on state and local tax deductions and rolling back the alternative minimum tax, which now impacts just 0.1 percent of households, concentrated among those earning over $500,000, the Tax Policy Center estimates. Both changes will expire at the end of next year.

The so-called SALT cap is deeply unpopular among members from high-tax states, but the alternative minimum tax, which removed some exemptions for wealthier taxpayers including SALT deductions, was also complex and unpopular, Callas said.

“So do we want to get rid of the SALT cap, but keep the AMT almost-repeal?” Callas said, referring to the alternative minimum tax. “Because that would provide a SALT deduction even more generous than anybody’s ever had.”

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