Senate Finance Committee Tax Hearing Portends Heated Partisan Debate
September 17, 2024
The Senate Finance Committee, which is responsible for tax legislation, held a hearing on Sept. 12 titled “The 2025 Tax Policy Debate and Tax Avoidance Strategies,” featuring witnesses from various tax think tanks and advocacy groups.
Why it matters: Both parties are gearing up for a flurry of tax activity in 2025 with the expiration of many individual income tax provisions enacted in 2017. During the hearing, senators and witnesses discussed:
- The Tax Cuts and Jobs Act (TCJA);
- 199A Passthrough Deduction;
- Child Tax Credit (CTC);
- State and Local Taxes (SALT); and
- Policy issues, including housing, tax evasion, and stepped-up basis.
What they’re saying: The exchanges preview likely positions ahead of policy action in 2025 (see the story below for more on the presidential tax proposals). Overall, Senators used the questioning to draw out key critiques or arguments on various provisions in play, including Vice President Kamala Harris’ and Democrats’ focus on taxing unrealized gains of the ultra-wealthy.
Real estate came up in some Democratic-led questioning on tax evasion.
- In his opening statement, Chairman Ron Wyden (D-OR) highlighted “real estate and oil barons” as the “biggest winners” from the 2017 tax law.
- Witness Bob Lord from Patriotic Millionaires discussed the critique of wealthier earners avoiding taxation. He explained this could be accomplished through “buy-and-hold” assets that grow in value such as real estate and stock portfolios, but the growth, which can be leveraged to borrower money, is not subject to federal income tax.
- Lord highlighted real estate as a potential income tax avoidance strategy for the wealthy, “the amount of income tax that's avoided through strategies like buy, borrow, die, is, is very, very significant.”
TCJA Extension: The TCJA extension is being championed by Republicans and former President Trump.
- Wyden challenged the assertion that tax cuts will pay for themselves. Witness Indivar Dutta-Gupta, a fellow at Georgetown University, agreed with Wyden.
- On the GOP side, Sen. John Thune (R-SD) and Sen. James Lankford (R-OK) questioned Daniel Bunn, Tax Foundation CEO, on the impacts of allowing TCJA to expire. Bunn responded that 62% of households would experience a tax increase of up to $2,800.
- Bunn also noted, in response to Thune, that TCJA made the tax code more progressive as tax liabilities have been distributed to higher earners.
199A Passthrough Deduction: Ranking Member Mike Crapo (R-ID) questioned Bunn and Jeff Brabant, Vice President of Government Relations at the National Federation of Independent Businesses (NFIB), on the impact of the passthrough deduction for small businesses.
- The 199A deduction is one of the few business tax provisions expiring after 2025. Certain passthrough entities are allowed to deduct 20% of their qualified income. Renewing the provision may be one of the highest cost items in terms of government revenues.
- The witness testified that 26 million small businesses claimed the 199A deduction in 2021, including sole proprietorships, partnerships, S-corporations, etc.
Housing: Senator Maggie Hassan (D-NH) asked how Congress should promote workforce housing in upcoming tax packages.
- Dutta-Gupta responded Congress could ensure the next tax package streamlines and improves the Low Income Housing Tax Credit (LIHTC). He argued that the credit is essential to stabilizing rents and assisting lower-income earners with rents.
- He added Congress should enact both a supply-side and demand-side response to the housing crisis, as the U.S. is several million units short of housing.
State and Local Tax Deduction (SALT): Sen. George Helmy (D-NJ), the newly-minted replacement for Sen. Bob Menendez, asked about reforming the SALT deduction, currently capped at $10,000, to benefit more working and middle-class families. Dutta Gupta said it is possible, but warned that without a cap or other limitations, the benefits would primarily accrue to the wealthy.
The bottom line: The partisan mix of the Presidency, the Senate, and the House will have a profound impact on tax priorities in 2025.
Contact David McCarthy (dmccarthy@crefc.org) with questions. Contact
David McCarthy
Managing Director, Chief Lobbyist,
Head of Legislative Affairs
202.448.0855
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