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Republicans on the House Ways and Means Committee, the House’s top tax-writing committee, pointed out during a hearing Tuesday that if Congress lets President-elect Trump’s tax cuts from his first term expire , millions of small businesses in the United States will see a maximum. higher tax rate than small businesses pay in Communist China.
Tuesday’s hearing kicked off the debate the new Congress on how to handle Trump’s expiring tax credits, key provisions of which are expected to expire later this year. Among those key provisions is a new 20% tax deduction introduced by Trump in 2017, known as Section 199-A, which provides tax breaks for qualified trade or business expenses incurred by taxpayers who are not corporations.
But if Trump’s Section 199-A deduction expires at the end of the year, small business owners could see their top tax rate double to 43.4%, which is roughly 20 points higher than the facing companies in Communist China, according to the president of Ways & Means. Jason Smith, R-Mo., filed in a report earlier this month and reiterated during Tuesday’s hearing.
“If Congress doesn’t act … 26 million small businesses will be hit with a top tax rate of 43.4 percent, more than 20 percentage points higher than businesses pay. Communist China” Smith said Tuesday.
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House Ways and Means Committee Chairman Rep. Jason Smith, R-Mo., speaks during Tuesday’s hearing on making Trump’s tax cuts permanent. (Ways and means of the house)
Smith’s concerns were also echoed by others republicans to the committee during Tuesday’s hearing.
“I guess my colleagues want to go back to when we had higher tax rates than Communist China,” said Rep. Jodey Arrington of Texas. “What’s so pro-American about this? How are we going to unleash economic growth, job creation and prosperity with this kind of tax rate? We’ve cut it to 21% and we’re not even in the first quarter of the most competitive tax rates So I guess my colleagues want to go back to the highest corporate tax rate in the free world. It doesn’t make sense.”
“The 21 percent rate in the United States of America, when you add up the average state rate in the United States, it’s 25 percent,” added Rep. Kevin Hern, R-Okla. “Our biggest adversary in the world economically (no one is even close) is China at 25%.”
Congressman Jodey Arrington speaks to the full Ways and Means Committee on Tuesday about what to do with Trump’s 2017 Tax Cuts and Jobs Act. (Ways and Means Committee)
Allison Couch, the founder of Ignite Accounting and one of the witnesses at Tuesday’s hearing, referred to 199-A as “the most beneficial deduction for small business owners.”
“Allowing this deduction to expire when it’s been in place for so many years is not going to look like a sunset, it’s going to look like a tax increase,” said Couch, who also filed a report in the congressional record during Tuesday’s hearing from the global accounting firm Ernst &. Young, who indicated 25.9 million small businesses in the United States they use the 199-A deduction.
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Other provisions that Republicans and pro-TCJA witnesses at the hearing called for made permanent included Trump’s strengthened child tax credit, which doubled the eligible deduction for parents, their death tax reforms, that doubled the amount heirs could pass on before being taxed, and lowered marginal tax rates for individuals, a move a witness said Tuesday has helped workers earn more pay.
Close-up of woman filling out the personal income tax declaration form. (iStock)
However, Democrats at the hearing argued that an extension of Trump’s tax cuts would benefit the ultra-rich more than anyone else. They also argued that Republicans are ignoring the impact of the deficit and are not offering adequate solutions on how to pay for the extended cuts, noting that increasing the deficit could lead to higher interest rates, a greater cost burden for middle class people and lower economic growth.
“There’s no free lunch here,” said Brendan Duke, senior director of economic policy at the left-wing Center for American Progress. “Tax cuts are likely to eventually be paid for in the form of spending cuts or tax increases down the line. Meanwhile, continued or even higher deficits could mean continued or even higher interest rates higher. This makes housing, student loans and credit card debt less affordable for workers.”
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“Republicans’ reliance on tariffs to offset their tax breaks for the super-rich will continue to shift the tax burden to some of the same types of businesses that (Republicans want to protect),” warned Rep. Lloyd Doggett, D-Texas. “The biggest loser in his overall plan will be our debt, but the impact this has on the solvency of Social Security, Medicare and other investments is also very critical. So as we move forward, we have to consider all of these impacts and seek a tax code that is fairer to working Americans and less of a giveaway to those at the top.”
Rep. Lloyd Doggett, D-Texas, pauses to speak with a reporter inside the underground tunnels beneath the U.S. Capitol ((Photo by Bill Clark/CQ-Roll Call, Inc via Getty Images))
In response to the battle in Congress over the coming tax cuts, a fiscally conservative political advocacy group, Americans for Prosperity, launched a $20 million campaign to urge lawmakers on Capitol Hill to “protect prosperity” by renewing Trump’s tax cuts.
The campaign will include ads in all 50 states as the group says Congress “faces a countdown to a crisis that threatens the family budgets of virtually every American.” Notably, Americans for Prosperity endorsed Trump’s presidential nominee, Nikki Haley, before Trump became the GOP nominee.
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