Policy

Partisan Bickering Defines Day One of House Tax Markup

California Democrat Mike Thompson calls a bill provision “cruel” and “heartless”

Ways and Means Chairman Kevin Brady sits in front of tax code volumes during a Monday committee markup of the House Republicans’ tax plan. (Tom Williams/CQ Roll Call)

Updated 9:25 p.m. | Fireworks started early at the House Ways and Means Committee markup Monday of the Republican tax plan, as Democrats repeatedly criticized the GOP’s effort to overhaul the tax code as a boon to the rich that would hurt many middle-class families.

Tensions rose about six hours into Day One of the marathon markup when Chairman Kevin Brady offered an amendment to his previous substitute that would make several changes to the bill. Democrats let loose on the Texas Republican for unveiling the substitute and taking it up immediately, without allowing any extra time to examine the provisions.

“You should stop smiling,” Rep. Sander M. Levin said to the chairman. “You make a mockery out of this committee. A mockery.”

The Michigan Democrat later said of the amendment, “When you go down this list, you can see lobbyists at work. Every single one.”

Watch: Rep. Larson’s Fiery Condemnation of Tax Bill Process

Brady’s proposal was adopted 24-16 along party lines before the committee recessed for the night.

Specifically, the 33-page substitute amendment would:

    • Create new rules related to the earned income tax credit, like requiring employers to provide new information on payroll tax returns and requiring claims for the credit to reflect self-employment net earnings. Brady said the new rules were meant to combat “fraud” with the credit.
    • Continue through 2022 the current law exclusion for employer-sponsored dependent care assistance programs — known as flexible spending accounts — rather than repeal the FSA exclusion starting in 2018.
    • Clarify that a 1.4 percent excise tax in the bill on investment income of certain educational institutions would only apply if the fair market value of the institution’s endowment assets were at least $250,000 per student.
    • Notably, the amendment would not repeal the 2010 health care law’s individual mandate or change provisions in the bill related to the mortgage interest deduction — two issues that have been discussed often since the legislation was introduced last week.
    • Make certain changes to the tax plan’s international “base erosion” rules. Brady said the amendment “narrows the focus to situations where the foreign affiliate has high returns” and “mitigates potential double taxation.”
    • Require a longer holding period, of three years instead of one year in current law, to qualify for preferential long-term capital gains tax treatment on investment fund managers’ share of their portfolio gains.

    There’s a growing chorus of key Republicans — including President Donald Trump — who want the tax bill to include repeal of the individual mandate. That provision would inject new controversy into the tax debate, reigniting the health care fight that has consumed Congress for much of the year.

    Democrats pushed back on the idea that there was significant fraud among taxpayers claiming the earned income tax credit. Rep. Terri A. Sewell of Alabama said most overpayments were due to error rather than fraud. They also charged that the changes to international base erosion rules would create a more complex system that could be further exploited by tax experts.

    The committee was set to reconvene at 10 a.m. Tuesday. Sniping is likely to continue over who would benefit or lose under the 400-page GOP tax bill that, if enacted, would represent the most sweeping changes to the tax code since 1986. The line-by-line process of amending the measure is expected to run through Thursday.

    Significant policy changes could be made throughout the week. Republican tax writers and rank-and-file members, behind the scenes, are discussing possible changes to provisions dealing with s deduction for state and local income taxes, limitations on “pass-through” tax rates on small businesses, the mortgage interest deduction and more.

    Watch: Rep. Reed Stacks Tax Code Books at Markup

    Winners and losers

    One early example of the partisan sniping dealt with tax deductions for people affected by natural disasters. 

    California Rep. Mike Thompson said the bill was “cruel” and “heartless” for repealing such tax benefits for his constituents in Northern California, where devastating wildfires burned through parts of Sonoma, Napa and Yuba counties in early October and elsewhere in the state. He pointed out that victims of recent hurricanes in Texas, Florida and other states would be grandfathered in and be able to deduct some of their uninsured property losses.

    “I’ve got 9,000 people who had their homes burned to the ground,” Thompson said. “You’re pulling the rug right out from underneath them.”

    In his opening statement, Brady promised his constituents in Texas an average $2,500 after-tax raise in their paychecks.

    He also pitched the plan as a win for Californians and New Yorkers — two key states with several House Republicans who could be key to passage of the legislation. Middle-income families in California would see a $2,900 boost to their paycheck and those in New York would see a $2,700 increase, Brady said.

    Democrats also trained their fire on the bill’s effect on the deficit and projections from the Joint Committee on Taxation that certain taxpayers would actually see tax hikes under the plan after five years. Asked about the JCT’s distribution tables, committee Chief of Staff Tom Barthold said 38 million households making between $20,000 and $40,000 per year could see an increase in taxes on average beginning in 2023, when certain tax benefits in the legislation would expire.

    Democrats noted the House GOP bill would blow a projected $1.5 trillion hole in the deficit over 10 years, which was the target set under the fiscal 2018 budget resolution agreed to by Republicans. Rep. Richard E. Neal of Massachusetts, top Democrat on the panel, disputed Republican promises that the revenue lost by cutting tax rates would be covered by booming economic growth that would result from the tax code overhaul.

    “History has proven it does not work,” Neal said.

    House Republicans are aiming to pass the legislation before Thanksgiving, and likely next week. A separate Senate bill could be released as soon as this week. Trump has said he wants to sign a tax code overhaul by Christmas.

    Neal and his Democratic colleagues also criticized the process behind writing the tax plan as top-down and purely partisan. An attempt by Texas Democrat Lloyd Doggett for a one-week delay to the markup was defeated 16-24 along party lines.

     

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